<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-32857
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NATIONS ASSET SECURITIES, INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
DELAWARE APPLIED FOR
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
</TABLE>
NATIONSBANK CORPORATE CENTER
CHARLOTTE, N.C. 28255
(704) 386-2400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ROBERT J. PERRET
SENIOR VICE PRESIDENT
NATIONS ASSET SECURITIES, INC.
NATIONSBANK CORPORATE CENTER
CHARLOTTE, N.C. 28255
(704) 388-5934
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
COPIES TO:
<TABLE>
<C> <C> <C>
JORDAN M. SCHWARTZ, ESQ. ROBERT W. LONG, JR. ESQ. MICHAEL NEDZBALA, ESQ.
CADWALADER, WICKERSHAM & TAFT NATIONSBANC MORTGAGE HUNTON & WILLIAMS
100 MAIDEN LANE CAPITAL CORPORATION 101 SOUTH TRYON STREET
NEW YORK, NEW YORK 10038 100 NORTH TRYON STREET CHARLOTTE, N.C. 28280
NC1-007-11-07
CHARLOTTE, N.C. 28255
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
---------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Certificates (the
"Certificates") and Asset Backed Notes (the
"Notes" and, together with the
Certificates, the "Securities"), issued in
Series(2).................................. $1,000,000 100% $1,000,000 $303.03(3)
=============================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
(2) This Registration Statement also registers an indeterminate amount of
Securities to be sold by NationsBanc Montgomery Securities, Inc. in market
making transactions, to the extent required.
(3) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION OCTOBER 10, 1997
PROSPECTUS SUPPLEMENT
- ----------------------------------
(TO PROSPECTUS DATED , 199 )
$
NATIONSBANC ASSET SECURITIES, INC.
DEPOSITOR
ASSET BACKED CERTIFICATES, SERIES 199 -
ASSET SELLER AND SERVICER
The Series 199 - Asset Backed Certificates (the "Certificates") will
include the following four senior classes: Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and Class A-4 Certificates (each, a "Class"
and collectively, the "Class A Certificates"). In addition to the Class A
Certificates, the Series 199 - Asset Backed Certificates will include
the Class R Certificates (the "Residual Certificates"). Only the Class A
Certificates are offered hereby.
The Company has caused (the "Certificate Insurer") to issue a
certificate guaranty insurance policy (the "Certificate Insurance Policy") for
the benefit of the Class A Certificateholders pursuant to which it will
guarantee certain payments to the Class A Certificateholders as described
herein.
There is currently no secondary market for the Class A Certificates.
[NationsBanc Montgomery Securities, Inc.] [Other Underwriter] (the
"Underwriter") intends to make a secondary market in the Class A Certificates,
but is not obligated to do so. There can be no assurance that a secondary market
for the Class A Certificates will develop or, if it does develop, that it will
continue. The Class A Certificates will not be listed on any securities
exchange. Accordingly, the liquidity of the Class A Certificates may be limited.
(Cover continued on next page)
---------------------
Capitalized terms used in this Prospectus Supplement and not otherwise
defined herein have the meanings assigned in the Prospectus. See the "Index of
Principal Definitions" beginning on page S- herein and the "Index of Principal
Definitions" in the Prospectus.
PROCEEDS OF THE ASSETS IN THE TRUST FUND AND PROCEEDS FROM THE CERTIFICATE
INSURANCE POLICY ARE THE SOLE SOURCE OF PAYMENTS ON THE CLASS A CERTIFICATES.
THE CLASS A CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE CERTIFICATE INSURER, THE SERVICER, THE TRUSTEE OR ANY OF THEIR
AFFILIATES. NEITHER THE CLASS A CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS
ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
THE DEPOSITOR, THE SERVICER OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
CLASS DESIGNATION OF THE ASSET BACKED CERTIFICATES SECURITY BALANCE(1) PASS-THROUGH RATE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A-1......................................... $ %
Class A-2......................................... $ %
Class A-3......................................... $ %
Class A-4......................................... $ %
==================================================================================================================
</TABLE>
(1) Approximate. The initial Security Balances are subject to adjustment as
described herein.
PROSPECTIVE INVESTORS IN THE CLASS A CERTIFICATES SHOULD CONSIDER THE
MATERIAL RISKS DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT
BEGINNING ON PAGE S- AND IN THE PROSPECTUS BEGINNING ON PAGE .
The Class A Certificates will be purchased from the Depositor by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The proceeds to the Depositor from the sale of
the Class A Certificates, before deducting expenses payable by the Depositor,
will be equal to approximately % of the aggregate initial principal balance
of the Class A Certificates, plus accrued interest on the Class A Certificates
from , 199 to (but not including) , 199 .
The Class A Certificates are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify such offer and to reject any order in whole or in part. It is
expected that delivery of the Class A Certificates will be made only in book-
entry form through the facilities of The Depository Trust Company, on or about
, 199 against payment therefor in immediately available funds.
---------------------
[NATIONSBANC MONTGOMERY SECURITIES, INC.] [OTHER UNDERWRITER]
, 199
<PAGE> 3
(Cover continued from previous page)
The Certificates will each evidence a beneficial ownership interest in a
trust fund (the "Trust Fund") consisting primarily of (i) certain conventional,
fixed-rate, one- to four-family, first lien and second lien mortgage loans, with
terms to maturity of approximately 30 years (the "Initial Mortgage Loans"), to
be deposited by NationsBanc Asset Securities, Inc. (the "Depositor") into the
Trust Fund for the benefit of the Certificateholders, (ii) amounts on deposit in
the Pre-Funding Account and the Capitalized Interest Account and (iii) the
Certificate Insurance Policy described herein. Certain characteristics of the
Mortgage Loans are described herein under "Description of the Mortgage Loans."
It is a condition of the issuance of the Class A Certificates that they be
rated " " by and " " by .
The Class A Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), as further described herein, which will be the "holders" or
"Certificateholders" of such Certificates, as such terms are used herein. The
interests of beneficial owners of the Class A Certificates will be represented
by book entries on the records of DTC and the participating members of DTC.
Definitive certificates will be available for the Class A Certificates only
under limited circumstances. See "Description of the Certificates -- General"
herein and "Description of the Securities -- Book-Entry Registration and
Definitive Securities" in the Prospectus.
As described herein, a "real estate mortgage investment conduit" ("REMIC")
election will be made in connection with the Trust Fund for federal income tax
purposes. Each Class of Class A Certificates will represent ownership of
"regular interests" in the REMIC and the Class R Certificates will constitute
the sole class of "residual interests" in the REMIC. See "Federal Income Tax
Consequences" herein and in the Prospectus.
Distributions on the Class A Certificates will be made on the [25th] day of
each month or, if such day is not a business day, then on the next business day,
commencing in , 199 (each, a "Distribution Date"). As described
herein, interest payable with respect to each Distribution Date on each Class of
Class A Certificates will accrue on the basis of a 360-day year consisting of
twelve 30-day months and will be based on the Security Balance thereof and the
then-applicable Pass-Through Rate thereof. Distributions in respect of principal
of the Class A Certificates will be made as described herein under "Description
of the Certificates -- Class A Principal Distribution Amount."
THE YIELD TO MATURITY ON THE CLASS A CERTIFICATES WILL BE SENSITIVE IN
VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS. INVESTORS IN THE CLASS A CERTIFICATES SHOULD
CONSIDER THE ASSOCIATED RISKS, INCLUDING, IN THE CASE OF CLASS A CERTIFICATES
PURCHASED AT A DISCOUNT, THE RISK THAT A SLOWER THAN ANTICIPATED RATE OF
PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS
COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. A FASTER THAN
ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON
THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN
ANTICIPATED FOR INVESTORS PURCHASING CLASS A CERTIFICATES AT A PREMIUM.
INVESTORS PURCHASING CLASS A CERTIFICATES AT A PREMIUM SHOULD ALSO CONSIDER THE
RISK THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS
TO FULLY RECOVER THEIR INITIAL INVESTMENTS.
The Mortgage Loans generally may be prepaid in full or in part at any time;
however, a prepayment may subject the related Mortgagor to a prepayment charge
with respect to the majority of the Mortgage Loans. See "Summary -- Special
Prepayment Considerations" and "-- Special Yield Considerations" herein,
"Certain Yield and Prepayment Considerations" herein and "Yield Considerations"
in the Prospectus.
On or about , 19 (the "Closing Date"), approximately $ (the
"Pre-Funded Amount") will be deposited in the name of (the
"Trustee") in an account (the "Pre-Funding Account"). The Pooling and Servicing
Agreement provides that additional mortgage loans (the "Subsequent Mortgage
Loans," and together with the Initial Mortgage Loans, the "Mortgage Loans") may
be deposited in the Trust Fund by the Depositor from time to time between the
Closing Date and , 199 (the
(ii)
<PAGE> 4
(Cover continued from previous page)
"Pre-Funding Period") upon being acquired with funds on deposit in the
Pre-Funding Account in the manner and to the extent described herein.
On the Closing Date an amount will be deposited in the name of the Trustee
in the Capitalized Interest Account. The Capitalized Interest Account will be
applied by the Trustee to cover shortfalls in interest accrued on the Class A
Certificates during the Pre-Funding Period attributable to the pre-funding
feature.
---------------------
THE CLASS A CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING
OFFERED PURSUANT TO THE PROSPECTUS DATED , 199 , OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE CLASS A
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A CERTIFICATES,
INCLUDING OVER-ALLOTMENT AND SHORT-COVERING TRANSACTIONS IN SUCH CERTIFICATES,
AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "METHOD OF DISTRIBUTION."
[This Prospectus Supplement and Prospectus may be used by NationsBanc
Montgomery Securities, Inc., to the extent required, in connection with market
making transactions in the Class A Certificates. NationsBanc Montgomery
Securities, Inc. may act as principal or agent in such transactions.]
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
(iii)
<PAGE> 5
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... S-1
RISK FACTORS................................................ S-9
Risks Associated with the Underwriting Standards.......... S-9
Risk of Delinquencies and Potential Delinquencies......... S-9
Risk of Loss on Second Liens.............................. S-9
Risks Associated with Subsequent Mortgage Loans........... S-10
Consumer Protection Laws.................................. S-10
Risks Associated with Book-Entry Certificates............. S-11
</TABLE>
DESCRIPTION OF THE MORTGAGE LOANS........................... S-12
General................................................... S-12
Mortgage Rates............................................ S-12
Mortgage Loan Characteristics............................. S-13
Subsequent Mortgage Loans................................. S-18
The Asset Seller.......................................... S-18
Underwriting.............................................. S-18
Additional Information.................................... S-19
DESCRIPTION OF THE CERTIFICATES............................. S-19
General................................................... S-19
Pre-Funding Account....................................... S-20
Capitalized Interest Account.............................. S-20
Overcollateralization Provisions and Support Features..... S-21
Priority of Payment....................................... S-23
Class A Interest Distribution Amount...................... S-23
Class A Principal Distribution Amount..................... S-24
Advances.................................................. S-25
Certificate Insurance Policy.............................. S-25
CERTIFICATE INSURER......................................... S-27
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS................. S-28
THE SERVICER................................................ S-34
General................................................... S-34
Delinquency and Loss Experience of the Servicer........... S-35
POOLING AND SERVICING AGREEMENT............................. S-36
General................................................... S-36
Servicing and Other Compensation and Payment of
Expenses............................................... S-37
The Trustee............................................... S-37
Termination............................................... S-37
FEDERAL INCOME TAX CONSEQUENCES............................. S-38
LEGAL INVESTMENT............................................ S-39
ERISA CONSIDERATIONS........................................ S-39
METHOD OF DISTRIBUTION...................................... S-40
SECONDARY MARKET............................................ S-41
LEGAL OPINIONS.............................................. S-41
RATINGS..................................................... S-41
EXPERTS..................................................... S-42
INDEX OF PRINCIPAL DEFINITIONS.............................. S-43
(iv)
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus. Reference is made to the "Index of Principal
Definitions" beginning on page herein and the "Index of Principal Definitions"
in the Prospectus.
Title of Certificates...... Asset Backed Certificates, Series 199 -- (the
"Certificates").
Depositor.................. NationsBanc Asset Securities, Inc. (the
"Depositor"). See "The Depositor" in the
Prospectus.
Servicer................... (the "Servicer"). [The Servicer is an
affiliate of the Depositor.] Among other things,
the Servicer is obligated under certain
circumstances to advance delinquent payments of
principal and interest with respect to the
Mortgage Loans. The Servicer will be entitled to
(i) a monthly servicing fee (the "Servicing Fee")
with respect to each Mortgage Loan it services
payable on each Distribution Date that is
expressed as one-twelfth of [a fixed percentage
per annum] multiplied by the scheduled principal
balance of such Mortgage Loan on the first day of
the related Due Period and (ii) other additional
servicing compensation described herein. See "The
Servicer" herein.
Asset Seller............... (the "Asset Seller"). [The Asset Seller
is an affiliate of the Depositor.] See
"Description of the Mortgage Loans -- The Asset
Seller" herein.
Trustee.................... , a [national banking association] (the
"Trustee").
Cut-off Date............... , 199 .
Closing Date............... On or about .
Forms of Class A
Certificates;
Denominations............ Each Class of Class A Certificates will be issued
in book-entry form. Each Class of Class A
Certificates will be issued in a minimum
denomination of $ and integral multiples
of $ in excess thereof.
The Class A Certificates will be issued in
book-entry form through the facilities of The
Depository Trust Company ("DTC") and are referred
to collectively herein as the "Book-Entry
Certificates." Each Class of Book-Entry
Certificates will be represented by one or more
certificates registered in the name of Cede &
Co., as nominee of DTC. No person acquiring an
interest in the Book-Entry Certificates (a
"Beneficial Owner") will be entitled to receive a
Class A Certificate in fully registered,
certificated form (a "Definitive Certificate"),
except under the limited circumstances described
under "Description of the
Certificates -- Book-Entry Registration and
Definitive Securities" in the Prospectus. The
interests of Beneficial Owners of the Book-Entry
Certificates will be represented by book entries
on the records of DTC and its participating
organizations. All references herein to holders
and Certificateholders reflect the rights of
Beneficial Owners only as such rights may be
exercised through DTC and its participating
organizations, for so long as such Certificates
remain Book-Entry Certificates. See "Risk
Factors -- Risks Associated with Book-Entry
Certificates" and "Description of the
Certificates -- General" herein and "Descrip-
S-1
<PAGE> 7
tion of the Securities -- Book Entry Registration
and Definitive Securities" in the Prospectus.
The Trust Property......... The Certificates represent interests in a trust
fund (the "Trust Fund, initially consisting
primarily of (i) a pool of conventional,
fixed-rate mortgage loans originated by or
purchased by the Asset Seller as described herein
(each, an "Initial Mortgage Loan") and evidenced
by promissory notes or other evidence of
indebtedness (each, a "Mortgage Note") secured by
mortgages, deeds of trust or other instruments
(each, a "Mortgage") creating a first or second
lien on one- to four-family dwellings (each a
"Mortgaged Property), with an aggregate principal
balance of approximately $ as of the
Cut-off Date, after giving effect to payments
received prior to the Cutoff Date, (ii) all
monies received with respect to the Mortgage
Loans on and after the Cut-off Date (other than
amounts received on and after the Cut-off Date in
respect of interest accrued on the Mortgage Loans
prior to the Cut-off Date), (iii) an irrevocable
certificate guaranty insurance policy (the
"Certificate Insurance Policy") to be issued on
or before the Closing Date by (the
"Certificate Insurer") in favor of the Trustee
for the benefit of the Class A Certificateholders
and (iv) amounts on deposit in the Pre-Funding
Account and the Capitalized Interest Account and
certain other property. The Initial Mortgage
Loans will be deposited into the Trust Fund on
the Closing Date. The actual Mortgage Loans may
vary from the description below due to a number
of factors, including prepayments, substitutions
or the purchase of Subsequent Mortgage Loans. In
the event that any of the characteristics as of
the Cut-off Date of the Initial Mortgage Loans
that constitute the Trust Fund on the date of
initial issuance of the Certificates vary
materially from those described herein, revised
information regarding the Initial Mortgage Loans
will be made available to purchasers of the Class
A Certificates, on or before such issuance date,
and a Current Report on Form 8-K containing such
information will be filed with the Securities and
Exchange Commission within 15 days following such
date. In addition, a Current Report on Form 8-K
will be filed following each purchase of
Subsequent Mortgage Loans. On the Closing Date,
the Pre-Funded Amount will be deposited in the
name of the Trustee into the Pre-Funding Account.
It is intended that additional mortgage loans
originated by or purchased by the Asset Seller
(the "Subsequent Mortgage Loans," and together
with the Initial Mortgage Loans, the "Mortgage
Loans") will be transferred into the Trust Fund
by the Depositor from time to time during the
Pre-Funding Period upon being acquired with funds
on deposit in the Pre-Funding Account. On the
Closing Date, the sum of the aggregate principal
balance of the Initial Mortgage Loans as of the
Cut-off Date and the Pre-Funding Amount will
equal the original aggregate Security Balance of
the Class A Certificates.
The Mortgage Loans......... The Initial Mortgage Loans had approximate
individual principal balances at origination of
at least $ but not more than $
with an average principal balance at origination
of approximately $ . All of the Initial
Mortgage Loans have terms to maturity from the
date of origination or modification of 30 years.
The Initial Mortgage Loans have a weighted
average remaining term to stated maturity of
approximately months as of the Cut-off Date.
S-2
<PAGE> 8
Approximately % of the Initial Mortgage Loans
(by aggregate principal balance as of the Cut-off
Date) are refinanced mortgage loans. None of the
Mortgage Loans were thirty or more days
delinquent in their Monthly Payments (such
Mortgage Loans, "Delinquent Mortgage Loans") as
of the Cut-off Date. Prospective investors in the
Class A Certificates should be aware, however,
that only approximately % of the Initial
Mortgage Loans (by aggregate principal balance as
of the Cut-off Date) had a first payment due on
or before , and therefore, the
remaining Initial Mortgage Loans could not have
been Delinquent Mortgage Loans as of the Cut-off
Date. Approximately % of the Initial
Mortgage Loans (by aggregate principal balance as
of the Cut-off Date) will be secured by second
liens on the related Mortgaged Property.
The mortgage interest rate specified in the related
Mortgage Note (the "Mortgage Rate") on each
Initial Mortgage Loan is fixed. As of the Cut-off
Date, the Initial Mortgage Loans will bear
interest at Mortgage Rates of at least % per
annum but no more than % per annum, with a
weighted average Mortgage Rate of approximately
% per annum as of the Cut-off Date.
The Initial Mortgage Loans were underwritten, and
the Subsequent Mortgage Loans will be
underwritten, in accordance with the underwriting
standards described in "Description of the
Mortgage Loans -- Underwriting Standards" in this
Prospectus Supplement. See also "Risk
Factors -- Underwriting Standards" in this
Prospectus Supplement. For a further description
of the Mortgage Loans, see "Description of the
Mortgage Loans" herein.
Pre-Funding Account........ On the Closing Date, approximately $ (the
"Pre-Funded Amount") will be deposited into an
account maintained with the Trustee (the
"Pre-Funding Account"). During the period (the
"Pre-Funding Period") from and including the
Closing Date until the earliest of (i) the date
on which the amount on deposit in the Pre-Funding
Account is less than $ or (ii) the close of
business on , 199 , the Pre-Funded
Amount will be maintained in the Pre-Funding
Account. The Pre-Funded Amount will be reduced by
the amount thereof used to purchase Subsequent
Mortgage Loans in accordance with the Pooling and
Servicing Agreement. The Depositor expects that
the Pre-Funded Amount will be reduced to less
than $ by , 199 . Any Pre-
Funded Amount remaining at the end of the
Pre-Funding Period will be payable to the Class A
Certificateholders in accordance with the
priorities set forth herein under "Description of
the Certificates -- Class A Principal
Distribution Amount".
Capitalized Interest
Account.................... On the Closing Date an amount will be deposited
into an account maintained with the Trustee (the
"Capitalized Interest Account"). The Capitalized
Interest Account will be applied by the Trustee
to cover shortfalls in interest accrued during
the Pre-Funding Period on the Class A
Certificates attributable to the pre-funding
feature. Any amounts remaining in the Capitalized
Interest Account and not used for such purpose
following the Pre-Funding Period are required to
be paid directly to the Class R
Certificateholders.
S-3
<PAGE> 9
The Class A Certificates... The Class A Certificates will each evidence a
beneficial ownership interest in the Trust Fund
and will be issued pursuant to a Pooling and
Servicing Agreement, to be dated as of the
Cut-off Date, among the Depositor, the Servicer
and the Trustee (the "Pooling and Servicing
Agreement"). Each Class of Class A Certificates
will have the approximate Security Balance as of
the Closing Date set forth on the cover of this
Prospectus Supplement. Any difference between the
aggregate Security Balances of the Class A
Certificates as of the Closing Date and the
approximate initial aggregate Security Balance of
such Classes as of the date of this Prospectus
Supplement will not exceed 5% of the initial
aggregate Security Balance of the Class A
Certificates as stated on the cover of this
Prospectus Supplement. Any difference allocated
to the Class A Certificates will be allocated to
one or more of the Classes of Class A
Certificates.
Interest Distributions..... On each Distribution Date, the holders of the Class
A Certificates will be entitled to receive, to
the extent of amounts available for distribution
as described herein, interest distributions in an
amount equal to the sum of (i) interest accrued
during the calendar month immediately preceding
the month in which such Distribution Date occurs
(the "Interest Accrual Period") on the Security
Balance thereof immediately prior to such
Distribution Date at the applicable Pass-Through
Rate (based on a 360-day year consisting of
twelve 30-day months) and (ii) the Class A
Carry-Forward Amount, if any. The aggregate
amount of interest allocable to the Class A
Certificates (the "Class A Interest Distribution
Amount") will be allocable to the related Class A
Certificates on a pro rata basis. See
"Description of the Certificates -- Priority of
Payment" and "-- Class A Interest Distribution
Amount" herein.
The "Pass-Through Rate" for each Class of Class A
Certificates is set forth on the cover of this
Prospectus Supplement.
Principal Distribution..... Holders of the Class A Certificates will be
entitled to receive on each Distribution Date, to
the extent of amounts available for distribution
as described herein remaining after interest on
the Class A Certificates is distributed, an
amount (the "Class A Principal Distribution
Amount") equal to the sum of (i) the portion of
the Class A Carry-Forward Amount, as applicable,
which relates to a shortfall in a distribution of
a related Subordination Deficit, (ii) all
scheduled installments of principal in respect of
the Mortgage Loans received or advanced during
the related Due Period, together with all
unscheduled recoveries of principal on such
Mortgage Loans received by the Servicer during
the prior calendar month, (iii) the Principal
Balance of each Mortgage Loan that was
repurchased by the Asset Seller, (iv) any amounts
received in connection with a substitution of a
Mortgage Loan, (v) the net Liquidation Proceeds
collected by the Servicer on all Mortgage Loans
during the prior calendar month (to the extent
such net Liquidation Proceeds are related to
principal), (vi) the amount of any related
Subordination Deficit for such Distribution Date,
(vii) the proceeds received by the Trustee of any
termination of the Trust Fund (to the extent such
proceeds are related to principal), (viii) the
amount of any related Subordination Increase
Amount for such Distribution Date and (ix) with
respect to the Distribution Date
S-4
<PAGE> 10
occurring in , 199 , any amounts in
the Pre-Funding Account after giving effect to
any purchase of Subsequent Mortgage Loans; minus
(x) the amount of any related Subordination
Reduction Amount for such Distribution Date.
In no event will any Class A Principal Distribution
Amount with respect to any Distribution Date be
less than zero or greater than the Security
Balances of the Class A Certificates.
See "Description of the Certificates -- Priority of
Payment" and "-- Class A Principal Distribution
Amount" herein.
Credit Enhancement......... The credit enhancement provided for the benefit of
the Class A Certificateholders consists solely of
(a) the overcollateralization mechanics that use
the internal cash flows of the Mortgage Loans and
(b) the Certificate Insurance Policy.
Overcollateralization. The subordination
provisions of the Trust Fund result in a limited
acceleration of the Class A Certificates relative
to the amortization of the Mortgage Loans,
generally in the early months of the transaction.
The accelerated amortization is achieved by the
application of certain excess interest to the
payment of the Security Balances of the Class A
Certificates. This acceleration feature creates
overcollateralization which equals the excess of
the aggregate principal balances of the Mortgage
Loans and the Pre-Funded Amount over the
aggregate Security Balance of the Class A
Certificates. Once the required level of
overcollateralization is reached, and subject to
the provisions described in the next paragraph,
the acceleration feature will cease, unless
necessary to maintain the required level of
overcollateralization.
The Pooling and Servicing Agreement provides that,
subject to certain trigger tests, the required
level of overcollateralization with respect to
the Mortgage Loans may increase or decrease over
time. An increase would result in a temporary
period of accelerated amortization of the Class A
Certificates to increase the actual level of
overcollateralization to its required level; a
decrease would result in a temporary period of
decelerated amortization to reduce the actual
level of overcollateralization to its required
level. See "Description of the Certificates --
Overcollateralization Provisions and Support
Features" herein.
The Certificate Insurance Policy. The Class A
Certificateholders will have the benefit of the
Certificate Insurance Policy, as discussed more
fully below. See "Description of the
Certificates -- Certificate Insurance Policy"
herein.
Certificate Insurer........ (the "Certificate Insurer"). See
" " herein.
Certificate Insurance
Policy..................... The Certificate Insurer will issue the Certificate
Insurance Policy as a means of providing
additional credit enhancement to the Class A
Certificates.
Under the Certificate Insurance Policy, the
Certificate Insurer will pay the Trustee, for the
benefit of the holders of the Class A
Certificates, as further described herein, an
amount that will insure the payment of (i) on
each Distribution Date, an amount equal to (a)
the Class A Interest Distribution Amount and (b)
the Subordination Deficit and
S-5
<PAGE> 11
(ii) any unpaid Preference Amount. A payment by
the Certificate Insurer under the Certificate
Insurance Policy is referred to herein as an
"Insured Payment." See "Description of the
Certificates -- The Certificate Insurance Policy"
herein.
Advances................... The Servicer is required to make advances
("Advances") in respect of delinquent payments of
principal and interest on the Mortgage Loans,
subject to the limitations described herein. See
"Description of the Certificates -- Advances"
herein and "Description of the Securities --
Advances in Respect of Delinquencies" in the
Prospectus.
Optional Termination....... The Servicer, at its option, on any Distribution
Date when the aggregate Principal Balance of the
Mortgage Loans is less than % of the sum of
the aggregate principal balance of the Initial
Mortgage Loans as of the Cut-off Date and the
aggregate principal balance of the Subsequent
Mortgage Loans as of the first day of the month
such Subsequent Mortgage Loans are added to the
Trust Fund (the "Subsequent Cut-off Date"), may
purchase from the Trust Fund all remaining
Mortgage Loans and other assets thereof at the
price described herein, and thereby effect early
retirement of the related Certificates. No such
termination is permitted without the prior
written consent of the Certificate Insurer if it
would result in a draw on the Certificate
Insurance Policy. See "Pooling and Servicing
Agreement -- Termination" herein and "Description
of the Securities -- Termination" in the
Prospectus.
Special Prepayment
Considerations........... The rate and timing of principal payments on the
Class A Certificates will depend, among other
things on the rate and timing of principal
payments (including prepayments, defaults,
liquidations and purchases of the Mortgage Loans
due to a breach of a representation or warranty)
on the Mortgage Loans. As is the case with
mortgage-backed certificates generally, the Class
A Certificates are subject to substantial
inherent cash-flow uncertainties because the
Mortgage Loans may be prepaid at any time.
Generally, when prevailing interest rates
increase, prepayment rates on mortgage loans tend
to decrease, resulting in a slower return of
principal to investors at a time when
reinvestment at such higher prevailing rates
would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on
mortgage loans tend to increase, resulting in a
faster return of principal to investors at a time
when reinvestment at comparable yields may not be
possible.
The Class A Certificates are subject to various
priorities for payment of principal as described
herein. Distributions of principal on such
Classes having an earlier priority of payment
will be affected by the rates of prepayments of
the Mortgage Loans earlier than such Classes
having a later priority of payment. The timing of
commencement of principal distributions and the
weighted average lives of the Class A
Certificates with a later priority of payment
will be affected by the rates of prepayments
experienced both before and after the
commencement of principal distributions on such
Classes.
S-6
<PAGE> 12
See "Description of the Certificates -- Class A
Principal Distribution Amount" and "Certain Yield
and Prepayment Considerations" herein, and "Yield
Considerations" in the Prospectus.
Special Yield
Considerations............. The yield to maturity of the Class A Certificates
will depend on, among other things, the rate and
timing of principal payments (including
prepayments, defaults, liquidations and purchases
of the Mortgage Loans due to a breach of a
representation or warranty) on the Mortgage Loans
and the allocation thereof to reduce the Security
Balances thereof. The yield to maturity on the
Class A Certificates will also depend on the
Pass-Through Rate and the purchase price for such
Certificates. If the Class A Certificates are
purchased at a premium and principal
distributions thereon occur at a rate faster than
anticipated at the time of purchase, the
investor's actual yield to maturity will be lower
than that assumed at the time of purchase.
Conversely, if the Class A Certificates are
purchased at a discount and principal
distributions thereon occur at a rate slower than
that assumed at the time of purchase, the
investor's actual yield to maturity will be lower
than that assumed at the time of purchase.
See "Certain Yield and Prepayment Considerations"
herein and "Yield Considerations" in the
Prospectus.
Federal Income Tax
Consequences............. A real estate mortgage investment conduit ("REMIC")
election will be made with respect to the Trust
Fund for federal income tax purposes. Upon the
issuance of the Class A Certificates,
[Cadwalader, Wickersham & Taft] [Hunton &
Williams], counsel to the Depositor, will deliver
its opinion generally to the effect that,
assuming compliance with all provisions of the
Pooling and Servicing Agreement, for federal
income tax purposes, the Trust Fund will qualify
as a REMIC under Sections 860A through 86OG of
the Internal Revenue Code of 1986, as amended
(the "Code").
For federal income tax purposes, the Class R
Certificates will be the sole class of "residual
interests" in the REMIC and each Class of Class A
Certificates will represent "regular interests"
in the REMIC and will generally be treated as
representing ownership of debt instruments of the
REMIC.
For federal income tax reporting purposes, the
Class A Certificates will [not] be treated as
having been issued with original issue discount.
The prepayment assumption that will be used in
determining the rate of accrual of original issue
discount, market discount and premium, if any,
with respect to the Class A Certificates for
federal income tax purposes will be a rate equal
to % SPA. No representation is made that the
Mortgage Loans will prepay at these rates or at
any other rates. See "Certain Yield and
Prepayment Considerations" herein.
For further information regarding the federal
income tax consequences of investing in the Class
A Certificates, see "Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations....... The United States Department of Labor has issued an
individual exemption, Prohibited Transaction
Exemption 93-31 (the "Exemp-
S-7
<PAGE> 13
tion") to NationsBank Corporation that generally
exempts from certain of the prohibited
transaction provisions of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and the excise taxes imposed on such
prohibited transactions by Section 4975 of the
Code, transactions relating to the purchase, sale
and holding by Plans (as defined herein) of
pass-through certificates underwritten by
[NationsBanc Montgomery Securities, Inc.], such
as the Class A Certificates, provided that
certain conditions are satisfied. A fiduciary of
a Plan should make its own determination as to
whether the Exemption or any other prohibited
transaction exemption will be applicable to an
investment in the Class A Certificates. See
"ERISA Considerations" herein and in the
Prospectus.
Legal Investment........... [The Class A Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act") so long as they are rated in
one of the two highest rating categories by at
least one nationally recognized statistical
rating organization. As such, the Class A
Certificates are legal investments for certain
entities to the extent provided in such act.
However, there are regulatory requirements and
considerations applicable to regulated financial
institutions and restrictions on the ability of
such institutions to invest in certain types of
mortgage rated securities.]
[The Class A Certificates will not constitute
"mortgage related securities" for purposes of the
Enhancement Act.] Institutions whose investment
activities are subject to legal investment laws
and regulations, regulatory capital requirements
or review by regulatory authorities may be
subject to restrictions on investment in the
Class A Certificates and should consult with
their legal advisors. See "Legal Investment"
herein.
Ratings.................... It is a condition to the issuance of the Class A
Certificates that they be rated " " by
and " " by . A
rating is not a recommendation to buy, sell or
hold the Class A Certificates and may be subject
to revision or withdrawal at any time by the
assigning rating organization. A rating does not
address the possibility that, as a result of
principal prepayments, holders of such
Certificates may receive a lower than anticipate
yield. See "Certain Yield and Prepayment
Considerations" and "Ratings" herein and "Yield
Considerations" and "Rating" in the Prospectus.
S-8
<PAGE> 14
RISK FACTORS
Prospective Class A Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Class A Certificates.
RISKS ASSOCIATED WITH THE UNDERWRITING STANDARDS
The Initial Mortgage Loans were underwritten, and the Subsequent Mortgage
Loans will be underwritten, by the Asset Seller in accordance with its
underwriting standards described in "Description of the Mortgage
Loans -- Underwriting" below which are primarily intended to provide single
family mortgage loans for non-conforming credits. A "non-conforming credit"
means a mortgage loan which is ineligible for purchase by Fannie Mae or Freddie
Mac due to credit characteristics that do not meet the Fannie Mae or Freddie Mac
underwriting guidelines, including mortgagors whose creditworthiness and
repayment ability do not satisfy such Fannie Mae or Freddie Mac underwriting
guidelines and mortgagors who may have a record of credit write-offs,
outstanding judgments, prior bankruptcies and other credit items that do not
satisfy such Fannie Mae or Freddie Mac underwriting guidelines. ACCORDINGLY,
MORTGAGE LOANS UNDERWRITTEN UNDER THE ASSET SELLER'S NON-CONFORMING CREDIT
UNDERWRITING STANDARDS ARE LIKELY TO EXPERIENCE RATES OF DELINQUENCY,
FORECLOSURE AND LOSS THAT ARE HIGHER, AND MAY BE SUBSTANTIALLY HIGHER, THAN
MORTGAGE LOANS ORIGINATED IN ACCORDANCE WITH THE FANNIE MAE OR FREDDIE MAC
UNDERWRITING GUIDELINES.
Under the Asset Seller's non-conforming credit underwriting standards, the
critical factors in underwriting a Mortgage Loan are the income and employment
history of the prospective mortgagor, the creditworthiness of the prospective
mortgagor, an assessment of the value of the related Mortgaged Property and the
adequacy of such property as collateral in relation to the amount of such
Mortgage Loan. Therefore, changes in values of the Mortgaged Properties may have
a greater effect on the delinquency, foreclosure and loss experience of the
related Mortgage Loans than on mortgage loans originated in accordance with the
Fannie Mae or Freddie Mac credit underwriting guidelines. No assurance can be
given that the values of the Mortgaged Properties have remained or will remain
at the levels in effect on the dates of origination of the Mortgage Loans. If
the values of the Mortgaged Properties decline after the dates of origination of
the Mortgage Loans, then the rates of delinquencies, foreclosures and losses on
the Mortgage Loans may increase and such increase may be substantial.
RISK OF DELINQUENCIES AND POTENTIAL DELINQUENCIES
None of the Initial Mortgage Loans were thirty or more days delinquent in
their scheduled payments (such Mortgage Loans, "Delinquent Mortgage Loans") as
of the Cut-off Date. Prospective investors in the Class A Certificates should be
aware, however, that only approximately % of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date), had a first scheduled
payment due on or before 199 , and therefore, the remaining Initial
Mortgage Loans could not have been Delinquent Mortgage Loans as of the Cut-off
Date.
RISK OF LOSS ON SECOND LIENS
Approximately % of the Initial Mortgage Loans (by aggregate
outstanding principal balance as of the Cut-off Date) are secured by second
liens on the related Mortgaged Properties. Mortgage Loans secured by second
mortgages will be entitled to proceeds that remain from the sale of the related
Mortgaged Property after any related senior mortgage loans and prior statutory
liens have been satisfied and, if such were satisfied by the Servicer, after the
Servicer has been reimbursed. In the event that such proceeds are insufficient
to satisfy such loans and prior liens in the aggregate and the Certificate
Insurer is unable to perform its obligations under the Certificate Insurance
Policy, the Class A Certificates may bear (i) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (ii) the risk
of loss if the deficiency judgment is not realized upon. See "Risk
Factors -- Losses on Foreclosure of Junior Mortgage
S-9
<PAGE> 15
Loans" in the Prospectus. In addition, the rate of default of second mortgage
loans may be greater than that of mortgage loans secured by first liens on
comparable properties.
RISKS ASSOCIATED WITH SUBSEQUENT MORTGAGE LOANS
Subsequent Mortgage Loans may have characteristics different from those of
the related Initial Mortgage Loans. However, each Subsequent Mortgage Loan must
satisfy the eligibility criteria referred to herein under "Description of the
Mortgage Loans -- Subsequent Mortgage Loans" at the time of its conveyance to
the Trust Fund and be underwritten in accordance with the criteria set forth
herein under "Description of the Mortgage Loans -- Underwriting." However,
Subsequent Mortgage Loans may be of a different credit quality and seasoning
than the Initial Mortgage Loans. Following the transfer of Subsequent Mortgage
Loans to the Trust Fund, the aggregate characteristics of the Mortgage Loans
then held in the Trust Fund may vary from those of the Initial Mortgage Loans.
To the extent that any Pre-Funded Amount on deposit in the Pre-Funding
Account has not been fully applied to the acquisition of Subsequent Mortgage
Loans by the end of the Pre-Funding Period, the holders of the Class A
Certificates will receive a prepayment of principal in an amount equal to the
Pre-Funded Amount (net of reinvestment income payable to the Class R
Certificateholders) remaining on deposit in the Pre-Funding Account.
The addition of Subsequent Mortgage Loans to the Trust Fund on any date
(each, a "Subsequent Transfer Date") is subject to the receipt of confirmation
from the Rating Agencies that the addition of such Subsequent Mortgage Loans
will not result in a reduction or withdrawal of the initial rating of any of the
Class A Certificates and the approval of the Certificate Insurer. If, as a
result of the failure to receive such confirmation or approval, the Depositor is
unable to transfer Subsequent Mortgage Loans to the Trust Fund, principal
prepayments to holders of the Class A Certificates will occur following the
Pre-Funding Period.
CONSUMER PROTECTION LAWS
Applicable state laws generally regulate interest rates and other charges,
require certain disclosure, and require licensing of the [Asset Seller] [Other
Originators]. In addition, other state laws, public policy and general
principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the Mortgage Loans. The [Asset Seller] will be
required to repurchase any Mortgage Loans which, at the time of origination,
fail to comply with applicable federal and state laws and regulations, which
failure results in a material adverse effect on the Trust Fund, the Certificate
Insurer or the parties to the Pooling and Servicing Agreement. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Mortgage Loans, may entitle the Mortgagor to a refund of amounts
previously paid and, in addition, could subject the Depositor, the Servicer, the
Asset Seller or the Other Originators to damages and administrative enforcement.
See "Certain Legal Aspects of Mortgage Loans" in the Prospectus.
The Mortgage Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the Mortgagors regarding
the terms of the Mortgage Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit
Protection Act, in the extension of credit; and
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the Mortgagor's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Mortgage Loans and in addition could subject the Asset Seller, the
S-10
<PAGE> 16
Other Originators, the Depositor or the Servicer to damages and administrative
enforcement. The [Asset Seller] will be required to repurchase any Mortgage
Loans which, at the time of origination, did not comply with such federal laws
or regulations. See "Certain Legal Aspects of Mortgage Loans" in the Prospectus.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act") which incorporates the Home Ownership and Equity Protection Act of 1994.
The Riegle Act adds certain additional provisions to Regulation Z, the
implementing regulation of the Truth-In-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to
non-purchase money mortgage loans with high interest rates or high upfront fees
and charges. In general, mortgage loans within the purview of the Riegle Act
have annual percentage rates over 10% greater than the yield on Treasury
Securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $400. The provisions of the Riegle Act
apply on a mandatory basis to all mortgage loans originated on or after October
1, 1995. These provisions can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the related loans. In addition, any assignee of the creditor
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to rescind
the mortgage loan.
RISKS ASSOCIATED WITH BOOK-ENTRY CERTIFICATES
Issuance of the Class A Certificates in book-entry form may reduce the
liquidity of such Certificate in the secondary trading market since investors
may be unwilling to purchase Class A Certificates for which they cannot obtain
physical certificates.
Since transactions in the Book-Entry Certificates will be effected only
through DTC, the ability of a Beneficial Owner to pledge Book-Entry Certificates
to persons or entities that do not participate in the DTC system, or otherwise
to take actions in respect of such Certificates, may be limited due to lack of a
physical certificate representing such Certificates.
Beneficial Owners may experience some delay in their receipt of
distributions of interest and principal on the Book-Entry Certificates since
such distributions will be forwarded by the Trustee to DTC, and DTC will credit
such distributions to the accounts of its Participants which will thereafter
credit them to the accounts of Beneficial Owners either directly or indirectly
through Indirect Participants. See "Description of the Securities -- Book Entry
Registration and Definitive Securities" in the Prospectus.
S-11
<PAGE> 17
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The statistical information presented in this Prospectus Supplement
describes the mortgage loans included in the Trust Fund as of the Closing Date
(the "Initial Mortgage Loans").
The Initial Mortgage Loans underlying the Certificates had an aggregate
Principal Balance as of the Cut-off Date of $ . The Initial Mortgage
Loans will generally consist of conventional, fixed-rate, monthly payment, first
lien mortgage loans (except that approximately % of the Initial Mortgage
Loans (by aggregate Principal Balance as of the Cut-Off Date) are second lien
mortgages). All of the Initial Mortgage Loans have terms to maturity from the
date of origination or modification of 30 years. The Initial Mortgage Loans will
be originated by (the "Asset Seller") or acquired by the
Asset Seller from various other entities (the "Other Originators"). The Initial
Mortgage Loans were underwritten substantially in accordance with the
underwriting criteria described herein under "-- Underwriting" below. The
Depositor will acquire the Initial Mortgage Loans from the Asset Seller [an
affiliate of the Depositor]. The Asset Seller will make certain representations
and warranties with respect to the Mortgage Loans and, as more particularly
described in the Prospectus, will have certain repurchase or substitution
obligations in connection with a breach of any such representation or warranty,
as well as in connection with an omission or defect in respect of certain
constituent documents required to be delivered with respect to the Mortgage
Loans, in any event if such breach, omission or defect cannot be cured and it
materially and adversely affects the interests of Certificateholders. See
"Description of the Agreements -- Material Terms of the Pooling and Servicing
Agreements, Trust Agreements and Underlying Servicing Agreements -- Assignment
of Assets; Repurchases" and "-- Representations and Warranties; Repurchases" in
the Prospectus.
Pursuant to the terms of the Pooling and Servicing Agreement, the Depositor
will assign the representations and warranties made by the Asset Seller to the
Trustee for the benefit of the Certificateholders.
Each Mortgage Loan will contain a customary "due-on-sale" clause. See
"Certain Legal Aspects of Mortgage Loans-Due-on-Sale Clauses" in the Prospectus.
Approximately % of the Initial Mortgage Loans (by aggregate Principal
Balance as of the Cut-Off Date) provide for payment of a prepayment charge.
Generally, each such Mortgage Loan provides for payment of a prepayment charge
for certain partial prepayments and all prepayments in full made within
approximately three or five years of the origination of such Initial Mortgage
Loan, in an amount equal to six months' advance interest on the amount of the
prepayment that, when added to all other amounts prepaid during the twelve-month
period immediately preceding the date of the prepayment, exceeds twenty percent
of the original principal amount of the Initial Mortgage Loan. The Servicer will
be entitled to all prepayment charges received on the Mortgage Loans and such
amounts will not be available for distribution on the Certificates.
[None of the Mortgage Loans originated under a program which does not meet
the credit underwriting standards of the Federal Home Loan Mortgage Corporation
("Freddie Mac") or Fannie Mae (a "Standard Non-Conforming Program") are insured
by a primary mortgage insurance policy.] [Approximately % of the Initial
Mortgage Loans (by aggregate Principal Balance as of the Cut-off Date) had
Loan-to-Value Ratios at the date of origination in excess of % but will not
be covered by a primary mortgage insurance policy.]
MORTGAGE RATES
The Mortgage Rate on each Initial Mortgage Loan is fixed. The day of each
month in which Mortgage Loan payments are due (the "Due Date") is generally the
first day of the month for all of the Initial Mortgage Loans. Initial
Mortgage Loans, comprising approximately % of the Initial Mortgage Loans
(by aggregate Principal Balance as of the Cut-off Date) have a first Due Date
that is not the first day of the month. There is no Retained Interest (as
defined in the Prospectus) with respect to any of the Mortgage Loans.
S-12
<PAGE> 18
MORTGAGE LOAN CHARACTERISTICS
The Initial Mortgage Loans will consist of Mortgage Loans with an aggregate
Principal Balance as of the Cut-off Date, after deducting payments of principal
due on or prior to such date, of $ . All percentages of the Initial
Mortgage Loans described herein are approximate percentages (except as otherwise
indicated) by aggregate Principal Balance as of the Cut-off Date.
Approximately % of the Initial Mortgage Loans were originated by
and , respectively. Approximately % of the Initial Mortgage
Loans have original terms to stated maturity of approximately 30 years.
Approximately % and % of the Initial Mortgage Loans are secured by
first liens and second liens, respectively.
As of the Cut-off Date, each Initial Mortgage Loan will have a Principal
Balance of not less than $ or more than $ and the average
Principal Balance of the Initial Mortgage Loans will be approximately
$ . The latest stated maturity date of any of the Initial Mortgage
Loans will be ; however, the actual date on which any Mortgage Loan is
paid in full may be earlier than the stated maturity date due to unscheduled
payments of principal. Based on information supplied by the mortgagors in
connection with their loan applications at origination, approximately % of
the Initial Mortgage Loans will be secured by Mortgaged Properties which are
owner occupied primary residences, approximately % of the Initial Mortgage
Loans will be secured by Mortgaged Properties which are second homes and
approximately % of the Initial Mortgage Loans will be secured by Mortgaged
Properties which are non-owner occupied properties. No Initial Mortgage Loan
provides for negative amortization or deferred interest.
Set forth below is a description of certain additional characteristics of
the Initial Mortgage Loans as of the Cut-off Date (except as otherwise
indicated). Dollar amounts and percentages may not add up to totals due to
rounding.
MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF INITIAL AGGREGATE UNPAID OFF DATE AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
---------- ---------- ----------
========== ========== ==========
</TABLE>
The weighted average Mortgage Rate of the Initial Mortgage Loans will be
approximately % per annum.
S-13
<PAGE> 19
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-OFF
NUMBER OF INITIAL AGGREGATE UNPAID DATE AGGREGATE
REMAINING MONTHS TO STATED MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C>
---------- ---------- ----------
========== ========== ==========
</TABLE>
The weighted average remaining term to stated maturity of the Initial
Mortgage Loans will be approximately months.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-OFF
NUMBER OF INITIAL AGGREGATE UNPAID DATE AGGREGATE
YEARS OF ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C>
---------- ---------- ----------
========== ========== ==========
</TABLE>
The earliest month and year of origination of any Initial Mortgage Loan is
, 199 and the latest month and year of origination is ,
199 .
S-14
<PAGE> 20
ORIGINAL LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-OFF
NUMBER OF INITIAL AGGREGATE UNPAID DATE AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C>
------- ------- ---
======= ======= ===
</TABLE>
- ---------------
(1) The Loan-to-Value Ratio of Initial Mortgage Loans secured by second liens
includes the outstanding principal balance of the related Senior Liens. See
"Description of the Trust Funds -- The Mortgage Loans" in the Prospectus.
The minimum and maximum Loan-to-Value Ratios at origination of the Initial
Mortgage Loans were approximately % and %, respectively, and the
weighted average Loan-to-Value Ratio at origination of the Initial Mortgage
Loans was approximately %.
MORTGAGE LOAN PROGRAM
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-OFF
NUMBER OF INITIAL AGGREGATE UNPAID DATE AGGREGATE
LOAN PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ ----------------- ----------------- ---------------------
<S> <C> <C> <C>
Full Documentation........................
Stated Income.............................
Alternate Documentation...................
Quick Documentation.......................
No Income Qualification...................
Lite Documentation........................
------- ------- ---
Total...........................
======= ======= ===
</TABLE>
S-15
<PAGE> 21
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF INITIAL AGGREGATE UNPAID OFF DATE AGGREGATE
ORIGINAL INITIAL MORTGAGE LOAN PRINCIPAL BALANCE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C>
---------- ---------- ----------
========== ========== ==========
</TABLE>
The average original principal balance of the Initial Mortgage Loans will
be approximately $ .
PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF INITIAL AGGREGATE UNPAID OFF DATE AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
Single-Family...................................
2-4 Family......................................
Condominium.....................................
PUD.............................................
--------- --------- ---------
Total.................................
========= ========= =========
</TABLE>
RISK CATEGORIES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF INITIAL AGGREGATE UNPAID OFF DATE AGGREGATE
RISK CLASSIFICATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
A...............................................
A-..............................................
B...............................................
C...............................................
D...............................................
--------- ---------- ----------
Total.................................
========= ========== ==========
</TABLE>
S-16
<PAGE> 22
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF INITIAL AGGREGATE UNPAID OFF DATE AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- ----------------- ----------------- ------------------
<S> <C> <C> <C>
--------- ---------- ----------
========= ========== ==========
</TABLE>
No more than approximately % of the Initial Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code.
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF INITIAL AGGREGATE UNPAID OFF DATE AGGREGATE
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ ----------------- ----------------- ------------------
<S> <C> <C> <C>
Purchase........................................
Refinance (Rate/Term)...........................
Refinance (Equity Take-Out).....................
--------- ---------- ----------
Total.................................
========= ========== ==========
</TABLE>
In general, in the case of a Mortgage Loan made for "rate/term" refinance
purposes (not for "equity take-out"), substantially all of the proceeds are used
to pay in full the principal balance of a previous mortgage loan of the
mortgagor with respect to a Mortgaged Property and to pay origination and
closing costs associated with such refinancing. Mortgage Loans made for "equity
take out" refinance purposes involve the use of the proceeds to pay in full the
principal balance of such previous mortgage loan and related costs except that a
portion of the proceeds are generally retained by the mortgagor for uses
unrelated to the Mortgaged Property. The amount of such proceeds retained by the
mortgagor may be substantial.
OCCUPANCY STATUS
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF INITIAL AGGREGATE UNPAID OFF DATE AGGREGATE
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
Investment
Primary.........................................
Second Homes....................................
-------- -------- --------
Total.................................
======== ======== ========
</TABLE>
S-17
<PAGE> 23
SUBSEQUENT MORTGAGE LOANS
The obligation of the Trust Fund to purchase Subsequent Mortgage Loans on a
Subsequent Transfer Date will be subject to the aggregate Subsequent Mortgage
Loans, including the Subsequent Mortgage Loans to be conveyed to the Trust Fund
on such Subsequent Transfer Date, meeting the following criteria: (i) the
weighted average Mortgage Rate of the Subsequent Mortgage Loans will not be less
than %; (ii) no Subsequent Mortgage Loan will have a Mortgage Rate of less
than %; (iii) the weighted average remaining term of the Subsequent
Mortgage Loans will not be greater than months; and (iv) no Subsequent
Mortgage Loan will have a final scheduled payment due later than ,
20 . Such criteria will be based on the characteristics of the Subsequent
Mortgage Loans on the related Subsequent Transfer Date. In addition, no
Subsequent Mortgage Loan, as of the Subsequent Cut-off Date, will be more than
30 days past due or have a mortgagor that has been noted in the related records
of the Servicer as being the subject of a bankruptcy proceeding.
Except for the criteria described in the preceding paragraph, there will be
no required characteristics of the Subsequent Mortgage Loans. Therefore, the
aggregate characteristics of Subsequent Mortgage Loans, including the
composition of the Subsequent Mortgage Loans, the distribution by Mortgage Rate
and the geographic distribution may vary significantly from time to time, and
will bear no particular relationship to the characteristics of the Initial
Mortgage Loans at any time. It is expected that a substantial portion of the
Subsequent Mortgage Loans will be originated in the State of .
The addition of Subsequent Mortgage Loans to the Trust Fund on any
Subsequent Transfer Date is subject to the receipt of confirmation from the
Rating Agencies that the addition of such Subsequent Mortgage Loans will not
result in a reduction or withdrawal of the initial rating of any of the Class A
Certificates and the approval of the Certificate Insurer. If, as a result of the
failure to receive such confirmation or approval, the Depositor is unable to
transfer Subsequent Mortgage Loans to the Trust Fund, principal prepayments to
holders of the Class A Certificates will occur following the Pre-Funding Period.
THE ASSET SELLER
(in its capacity as seller of the Mortgage Loans to the
Depositor, the "Asset Seller") is a corporation. [The Asset Seller is
an affiliate of the Depositor.] The Asset Seller's residential lending division
underwrites first and second lien mortgage loans secured by one- to four-family
residences. The Asset Seller acquires mortgage loans through a network of branch
offices and approved mortgage brokers. The Asset Seller also acquires mortgage
loans from other financial institutions in accordance with the underwriting
standards described below under "Description of the Mortgage
Loans -- Underwriting." The Asset Seller began originating and acquiring
mortgage loans as of . The Asset Seller, which has its principal place
of business in , had assets as of , 199 in excess of
$ .
UNDERWRITING
[All of the Initial Mortgage Loans were underwritten, and all of the
Subsequent Mortgage Loans will be underwritten, by the Asset Seller in
accordance with the "Standard Non-Conforming Program" which does not meet the
credit underwriting standards of Fannie Mae or Freddie Mac. The Asset Seller's
current single family mortgage loan volume is generally originated based on loan
packages submitted through a mortgage broker network. Such loan packages, which
generally contain relevant credit, property and underwriting information on the
loan request, are compiled by the applicable mortgage broker and submitted to
the Asset Seller for approval and funding. The mortgage broker receives as
compensation all or a portion of the loan origination fee charged to the
mortgagor at the time the loan is made. As part of its quality control
procedures, the Asset Seller accepts loan packages submitted by pre-approved
mortgage brokers. In connection with the approval process, it requires that the
mortgage broker be licensed by the appropriate state agencies, as required, and
review a package of documents consisting of, among other things, an application,
resumes of key personnel, narrative of the company, organizational documentation
and financial statements. At least annually, the Asset Seller reviews the
performance of each of its mortgage brokers for poor processing,
misrepresentation, fraud or delinquency, and substandard mortgage brokers are
terminated.
S-18
<PAGE> 24
Each prospective mortgagor completes a mortgage loan application that
includes information with respect to the applicant's liabilities, income, credit
history, employment history and personal information. At least two credit
reports on each applicant from national credit reporting companies are required.
The report typically contains information relating to such matters as credit
history with local and national merchants and lenders, installment debt payments
and any record of defaults, bankruptcies, repossessions, or judgments.
Mortgaged properties are appraised by licensed appraisers. The Asset Seller
does not approve all appraisers but instead relies on the mortgage brokers to
evaluate the appraiser's experience and ability; however, in the event that a
mortgage broker uses an appraiser who has not been approved by the Asset Seller,
the related appraisal will be reviewed by an approved appraiser of the Asset
Seller for conformance with its guidelines. The Asset Seller requires the
appraiser to address neighborhood conditions, site and zoning status and
condition and valuation of improvements. Following each appraisal, the appraiser
prepares a report which includes a reproduction cost analysis (when appropriate)
based on the current cost of constructing a similar home and a market value
analysis based on recent sales of comparable homes in the area. All appraisals
are required to conform to the Uniform Standards of Professional Appraisal
Practice and must be on forms acceptable to Fannie Mae and Freddie Mac. Every
appraisal is reviewed by a non-affiliated appraisal review firm, or by another
review appraiser acceptable to the Asset Seller before the mortgage loan is
made.]
[Describe any other material elements of underwriting criteria for Mortgage
Loans applied by Asset Seller or Other Originator.]
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Initial Mortgage Loans
and the Mortgaged Properties is based upon the Initial Mortgage Loans as
constituted at the close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on or before such date. Prior to the issuance
of the Certificates, Mortgage Loans may be excluded from the Trust Fund as a
result of incomplete documentation or otherwise, if the Depositor deems such
removal necessary or appropriate. A limited number of other mortgage loans may
be added prior to the issuance of the Certificates. The Depositor believes that
the information set forth herein will be substantially representative of the
characteristics of the Initial Mortgage Loans at the time the Class A
Certificates are issued although the range of Mortgage Rates and maturities and
certain other characteristics of the Mortgage Loans may vary. In addition, the
Mortgage Loans ultimately included in the Trust Fund will include the Subsequent
Mortgage Loans and therefore the characteristics of the Mortgage Loans
ultimately included in the Trust Fund will differ from those set forth above for
the Initial Mortgage Loans.
In the event that any of the characteristics as of the Cut-off Date of the
Initial Mortgage Loans that constitute the Trust Fund on the date of initial
issuance of the Certificates vary materially from those described herein,
revised information regarding the Initial Mortgage Loans will be made available
to purchasers of the Class A Certificates, on or before such issuance date, and
a Current Report on Form 8-K containing such information will be filed with the
Securities and Exchange Commission within 15 days following such date. In
addition, a Current Report on Form 8-K will be filed following each purchase of
Subsequent Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 199 - Asset Backed Certificates (the "Certificates") will
include the following four senior classes (the "Class A Certificates"): Class
A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A4
Certificates (each, a "Class" and collectively, the "Class A Certificates"). In
addition to the Class A Certificates, the Series 199 - Asset Backed
Certificates will include the Class R Certificates (the "Residual
Certificates"). Only the Class A Certificates are offered hereby.
S-19
<PAGE> 25
The Certificates will evidence the entire beneficial ownership interest in
the Trust Fund. The Trust Fund will consist of: (i) the Mortgage Loans; (ii)
such assets as from time to time are identified as deposited in respect of the
Mortgage Loans in the Certificate Account; (iii) property acquired by
foreclosure of such Mortgage Loans or deed in lieu of foreclosure; (iv) the
Trustee's rights with respect to the Mortgage Loans under all insurance policies
(including the Certificate Insurance Policy) required to be maintained pursuant
to the Pooling and Servicing Agreement and any proceeds thereof; (v) liquidation
proceeds; and (vi) amounts on deposit in the Pre-Funding Account and the
Capitalized Interest Account.
Distributions on the Class A Certificates will be made on the [25th] day of
each month or, if such day is not a business day, then on the next succeeding
business day (each, a "Distribution Date"), commencing in
, to Certificateholders of record on the immediately preceding Record Date.
The record date (the "Record Date") for each Distribution Date will be the close
of business on the last day of the month immediately preceding the related
Distribution Date.
Each Class of Class A Certificates will be issued in a minimum denomination
of $ and integral multiples of $ in excess thereof.
The Class A Certificates will be represented by one or more certificates
registered in the name of Cede & Co. ("Cede"), the nominee of DTC (Class A
Certificates so registered, "Book-Entry Certificates"). No person acquiring an
interest in the Class A Certificates (a "Beneficial Owner") will be entitled to
receive a physical certificate representing such person's interest (a
"Definitive Certificate"), except as set under "Description of the
Securities -- Book-Entry Registration and Definitive Securities" in the
Prospectus. Unless and until Definitive Certificates are issued for the Class A
Certificates under the limited circumstances described therein, all references
to actions by Certificateholders with respect to the Class A Certificates shall
refer to actions taken by DTC upon instructions from its Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders with respect to the Class A Certificates shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Class A Certificates, for distribution to Beneficial Owners by DTC
in accordance with DTC procedures. See "Description of the
Securities -- Book-Entry Registration and Definitive Securities" in the
Prospectus.
PRE-FUNDING ACCOUNT
On the Closing Date approximately $ (the "Pre-Funded Amount") will be
deposited in the Pre-Funding Account, which account shall be part of the Trust
Fund. The maximum aggregate principal amount of the Subsequent Mortgage Loans
which may be deposited in the Trust Fund is equal to the sum of the Pre-Funded
Amount and the principal payments received on the Initial Mortgage Loans between
the Cut-off Date and the Closing Date. During the period (the "Pre-Funding
Period") from and including the Closing Date until the earlier of (i) the date
on which the Pre-Funded Amount on deposit in the Pre-Funding Account is less
than or equal to $ , or (ii) , 199 , the Pre-Funded Amount will
be maintained in the Pre-Funding Account. The Pre-Funding Account will be
reduced during the Pre-Funding Period by the amount of Subsequent Mortgage Loans
deposited in the Trust Fund in accordance with the Pooling and Servicing
Agreement. Immediately following the Pre-Funding Period, the Pre-Funded Amount
(net of reinvestment income payable to the Class R Certificateholders),
remaining at the end of such Pre-Funding Period will be distributed to the
holders of the Class A Certificates in reduction of the Security Balances of
their Certificates in accordance with the priorities set forth herein under
"-- Class A Principal Distribution Amount", resulting in a partial principal
prepayment of such Certificates.
Amounts on deposit in the Pre-Funding Account will be invested in
investments permitted by the Pooling and Servicing Agreement and all interest
and any other investment earnings on amounts on deposit in the Pre-Funding
Account will be distributed to the Class R Certificateholders following the
Pre-Funding Period.
CAPITALIZED INTEREST ACCOUNT
The Depositor will establish for the benefit of the Class A
Certificateholders a trust account (the "Capitalized Interest Account"). On the
Closing Date, the Depositor will deposit in such account a cash amount as
required by the Pooling and Servicing Agreement. On each Distribution Date
during the Pre-
S-20
<PAGE> 26
Funding Period and on the Distribution Date immediately following, funds on
deposit in the Capitalized Interest Account will be applied by the Trustee to
cover shortfalls in the Class A Interest Distribution Amount attributable to the
pre-funding feature during the related Pre-Funding Period. Such shortfall
initially will exist during the Pre-Funding Period because while the Class A
Certificateholders are entitled to receive interest accruing on the Security
Balance of the Class A Certificates, the Security Balance of the Class A
Certificates during the Pre-Funding Period will be greater than the aggregate
principal balance of the related Mortgage Loans on the Closing Date. Following
the termination of the Pre-Funding Period, funds on deposit in the Capitalized
Interest Account will be distributed by the Trustee to the Class R
Certificateholders.
OVERCOLLATERALIZATION PROVISIONS AND SUPPORT FEATURES
Overcollateralization Resulting From Cash Flow Structure. The Pooling and
Servicing Agreement requires that, on each Distribution Date, the Net Monthly
Excess Cashflow with respect to the Mortgage Loans, if any, be applied on such
Distribution Date as an accelerated payment of principal on the related Class A
Certificates, but only to the limited extent hereafter described. The "Net
Monthly Excess Cashflow" for any Distribution Date is equal to (x) the amount on
deposit in the Collection Account on such Distribution Date with respect to the
Mortgage Loans, other than Future Distribution Amounts, the related Insured
Payments and the Trustee's Fee and Premium Amount payable on such Distribution
Date (such amount, the related "Available Funds" for such Distribution Date)
minus (y) the sum of (i) the sum of the related Class A Interest Distribution
Amount and the related Class A Principal Distribution Amount (calculated for
this purpose without regard to any Subordination Increase Amount, Subordination
Reduction Amount or portion thereof included therein) and (ii) any Reimbursement
Amount owed to the Certificate Insurer. This application has the effect of
accelerating the amortization of the related Class A Certificates relative to
the amortization of the Mortgage Loans.
With respect to any Distribution Date, the excess, if any, of (x) the sum
of (i) the aggregate Principal Balances of the Mortgage Loans as of the close of
business on the last day of the related Due Period and (ii) any amounts on
deposit in the Pre-Funding Account (other than reinvestment income) over (y) the
Security Balances of the Class A Certificates as of such Distribution Date (and
following the making of all distributions on such Distribution Date) is the
"Subordinated Amount" as of such Distribution Date. The Pooling and Servicing
Agreement requires that the Net Monthly Excess Cashflows will be applied as an
accelerated payment of principal on the related Class A Certificates until the
related Subordinated Amount has increased to the level equal to the related
Required Subordinated Amount for such Distribution Date. Any amount of Net
Monthly Excess Cashflow actually applied as an accelerated payment of principal
is a "Subordination Increase Amount." The required level of the Subordinated
Amount with respect to a Distribution Date is the "Required Subordinated Amount"
with respect to such Distribution Date. Initially, the Required Subordinated
Amount will be set at an amount equal to a percentage, specified in the Pooling
and Servicing Agreement, of the aggregate Principal Balances of the Mortgage
Loans as of the Cut-off Date and the original Pre-Funded Amount. The Pooling and
Servicing Agreement generally provides that the Required Subordinated Amounts
may, over time, decrease, or increase, subject to certain floors, caps and
triggers, including triggers that allow the Required Subordinated Amount to
decrease or "step down" based on the performance of the Mortgage Loans with
respect to certain tests specified in the Pooling and Servicing Agreement based
on delinquency rates and cumulative losses. If certain delinquency and/or loss
levels set forth in the Pooling and Servicing Agreement are exceeded, the
Required Subordinated Amount may become unlimited. Net Monthly Excess Cashflow
will then be applied in reduction of principal of the Class A Certificates
during the period that the Mortgage Loans are unable to meet certain tests
specified in the Pooling and Servicing Agreement based on delinquency rates and
cumulative losses.
In the event that the Required Subordinated Amount is permitted to decrease
or "step down" on a Distribution Date in the future, the Pooling and Servicing
Agreement provides that some or all of the principal that would otherwise be
distributed to the holders of the Class A Certificates on such Distribution Date
will be available to satisfy other cash flow priorities of the Trust Fund
including distributions to the holders of the Class R Certificates on such
Distribution Date. This has the effect of decelerating the amortization of the
Class A Certificates relative to the amortization of the Mortgage Loans, and of
reducing the related
S-21
<PAGE> 27
Subordinated Amount. With respect to any Distribution Date, the difference, if
any, between (a) the related Subordinated Amount that would apply on such
Distribution Date after taking into account all distributions to be made on such
Distribution Date (exclusive of any reductions thereto attributable to
Subordination Reduction Amounts (as described below) on such Distribution Date)
and (b) the Required Subordinated Amount for such Distribution Date is the
"Excess Subordinated Amount" with respect to such Distribution Date. If, on any
Distribution Date, the Excess Subordinated Amount is, or, after taking into
account all other distributions to be made on such Distribution Date would be,
greater than zero (i.e., the related Subordinated Amount is or would be greater
than the Required Subordinated Amount), then any amounts relating to principal
which would otherwise be distributed to the holders of the Class A Certificates
on such Distribution Date shall instead be distributed to the holders of the
Class R Certificates (to the extent available therefor) in an amount equal to
the lesser of (x) the related Excess Subordinated Amount and (y) the amount
available for distribution on account of principal with respect to the related
Class A Certificates on such Payment Date; such amount being a "Subordination
Reduction Amount." In addition, due to the cash flow structure of the
Certificates as described below, Subordination Reduction Amounts may result even
prior to the occurrence of any decrease or "step down" in the related Required
Subordinated Amount. This is because the holders of the related Class A
Certificates will generally be entitled to receive 100% of collected principal,
even though the Security Balances of the Class A Certificates will, following
the accelerated amortization resulting from the application of the Net Monthly
Excess Cashflow, represent less than 100% of the related Mortgage Loan's
principal balance. In the absence of the provisions relating to Subordination
Reduction Amounts, the foregoing may otherwise increase the Subordinated Amounts
above the Required Subordinated Amount requirements even without the application
of any Net Monthly Excess Cashflow.
The Pooling and Servicing Agreement provides that, on any Distribution
Date, all unscheduled collections on account of principal (other than any such
amount applied to the payment of a Subordination Reduction Amount) with respect
to each Mortgage Loan during the period beginning on the day following the Due
Date in the month preceding the month in which such Distribution Date occurs,
and ending on the Due Date of the month in which such Distribution Date occurs
(each such period, a "Due Period") will be distributed to the holders of the
Class A Certificates on such Distribution Date. If any Mortgage Loan became a
Liquidated Mortgage Loan during its Due Period, the net Liquidation Proceeds (as
defined in the Prospectus) related thereto and allocated to principal may be
less than the Principal Balance of the related Mortgage Loan; the amount of any
such insufficiency is a "Liquidated Loan Loss." A "Liquidated Mortgage Loan" is,
in general, a defaulted Mortgage Loan as to which the Servicer has determined
that all amounts that it expects to recover on such Mortgage Loan have been
recovered (exclusive of any possibility of a deficiency judgment). In addition,
the Pooling and Servicing Agreement provides that the principal balance of any
Mortgage Loan after it becomes a Liquidated Mortgage Loan shall equal zero. The
Pooling and Servicing Agreement does not contain any rule that requires that the
amount of any Liquidated Loan Loss be distributed to the holders of the Class A
Certificates on the Distribution Date that immediately follows the event of
loss; i.e., the Pooling and Servicing Agreement does not require the current
recovery of losses. However, the occurrence of a Liquidated Loan Loss will
reduce the Subordinated Amount (and may result in a Subordination Deficit as
described below under "-- Overcollateralization and the Certificate Insurance
Policy"), which, to the extent that such reduction causes the Subordinated
Amount to be less than the related Required Subordinated Amount applicable to
the related Distribution Date, will require the payment of a Subordination
Increase Amount on such Distribution Date (or, if insufficient funds are
available on such Distribution Date, on subsequent Distribution Dates, until the
Subordinated Amount equals the Required Subordinated Amount).
Overcollateralization and The Certificate Insurance Policy. The Pooling
and Servicing Agreement defined a "Subordination Deficit" with respect to a
Distribution Date as the amount, if any, by which (x) the Security Balances with
respect to a Distribution Date, after taking into account all distributions to
be made on such Distribution Date (except for any Subordination Deficit and
Subordination Increase amount), exceeds (y) the sum of (a) the aggregate
Principal Balances of the related Mortgage Loans as of the close of business on
the last day of the related Due Period and (b) the amount, if any, on deposit in
the Pre-Funding Account on such Distribution Date, exclusive of reinvestment
income. The Pooling and Servicing Agreement requires the Trustee to make a claim
for an Insured Payment under the related Certificate Insurance Policy not later
S-22
<PAGE> 28
than the second Business Day prior to any Distribution Date as to which the
Trustee has determined that a Subordination Deficit will occur for the purpose
of applying the proceeds of such Insured Payment as a payment of principal to
the holders of the Class A Certificates on such Distribution Date. No payments
in respect of principal will be made under such Certificate Insurance Policy
unless a Subordination Deficit occurs. Investors in the Class A Certificates
should realize that, under extreme loss or delinquency scenarios applicable to
the Mortgage Loans that occur when no Subordination Deficit exists, they may
temporarily receive no distributions of principal when they would otherwise be
entitled thereto under the principal allocation provisions described herein. The
exposure to risk of loss of principal to the holders of the Class A Certificates
depends in part on the ability of the Certificate Insurer to satisfy its
obligations under the Certificate Insurance Policy.
PRIORITY OF PAYMENT
On each Distribution Date, the Trustee shall make the following
distributions, from funds on deposit in the Collection Account (other than
Future Distribution Amounts) and the amount of Insured Payments to be made on
such Distribution Date:
(a) to the Certificate Insurer, the Premium Amount;
(b) to the Trustee, an amount equal to the Trustee's Fees then due to
it;
(c) to the Certificate Insurer the lesser of (x) an amount equal to (i)
the amount then on deposit in the Collection Account remaining after the
foregoing distributions minus (ii) the Insured Distribution Amount for such
Distribution Date and (y) the amount of all Insured Payments and other payments
made by the Certificate Insurer pursuant to the Certificate Insurance Policy
(together with interest thereon at the Pass-Through Rate for the Class A
Certificates) which have not been previously repaid (the "Reimbursement Amount")
as of such Distribution Date;
(d) from amounts then on deposit in the Collection Account (including
any Insured Payments), to the Class A Certificateholders an amount equal to the
Class A Interest Distribution Amount, distributed on a pro rata basis to the
Class A Certificateholders as described below under "-- Class A Interest
Distribution Amount";
(e) from amounts then on deposit in the Collection Account (including
any related Insured Payments), to the Class A Certificateholders an amount equal
to the Class A Principal Distribution Amount, distributed as described below
under "-- Class A Principal Distribution Amount";
(f) from amounts then on deposit in the Collection Account, to the
holders of the Class R Certificates, the amount remaining on such Distribution
Date, if any.
With respect to any Distribution Date, "Future Distribution Amounts"
include (i) all scheduled payments of principal and interest collected but due
on a date subsequent to the related Due Period, (ii) all unscheduled recoveries
of principal, together with related payments of interest thereon, on the
Mortgage Loans received during the month in which such Distribution Date occurs,
(iii) all amounts received with respect to a Mortgage Loan that was repurchased
by the Asset Seller during the month in which such Distribution Date occurs and
(iv) all net Liquidation Proceeds collected by the Servicer during the month in
which such Distribution Date occurs.
CLASS A INTEREST DISTRIBUTION AMOUNT
On each Distribution Date, holders of each Class of Class A Certificates
will be entitled to receive interest distributions in an amount equal to the sum
of (a) interest accrued for the related Interest Accrual Period on the related
Security Balance thereof immediately prior to such Distribution Date at the
applicable Pass-Through Rate (to the extent of the amounts remaining for
distributions after payments under clauses (a) through (c) under "-- Priority of
Payment" above) and (b) the Class A Carry-Forward Amount, as applicable,
allocable to interest. The aggregate amount of interest allocable to the Class A
Certificates as determined separately (the "Class A Interest Distribution
Amount") will be allocable to the Class A
S-23
<PAGE> 29
Certificates on a pro rata basis in proportion to the amount of interest payable
thereon. The Class A Interest Distribution Amount with respect to the Class A
Certificates is calculated on the basis of a 360-day year consisting of twelve
30-day months.
With respect to any Distribution Date and the Class A Certificates, the sum
of the related Class A Interest Distribution Amount and the amount of the
related Subordination Deficit, if any, with respect to such Distribution Date is
the related "Insured Distribution Amount" for such Distribution Date.
For each Distribution Date, the "Interest Accrual Period" is the previous
calendar month.
The "Class A Carry-Forward Amount" as of any Distribution Date equals the
sum of (a) the amount, if any, by which (i) the related Insured Distribution
Amount for the immediately preceding Distribution Date exceeded (ii) the amount
actually distributed to the holders of the Class A Certificates on such
Distribution Date in respect thereof (including, without limitation, amounts
paid under the Certificate Insurance Policy) and (b) 30 days' interest on such
amount at the Pass-Through Rate applicable to the Class A Certificates for such
Distribution Date.
As described herein, the Class A Interest Distribution Amount allocable to
each Class of Class A Certificates is based on the Security Balance of such
Class immediately prior to the related Distribution Date. The Security Balance
of any Class of Class A Certificates as of any date of determination is equal to
the initial Security Balance thereof, reduced as described herein with respect
to such Class.
On any Distribution Date, the amount of the premium (the "Premium Amount")
payable to the Certificate Insurer is equal to one-twelfth of the product of a
percentage specified in the Pooling and Servicing Agreement and the aggregate
Security Balance of the Class A Certificates.
CLASS A PRINCIPAL DISTRIBUTION AMOUNT
Holders of the Class A Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the amounts remaining for
distribution after payments under clauses (a) through (d) under "-- Priority of
Payment" above, an amount ("Class A Principal Distribution Amount"), in
reduction of the Security Balances thereof as described below, which equals the
sum of (i) the portion of any Class A Carry-Forward Amount which relates to a
shortfall in a distribution of a related Subordination Deficit, (ii) all
scheduled installments of principal in respect of the Mortgage Loans received or
advanced during the Due Period, together with all unscheduled recoveries of
principal on such Mortgage Loans received by the Servicer during the prior
calendar month, (iii) the Principal Balance of each Mortgage Loan that was
repurchased by the Asset Seller during the prior calendar month, (iv) any
amounts received in connection with a substitution of a Mortgage Loan, (v) the
net Liquidation Proceeds collected by the Servicer during the prior calendar
month (to the extent such net Liquidation Proceeds are related to principal),
(vi) the amount of any Subordination Deficit for such Distribution Date, (vii)
the proceeds received by the Trustee of any termination of the Trust Fund (to
the extent such proceeds are related to principal), (viii) the amount of any
related Subordination Increase Amount for such Distribution Date, and (ix) with
respect to the Distribution Date occurring in , any amounts in the
Pre-Funding Account after giving effect to any purchase of Subsequent Mortgage
Loans; minus (x) the amount of any Subordination Reduction Amount for such
Distribution Date.
In no event will the Class A Principal Distribution Amount with respect to
any Distribution Date be (x) less than zero or (y) greater than the then
outstanding aggregate Security Balance of the Class A Certificates.
Distributions of the Class A Principal Distribution Amount will be
allocated [insert distribution priorities].
The "Servicer Remittance Date" with respect to any Distribution Date is the
18th day of the month in which such Distribution Date occurs, or if such 18th
day is not a business day, the business day immediately preceding such 18th day.
S-24
<PAGE> 30
The "Principal Balance" of any Mortgage Loan as of any date of
determination is the principal balance of such Mortgage Loan as of the Due Date
preceding such date of determination, as such principal balance is specified for
such Due Date in the amortization schedule, (before any adjustment to such
amortization schedule by reason of any bankruptcy (other than Deficient
Valuations (as defined in the Prospectus)) or similar proceeding or any
moratorium or similar waiver or grace period) after giving effect to prepayments
received prior to such Due Date, Deficient Valuations incurred prior to such Due
Date, and to the payment of principal due on such Due Date and irrespective of
any delinquency in payment by the related Mortgagor. The Principal Balance of a
Mortgage Loan that becomes a Liquidated Mortgage Loan (as defined herein) on or
prior to such Due Date shall be zero.
As of any Distribution Date, the "Security Balance" of a Class of Class A
Certificates will equal the initial principal amount of such Class on the
Closing Date less all amounts distributed to the holders of such Class on
account of principal.
See "Summary -- Special Prepayment Considerations" and "-- Special Yield
Considerations" and "Certain Yield and Prepayment Considerations" herein.
ADVANCES
Prior to each Distribution Date, the Servicer is required to make Advances
with respect to any payments of principal and interest (net of the related
Servicing Fees) which were due on the Mortgage Loans on the immediately
preceding Due Date and have not been received as of the business day immediately
preceding the related Servicer Remittance Date.
Such Advances are required to be made by the Servicer only to the extent
they are deemed by the Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making such Advances
is to maintain a regular cash flow to the Certificateholders, to maintain a
specified level of overcollateralization and to pay the premium due the
Certificate Insurer and to pay the Trustee, rather than to guarantee or insure
against losses. Any failure by the Servicer to make an Advance as required under
the Pooling and Servicing Agreement will constitute an Event of Default
thereunder, in which case the Trustee, as successor servicer, will be obligated
to make any such Advance, in accordance with the terms of the Pooling and
Servicing Agreement.
All Advances will be reimbursable to the Servicer making the Advance,
subject to certain conditions and restrictions, from late collections, insurance
proceeds and liquidation proceeds from the Mortgage Loan as to which such
unreimbursed Advance was made.
CERTIFICATE INSURANCE POLICY
The following information regarding the Certificate Insurance Policy has
been supplied by the Certificate Insurer for inclusion in this Prospectus
Supplement.
The Certificate Insurer, in consideration of the payment of the premium and
subject to the terms of the Certificate Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Owner that an amount equal to
each full and complete Insured Payment will be received by the Trustee, or its
successor as Trustee for the Owners, on behalf of the Owners from the
Certificate Insurer, for distribution by the Trustee to each Owner of each
Owner's proportionate share of the Insured Payment. The Certificate Insurer's
obligations under the Certificate Insurance Policy with respect to a particular
Insured Payment shall be discharged to the extent funds equal to the applicable
Insured Payment are received by the Trustee, whether or not such funds are
properly applied by the Trustee. Insured Payments shall be made only at the time
set forth in the Certificate Insurance Policy, and no accelerated Insured
Payments shall be made regardless of any acceleration of the Class A
Certificates, unless such acceleration is at the sole option of the Certificate
Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance Policies
do 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).
S-25
<PAGE> 31
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the
Certificate Insurer's Fiscal Agent of (i) a certified copy of the order
requiring the return of a preference payment, (ii) an opinion of counsel
satisfactory to the Certificate Insurer that such order is final and not subject
to appeal, (iii) an assignment in such form as is reasonably required by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all rights
and claims of the Owner relating to or arising under the Class A Certificates
against the debtor which made such preference payment or otherwise with respect
to such preference payment and (iv) appropriate instruments to effect the
appointment of the Certificate Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Certificate Insurer, provided that if such documents are
received after 12:00 noon New York City time on such Business Day, they will be
deemed to be received on the following Business Day. Such payments shall be
disbursed to the receiver or trustee in bankruptcy named in the final order of
the court exercising jurisdiction on behalf of the Owner and not to any Owner
directly unless such Owner has returned principal or interest paid on the Class
A Certificates to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
Certificate Insurance Policy no later than 12:00 noon, City of New York time, on
the later of the Distribution Date on which the related Insured Payment is due
or the Business Day following receipt in New York, New York on a Business Day by
, as the Certificate Insurer's Fiscal Agent or any successor fiscal
agent appointed by the Certificate Insurer (the "Certificate Insurer's Fiscal
Agent") of a Notice (as described below); provided that if such Notice is
received after 12:00 noon, City of New York time, on such Business Day, it will
be deemed to be received on the following Business Day. If any such Notice
received by the Certificate Insurer's Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making a claim under the Certificate
Insurance Policy it shall be deemed not to have been received by the Certificate
Insurer's Fiscal Agent for purposes of this paragraph, and the Certificate
Insurer or the Certificate Insurer's Fiscal Agent, as the case may be, shall
promptly so advise the Trustee and the Trustee may submit an amended Notice.
Insured Payments due under the Certificate Insurance Policy, unless
otherwise stated therein, will be disbursed by the Certificate Insurer's Fiscal
Agent to the Trustee on behalf of the Owners by wire transfer of immediately
available funds in the amount of the Insured Payment less, in respect of Insured
Payments related to Preference Amounts, any amount held by the Trustee for the
payment of such Insured Payment and legally available therefor.
The Certificate Insurer's Fiscal Agent is the agent of the Certificate
Insurer only and the Certificate Insurer's Fiscal Agent shall in no event be
liable to Owners for any acts of the Certificate Insurer's Fiscal Agent or any
failure of the Certificate Insurer to deposit, or cause to be deposited,
sufficient funds to make payments due under the Certificate Insurance Policy.
As used in the Certificate Insurance Policy, the following terms shall have
the following meanings:
"Business Day" means 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 Pooling and Servicing
Agreement is located are authorized or obligated by law or executive order
to close.
"Insured Payment" means (i) as of any Distribution Date, an amount
equal to the sum of (a) the Class A Interest Distribution Amount minus the
related Available Funds and (b) the Subordination Deficit and (ii) the
related unpaid Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A
attached to each Certificate Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the Trustee
specifying the Insured Payment which shall be due and owing on the
applicable Distribution Date.
"Owner" means each related Class A Certificateholder (as defined in
the Pooling and Servicing Agreement) who, on the applicable Distribution
Date, is entitled under the terms of the applicable Class A Certificate, to
payment under the related Certificate Insurance Policy.
S-26
<PAGE> 32
"Preference Amount" means any amount previously distributed to an
Owner on the related Class A Certificates that is recoverable and sought to
be recovered as a voidable preference by a trustee in bankruptcy pursuant
to the United States Bankruptcy Code (11 U.S.C.), as amended from time to
time in accordance with a final nonappealable order of a court having
competent jurisdiction.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined in the Certificate Insurance Policy shall have the respective
meanings set forth in the Pooling and Servicing Agreement as of the date of
execution of the Certificate Insurance Policies, without giving effect to any
subsequent amendment or modification to the Pooling and Servicing Agreement
unless such amendment or modification has been approved in writing by the
Certificate Insurer.
Any notice under the Certificate Insurance Policy or service of process on
the Certificate Insurer's Fiscal Agent may be made at the address listed below
for the Certificate Insurer's Fiscal Agent or such other address as the
Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Certificate Insurer's Fiscal Agent is ,
Attention: Municipal Registrar and Paying Agency, or such other address as the
Certificate Insurer's Fiscal Agent shall specify to the Trustee in writing.
The Certificate Insurance Policy is being 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 principles thereof.
The insurance provided by the Certificate Insurance Policies is not covered
by the Property/Casualty Insurance Certificate Fund specified in Article 76 of
the New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason. The
premium on each of the Certificate Insurance Policies is not refundable for any
reason including payment, or provision being made for payment, prior to maturity
of the Class A Certificates.
CERTIFICATE INSURER
The following information has been supplied by the Certificate Insurer for
inclusion in this Prospectus Supplement.
The Certificate Insurer is a company, incorporated
under the laws of the State of and licensed to do business in all 50
states, the District of Columbia and Puerto Rico.
, and have each assigned a
claims-paying ability rating to the Certificate Insurer.
All information regarding the Certificate Insurer, a wholly owned
subsidiary of , including the financial statements of the Certificate
Insurer for the year ended December 31, 199 , prepared in accordance with
generally accepted accounting principles, included in the Annual Report on Form
10-K of for the year ended December 31, 199 , is hereby incorporated
by reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Certificate Insurer included in documents
filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Class
A Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
S-27
<PAGE> 33
The tables below present selected financial information of the Certificate
Insurer determined in accordance with generally accepted accounting principles:
<TABLE>
<CAPTION>
SAP
------------------------
---------- -----------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Admitted Assets.............................................
Liabilities.................................................
Capital and Surplus.........................................
</TABLE>
<TABLE>
<CAPTION>
, 199
------------------------
---------- -----------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets.............................................
Liabilities.................................................
Capital and Surplus.........................................
</TABLE>
For additional financial information concerning the Certificate Insurer,
see the audited financial statements of the Certificate Insurer incorporated by
reference herein. Copies of the financial statements of the Certificate Insurer
incorporated herein by reference and copies of the Certificate Insurer's annual
statement for the year ended December 31, 199 prepared in accordance with
statutory accounting standards are available, without charge, from the
Certificate Insurer. The address of the Certificate Insurer's administrative
offices and its telephone number is and .
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity and the aggregate amount of distributions on the
Class A Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans. Such yield may be adversely affected by a higher
or lower than anticipated rate of principal payments on the Mortgage Loans. The
rate of principal payments on such Mortgage Loans will in turn be affected by
the amortization schedules of the Mortgage Loans, the rate and timing of
principal prepayments thereon by the Mortgagors, liquidations of defaulted
Mortgage Loans and purchases of Mortgage Loans due to certain breaches of
representations or warranties. The timing of changes in the rate of prepayments,
liquidations and purchases of the Mortgage Loans may, and the timing of losses
on the Mortgage Loans will, significantly affect the yield on the Class A
Certificates to an investor, even if the average rate of principal payments
experienced over time is consistent with an investor's expectation. Since the
rate and timing of principal payments on the Mortgage Loans will depend on
future events and on a variety of factors (as described herein and in the
Prospectus under "Yield Considerations"), no assurance can be given as to such
rate or the timing of principal payments on the Class A Certificates.
The Mortgage Loans may be prepaid by the mortgagors at any time; however,
certain of the Mortgage Loans are subject to a prepayment charge for
prepayments. See "Description of the Mortgage Loans" herein. In addition, the
Mortgage Loans contain a provision that may result in the acceleration of the
payment of the Mortgage Loan in the event of the transfer or sale of the
Mortgaged Property. Prepayments, liquidations and purchases of the Mortgage
Loans will result in distributions to holders of the Class A Certificates of
principal amounts that would otherwise be distributed over the remaining terms
of the Mortgage Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest
rates, solicitations and servicing decisions. In addition, if prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rose significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayments on the Mortgage
Loans would be expected to decrease.
S-28
<PAGE> 34
The yield to maturity on the Class A Certificates will depend on, among
other things, the price paid by the holders of the Class A Certificates and the
Pass-Through Rate. The extent to which the yield to maturity of a Class A
Certificate is sensitive to prepayments will depend, in part, upon the degree to
which it is purchased at a discount or premium. In general, if a Class of Class
A Certificates is purchased at a premium and principal distributions thereon
occur at a rate faster than anticipated at the time of purchase, the investor's
actual yield to maturity will be lower than that assumed at the time of
purchase. Conversely, if a Class of Class A Certificates is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will be
lower than that assumed at the time of purchase. For additional considerations
relating to the yield on the Class A Certificates, see "Yield Considerations" in
the Prospectus.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values.
In addition, with respect to the Class A Certificates, because principal
distributions are paid to certain of such classes before other classes, holders
of classes having a later priority of payment bear a greater risk of losses than
holders of classes having earlier priorities for distribution of principal.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a Certificate until each dollar of principal
of such Certificate is scheduled to be repaid to an investor (assuming no
losses). The weighted average life of the Class A Certificates will be
influenced by the rate at which principal of the Mortgage Loans is paid, which
may be in the form of scheduled amortization or prepayments (for this purpose,
the term "prepayment" includes liquidations due to default).
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Standard Prepayment Assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA, i.e. no prepayments. Correspondingly, " % SPA" assumes
prepayment rates equal to % of SPA, and so forth. SPA does not purport to
be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
S-29
<PAGE> 35
The following table has been prepared assuming that the Mortgage Loans have
the following characteristics (dollar amounts are approximate):
<TABLE>
<CAPTION>
REMAINING ORIGINAL
TERM TERM
PRINCIPAL TO MATURITY TO MATURITY
BALANCE MORTGAGE RATE (IN MONTHS) (IN MONTHS)
--------- ------------- ------------- -------------
<S> <C> <C> <C>
</TABLE>
In addition, the following tables have been prepared assuming that the
Mortgage Loans have the following characteristics: (i) all calculations for the
Mortgage Loans are done on the basis of a 360-day year consisting of twelve
30-day months; (ii) with respect to the Class A Certificates, all weighted
average lives are calculated on the basis of a 360-day year and a 30-day month;
(iii) Due Dates on each Mortgage Loan are the first day of the month; (iv) all
scheduled monthly payments on the Mortgage Loans are made in a timely fashion on
the first day of each month, commencing in , and prepayments are assumed to be
received on the last day of each month, commencing in (except for
the hypothetical mortgage loans with an or first Due Date, for
which scheduled monthly payments commence in or , respectively, and prepayments
commence in or , respectively); (v) distributions on the Class A
Certificates are made on the 25th day of each month, commencing in ; (vi)
the Closing Date is ; (vii) the Required Subordinated Amount will be set
as provided in the Pooling and Servicing Agreement; (viii) the Mortgage Loans
will prepay at the indicated assumed percentages of SPA; and (ix) with regard to
the weighted average lives, the Servicer does not exercise its option to
terminate the Trust Fund when the aggregate principal balance of the Mortgage
Loans is reduced to less than % of the aggregate Principal Balance of the
Initial Mortgage Loans as of the Cut-off Date and the aggregate Principal
Balance of the Subsequent Mortgage Loans as of the related Subsequent Cut-off
Date.
Based upon the foregoing assumptions, certain of which may not reflect
actual experience, the following tables indicate the projected weighted average
life of each Class of Class A Certificates and the percentages of the initial
Security Balance of each such Class that would be outstanding after each of the
dates shown at various percentages of SPA.
S-30
<PAGE> 36
PERCENTAGE OF INITIAL SECURITY BALANCE
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF SPA
CLASS A-1 CERTIFICATES
<TABLE>
<CAPTION>
DISTRIBUTION DATE % % % % % % % %
- ----------------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Lives in
Years(1)..........................
</TABLE>
- ---------------
(1) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the Security
Balance by the number of years from the date of issuance of such Certificate
to the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the initial Security Balance of the Certificate.
S-31
<PAGE> 37
PERCENTAGE OF INITIAL SECURITY BALANCE
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF SPA
CLASS A-2 CERTIFICATES
<TABLE>
<CAPTION>
DISTRIBUTION DATE % % % % % % % %
- ----------------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Lives in
Years(1)..........................
</TABLE>
- ---------------
(1) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the Security
Balance by the number of years from the date of issuance of such Certificate
to the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the initial Security Balance of the Certificate.
S-32
<PAGE> 38
PERCENTAGE OF INITIAL SECURITY BALANCE
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF SPA
CLASS A-3 CERTIFICATES
<TABLE>
<CAPTION>
DISTRIBUTION DATE % % % % % % % %
- ----------------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Lives in
Years(1)..........................
</TABLE>
- ---------------
(1) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the Security
Balance by the number of years from the date of issuance of such Certificate
to the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the initial Security Balance of the Certificate.
S-33
<PAGE> 39
PERCENTAGE OF INITIAL SECURITY BALANCE
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF SPA
CLASS A-4 CERTIFICATES
<TABLE>
<CAPTION>
DISTRIBUTION DATE % % % % % % % %
- ----------------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Lives in
Years(1)..........................
</TABLE>
- ---------------
(1) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the Security
Balance by the number of years from the date of issuance of such Certificate
to the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the initial Security Balance of the Certificate.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth above,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at the
given percentages of SPA until maturity or that all of the Mortgage Loans will
prepay at the same percentage of SPA. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the table at the various percentages of SPA
specified, even if the weighted average remaining term to maturity of the
Mortgage Loans is as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment or loss experience, will affect the percentages of initial Security
Balance outstanding over time and the weighted average lives of the Classes of
Class A Certificates.
THE SERVICER
GENERAL
(in its capacity as servicer, the "Servicer") will act as
servicer for the Mortgage Loans pursuant to the Pooling and Servicing Agreement.
The Servicer is an indirect subsidiary of , a corporation [and an
affiliate of the Depositor].
As of , the Servicer and its subsidiaries were servicing approximately
mortgage loans in its Owned and Managed Servicing Portfolio representing an
aggregate outstanding principal balance of approxi-
S-34
<PAGE> 40
mately $ , and approximately mortgage loans in its Third-Party
Servicing Portfolio representing an aggregate outstanding principal balance of
approximately $ .
The Certificates will not represent an interest in or obligation of, nor
are the Mortgage Loans guaranteed by, the Servicer or any of its affiliates.
DELINQUENCY AND LOSS EXPERIENCE OF THE SERVICER
Owned and Managed Servicing Portfolio. The following tables set forth
information relating to the delinquency, loan loss and foreclosure experience of
the Servicer for its Owned and Managed Servicing Portfolio for 199 , and for
each of the prior years. The Servicer's "Owned and Managed Servicing
Portfolio" consists of the Servicer's servicing portfolio of fixed and variable
rate mortgage loans excluding certain loans serviced by the Servicer that were
not originated or purchased and reunderwritten by the Servicer or any affiliate
thereof. In addition to the Owned and Managed Servicing Portfolio, the Servicer
serviced as of , 199 , approximately mortgage loans with an
aggregate principal balance as of such date of approximately $ ; such
loans were not originated by the Servicer or any affiliate thereof and are being
serviced for third parties on a contract servicing basis (the "Third-Party
Servicing Portfolio"). No loans in the Third-Party Servicing Portfolio are
included in the tables set forth below.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF
THE SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------------------------
MONTHS ENDING 19
---------------------- 19 ------------------
---------------------- ----------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF MORTGAGE AMOUNT OF MORTGAGE AMOUNT OF AMOUNT
LOANS (000) LOANS (000) LOANS (000)
----------- -------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Portfolio.........................
Delinquency.......................
Percentage(1)
30-59 days......................
60-89 days......................
90 days or more.................
Total...................
Foreclosure Rate(2)...............
REO Properties(3).................
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------------------------------
19 19
------------------------ ------------------------
NUMBER DOLLAR NUMBER DOLLAR
OF MORTGAGE AMOUNT OF MORTGAGE AMOUNT
LOANS (000) LOANS (000)
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Portfolio.......................................
Delinquency.....................................
Percentage(1)
30-59 days....................................
60-89 days....................................
90 days or more...............................
Total.................................
Foreclosure Rate(2).............................
REO Properties(3)...............................
</TABLE>
- ---------------
(1) The period of delinquency is based on the number of days payments are
contractually past due. The delinquency statistics for the period exclude
loans in foreclosure.
S-35
<PAGE> 41
(2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount of
mortgage loans in foreclosure as a percentage of the total number of
mortgage loans or the dollar amount of mortgage loans, as the case may be,
as of the date indicated.
(3) REO Properties (i.e., "real estate owned" properties -- properties relating
to mortgage foreclosed or for which deeds in lieu of foreclosure have been
accepted, and held by the Servicer pending disposition) percentages are
calculated using the number of loans, not the dollar amount.
LOAN LOSS EXPERIENCE OF THE SERVICER'S OWNED AND
MANAGED SERVICING PORTFOLIO OF MORTGAGE LOANS
<TABLE>
<CAPTION>
MONTHS ENDING YEARS ENDING DECEMBER 31,
---------------- -----------------------------------------
19 19 19 19
---------------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average amount outstanding(1).........
Gross losses(2).......................
Recoveries(3).........................
Net losses(4).........................
Net losses as a percentage of average
amount outstanding..................
</TABLE>
- ---------------
(1) "Average Amount Outstanding" during the period is the arithmetic average of
the principal balances of the mortgage loans outstanding on the last
business day of each month during the period.
(2) "Gross Losses" are amounts which have been determined to be uncollectible
relating to mortgage loans for each respective period.
(3) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries".
[The Servicer experienced an increase in the net loss rate on its Owned and
Managed Servicing Portfolio during the period through . It believes
that such increase was due to four primary factors: the seasoning of its
portfolio, economic conditions, a decline in property values in certain regions
and the acceleration of chargeoffs on loans in . In addition, the level of
net losses during such period was negatively impacted by the performance on its
Non-Income Verification ("NIV") loan program. The net loss rates as a percentage
of the average amount outstanding on its Owned and Managed Servicing Portfolio,
excluding NIV loans, are %, %, % and % for the periods
ending , , and , respectively.]
There can be no assurance that the delinquency experience of the Mortgage
Loans will correspond to the delinquency experience of the Servicer's servicing
portfolio set forth in the foregoing tables. The statistics shown above
represent the delinquency experience for the Servicer's servicing portfolio only
for the periods presented, whereas the aggregate delinquency experience on the
Mortgage Loans will depend on the results obtained over the life of the Mortgage
Loans. The Servicer's servicing portfolio includes mortgage loans with a variety
of payment and other characteristics (including geographic location) which are
not necessarily representative of the payment and other characteristics of the
Mortgage Loans. The Servicer's servicing portfolio includes mortgage loans
underwritten pursuant to guidelines not necessarily representative of those
applicable to the Mortgage Loans. It should be noted that if the residential
real estate market should experience an overall decline in property values, the
actual rates of delinquencies and foreclosures could be higher than those
previously experienced by the Servicer. In addition, adverse economic conditions
may affect the actual rates of delinquencies and foreclosures with respect to
the Mortgage Loans.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement"), dated as of ,
199 among the Depositor, the Servicer and
S-36
<PAGE> 42
, as Trustee. Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Class A Certificates. See "Description
of the Agreements -- Material Terms of the Pooling and Servicing Agreements,
Trust Agreements and Underlying Servicing Agreements" in the Prospectus.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee for each Mortgage Loan (the "Servicing Fee") is payable
out of the interest payments on such Mortgage Loan. The Servicing Fee on each
Mortgage Loan is payable monthly and is equal to one-twelfth of [a fixed
percentage per annum] (the "Servicing Fee Rate") multiplied by the Principal
Balance of such Mortgage Loan on the first day of the related Due Period. In
addition to the Servicing Fee, the Servicer shall be entitled to receive, as
additional servicing compensation, to the extent permitted by applicable law and
the related Mortgage Notes, any late payment charges, assumption fees or similar
items. The Servicer shall pay all expenses incurred by it in connection with its
servicing activities under the Pooling and Servicing Agreement and shall not be
entitled to reimbursement therefor except as specifically provided in the
Pooling and Servicing Agreement.
THE TRUSTEE
(the "Trustee"), [a national banking
association,] will act as trustee for the Certificates pursuant to the Pooling
and Servicing Agreement. The Trustee will be entitled to a fee, payable monthly,
equal to one-twelfth of % per annum multiplied by the Principal Balance of
each Mortgage Loan on the first day of the related Due Period (the "Trustee's
Fee"). See "Description of the Agreements -- Material Terms of the Pooling and
Servicing Agreements, Trust Agreements and Underlying Servicing
Agreements -- The Trustee" in the Prospectus.
TERMINATION
The Pooling and Servicing Agreement will terminate upon notice to the
Trustee of either: (a) the later of the distribution to Certificateholders of
the final payment or collection with respect to the last Mortgage Loan (or
Advances of same by the Servicer), or the disposition of all funds with respect
to the last Mortgage Loan and the remittance of all funds due under the Pooling
and Servicing Agreement and the payment of all amounts due and payable to the
Certificate Insurer and the Trustee or (b) mutual consent of the Servicer, the
Certificate Insurer and all Certificateholders in writing; provided, however,
that in no event will the Trust Fund established by the Pooling and Servicing
Agreement terminate later than twenty-one years after the death of the last
surviving lineal descendant of the person named in the Pooling and Servicing
Agreement.
Subject to provisions in the Pooling and Servicing Agreement, the Servicer
may, at its option and at its sole cost and expense, on any Distribution Date
when the aggregate Principal Balance of the Mortgage Loans is less than %
of the sum of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date and the aggregate principal balance of the Subsequent Mortgage
Loans as of the related Subsequent Cut-off Date, purchase from the Trust Fund
all of the outstanding Mortgage Loans at a price equal to the sum of (a) 100% of
the Principal Balance of each outstanding Mortgage Loan, (b) the aggregate
amount of accrued and unpaid interest on the Mortgage Loans through the related
Due Period and 30 days' accrued interest thereon at a rate equal to the Mortgage
Rate (net of the Servicing Fee Rate in the case of such a purchase by the
Servicer), (c) any unreimbursed amounts due to the Certificate Insurer under the
Pooling and Servicing Agreement), (d) any excess of the actual stated principal
balance of each such Mortgage Loan over the Principal Balance thereof, the
aggregate amount of accrued and unpaid interest on such excess through the
related due period and 30 days' interest on such excess at a rate equal to the
related Mortgage Rate with respect to each related Mortgage Loan, and (e) the
amount of any unreimbursed Servicing Advances made by the Servicer with respect
to the related Mortgage Loans. Any such purchase shall be accomplished by
deposit into the related Collection Account of the purchase price specified
above. No such termination is permitted without the prior written consent of the
Certificate Insurer if it would result in a draw on the related Certificate
Insurance Policy. See "Description of the Securities -- Termination" in the
Prospectus.
S-37
<PAGE> 43
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Class A Certificates, [Cadwalader, Wickersham &
Taft] [Hunton & Williams], counsel to the Company, will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust Fund
will qualify as a REMIC under the Code.
For federal income tax purposes, each Class of Class A Certificates will
represent ownership of "regular interests" in the REMIC and will generally be
treated as representing ownership of debt instruments issued by the REMIC and
the Class R Certificates will constitute the sole class of "residual interests"
in the REMIC. See "Federal Income Tax Consequences -- REMICs" in the Prospectus.
For federal income tax reporting purposes, the Class A Certificates will
[not] be treated as having been issued with original issue discount. The
prepayment assumption that will be used with respect to the Class A Certificates
in determining the rate of accrual of original issue discount, market discount
and premium, if any, for federal income tax purposes will be based on the
assumption that, subsequent to the date of any determination the Mortgage Loans
will prepay at a rate equal to a % SPA. No representation is made that the
Mortgage Loans will prepay at this rate or at any other rate. See "Federal
Income Tax Consequences -- REMICs -- Taxation of Owners of Regular
Securities -- Original Issue Discount" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Class A Certificates should be aware that the OID Regulations do not
adequately address certain issues relevant to, or are not applicable to,
securities such as the Class A Certificates. In addition, there is considerable
uncertainty concerning the application of the OID Regulations to REMIC Regular
Certificates that provide for payments based on an adjustable rate. Because of
the uncertainty concerning the application of Section 1272(a)(6) of the Code to
such Certificates and because the rules of the OID Regulations relating to debt
instruments having an adjustable rate of interest are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the IRS could assert that
the Class A Certificates are issued with original issue discount or should be
governed by the rules applicable to debt instruments having contingent payments
or by some other method not yet set forth in regulations. Prospective purchasers
of the Class A Certificates are advised to consult their tax advisors concerning
the tax treatment of such Certificates.
In certain circumstances the OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, it is possible that the holder of a
Certificate may be able to select a method for recognizing original issue
discount that differs from that used in preparing reports to the
Certificateholders and the IRS.
The Class A Certificates may be treated for federal income tax purposes as
having been issued at a premium. Whether any holder of a Class A Certificate
will be treated as holding a certificate with amortizable bond premium will
depend on such Certificateholders' purchase price and the distributions
remaining to be made on such Certificate at the time of its acquisition by such
Certificateholder. Holders of the Class A Certificates should consult their tax
advisors regarding the possibility of making an election to amortize such
premium. See "Certain Federal Income Tax Consequences -- REMICs -- Taxation of
Owners of Regular Securities" and "-- Premium" in the Prospectus.
The Class A Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Class A Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code generally to the extent that such Class A
Certificates are treated as "real estate assets" under Section 856(c)(5)(A) of
the Code. Moreover, the Class A Certificates will be "qualified mortgages"
within the meaning of Section 860G(a)(3) of the Code. See "The Pooling and
Servicing Agreement -- Termination" herein and "Certain Federal Income Tax
Consequences -- REMICs -- Characterization of Investments in REMIC Securities"
in the Prospectus.
S-38
<PAGE> 44
For further information regarding federal income tax consequences of
investing in the Class A Certificates, see "Federal Income Tax
Consequences -- REMICs" in the Prospectus.
LEGAL INVESTMENT
[The Class A Certificates constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization. As such, the Class A Certificates are legal investments for
certain entities to the extent provided in the Enhancement Act. However,
institutions subject to the jurisdiction of the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or state banking or insurance authorities should
review applicable rules, supervisory policies and guidelines of these agencies
before purchasing any of the Class A Certificates, as certain Classes of Class A
Certificates may be deemed to be unsuitable investments under one or more of
these rules, policies and guidelines and whether certain restrictions may apply
to investments in other Classes of Class A Certificates. It should also be noted
that certain states recently have enacted, or have proposed enacting,
legislation limiting to varying extents the ability of certain entities (in
particular insurance companies) to invest in mortgage related securities.] [The
Class A Certificates will not constitute "mortgage related securities" for
purposes of the Enhancement Act.] Investors should consult with their own legal
advisors in determining whether and to what extent the Class A Certificates
constitute legal investments for such investors. See "Legal Investment" in the
Prospectus.
ERISA CONSIDERATIONS
As described in the Prospectus under "ERISA Considerations", Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Section 4975 of the Code impose certain duties and restrictions on employee
benefit plans and certain other retirement plans and arrangements subject
thereto (collectively, "Plans") and on persons who have certain specified
relationships to Plans, including fiduciaries and service providers. Comparable
duties and restrictions may exist with respect to any "governmental plan" (as
defined in Section 3(32) of ERISA) subject to a federal, state or local law
("Similar Law") which is, to a material extent, similar to the foregoing
provisions of ERISA or the Code. There are certain exemptions issued by the
United States Department of Labor (the "DOL") that may be applicable to an
investment by a Plan in the Class A Certificates, including the individual
administrative exemption described below and Prohibited Transaction Class
Exemption 83-1 ("PTE 83-1"). For a further discussion of the individual
administrative exemption and PTE 83-1, including the necessary conditions to
their applicability, and other important factors to be considered by a Plan
contemplating investing in the Class A Certificates, see "ERISA Considerations"
in the Prospectus.
[On May 14, 1993, the DOL issued to the NationsBank Corporation an
individual administrative exemption, Prohibited Transaction Exemption 93-31, 59
Fed. Reg. 26820] [On , 199 , the DOL issued to an
individual administrative exemption, prohibited Transaction Exemption -
, Fed. Reg. ] (the "Exemption"), from certain of the prohibited
transaction rules of ERISA with respect to the initial purchase, the holding and
the subsequent resale by a Plan of certificates in pass-through trusts that meet
the conditions and requirements of the Exemption. The Exemption might apply to
the acquisition, holding and resale of the Class A Certificates by a Plan,
provided that specified conditions are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by a Plan of the Class A Certificates is the condition
that the Plan investing in the Class A Certificates be an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act").
Before purchasing a Class A Certificate, a fiduciary of a Plan should make
its own determination as to the availability of the exemptive relief provided in
the Exemption or the availability of any other prohibited
S-39
<PAGE> 45
transaction exemptions (including PTE 83-1), and whether the conditions of any
such exemption will be applicable to the Class A Certificates, and fiduciary of
a governmental plan should make its own determination as to the need for an
availability of any exemptive relief under Similar Law. Any fiduciary of a Plan
or governmental plan considering whether to purchase a Class A Certificate
should also carefully review with its own legal advisors the applicability of
the fiduciary duty and prohibited transaction provisions of ERISA, the Code or
Similar Law to such investment. See "ERISA Considerations" in the Prospectus.
INVESTMENTS BY PLANS ARE SUBJECT TO ERISA'S GENERAL FIDUCIARY REQUIREMENTS.
ACCORDINGLY, BEFORE INVESTING IN A CLASS A CERTIFICATE, A PLAN FIDUCIARY SHOULD
DETERMINE WHETHER SUCH AN INVESTMENT IS PERMITTED IN ACCORDANCE WITH THE
DOCUMENTS GOVERNING THE PLAN AND IS PRUDENT FOR THE PLAN IN VIEW OF ITS OVERALL
INVESTMENT POLICY AND THE COMPOSITION AND DIVERSIFICATION OF ITS PORTFOLIO.
The sale of Class A Certificates to a Plan is in no respect a
representation by the Depositor or Underwriter that this investment meets all
relevant legal requirements with respect to investments by Plans generally or
any particular Plan, or that this investment is appropriate for Plans generally
or any particular Plan.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated , 1997 (the "Underwriting Agreement"), among (the
"Underwriter") and the Depositor, the Underwriter has agreed to purchase and the
Depositor has agreed to sell to the Underwriter the Class A Certificates.
The distribution of the Class A Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Class A Certificates, before deducting expenses
payable by the Depositor, will be approximately % of the aggregate initial
Security Balance of the Class A Certificates plus accrued interest on the Class
A Certificates from to (but not including ) . [The Underwriter is
an affiliate of the Depositor.] The Underwriter may effect such transactions by
selling the Class A Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the sale of the Class A
Certificates, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting compensation. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the Class A
Certificates may be deemed to be underwriters and any profit on the resale of
the Class A Certificates positioned by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
In connection with the offering, the Underwriter may purchase and sell the
Class A Certificates in the open market. These transactions may include
over-allotment and purchases to cover short positions created by the Underwriter
in connection with the offering. Short positions created by the Underwriter
involve the sale by the Underwriter of a greater number of Class A Certificates
than they are required to purchase from the Depositor in the offering. The
Underwriter may also impose a penalty bid, whereby selling concessions allowed
to broker-deals in respect of the securities sold in the offering may be
reclaimed by the Underwriter if such Class A Certificates are repurchased by the
Underwriter in covering transactions. These activities may maintain or otherwise
affect the market price of the Class A Certificates, which may be higher than
the price that might otherwise prevail in the open market; and these activities,
if commenced, may be discontinued at any time. These transactions may be
affected in the over-the-counter markets or otherwise.
[This Prospectus Supplement and Prospectus may be used by NationsBanc
Montgomery Securities, Inc., to the extent required, in connection with market
making transactions in the Class A Certificates. NationsBanc Montgomery
Securities, Inc. may act as principal or agent in such transaction.]
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act, or
contribute to payments required to be made in respect thereof.
S-40
<PAGE> 46
SECONDARY MARKET
There will not be any market for the Class A Certificates prior to the
issuance thereof. The Underwriter intends to act as a market maker in the Class
A Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so.
There can be no assurance that a secondary market for the Class A Certificates
will develop or, if it does develop, that it will continue. Further, no
application will be made to list the Class A Certificates on any securities
exchange. Accordingly, the liquidity of the Class A Certificates may be limited.
The primary source of information available to investors concerning the Class A
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Securities -- Reports to Securityholders," which will
include information as to the outstanding Security Balances of the Class A
Certificates. There can be no assurance that any additional information
regarding the Class A Certificates will be available through any other source.
In addition, the Depositor is not aware of any source through which price
information about the Class A Certificates will be generally available on an
ongoing basis. The limited nature of such information regarding the Class A
Certificates may adversely affect the liquidity of the Class A Certificates,
even if a secondary market for the Class A Certificates becomes available.
LEGAL OPINIONS
The validity of the Class A Certificates and certain tax matters with
respect thereto will be passed upon for the Depositor by [Cadwalader, Wickersham
& Taft] [Hunton & Williams]. Certain legal matters will be passed upon for the
Underwriter by [Cadwalader, Wickersham & Taft] [Hunton & Williams].
RATINGS
It is a condition of the issuance of the Class A Certificates that
they be rated " " by and " " by .
The ratings assigned by to mortgage loan asset backed pass-through
certificates address the likelihood of the receipt by Certificateholders of
payments required under the Pooling and Servicing Agreement. 's
ratings take into consideration the credit quality of the mortgage pool,
structural and legal aspects associated with the Certificates, and the extent to
which the payment stream in the mortgage pool is adequate to make payments
required under the Certificates. 's rating on the Certificates does
not, however, constitute a statement regarding frequency of prepayments on the
mortgages. See "Certain Yield and Prepayment Considerations" herein.
The ratings assigned by to mortgage loan asset backed
pass-through certificates also address the likelihood of the receipt by
Certificateholders of all distributions to which such Certificateholders are
entitled. The rating process addresses the structural and legal aspects
associated with the Certificates, including the nature of the underlying
mortgage loans. The ratings assigned to mortgage loan asset backed pass-through
certificates do not represent any assessment of the likelihood or rate of
principal prepayments. The ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield.
The Depositor has not requested a rating on the Class A Certificates by any
rating agency other than and . However, there can be no assurance as
to whether any other rating agency will rate the Class A Certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the Certificates by another rating agency, if assigned at all, may be lower than
the ratings assigned to the Class A Certificates by and .
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Class A Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional support or credit enhancement with
respect to the Class A Certificates.
S-41
<PAGE> 47
EXPERTS
The balance sheets of the Certificate Insurer, as of and
and the related statements of income, changes in shareholder's equity
and cash flow for the years ended and , incorporated by reference
in this Prospectus Supplement have been audited by , independent auditors,
as set forth in their report thereon in reliance upon the authority of such firm
as experts in accounting and auditing.
S-42
<PAGE> 48
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Advances..................................S-6
Asset Seller..............................S-1
Available Funds......................... S-21
Beneficial Owner..........................S-1
Book-Entry Certificates................. S-1
Business Day............................ S-26
Capitalized Interest Account..............S-3
Cede.................................... S-20
Certificate Insurance Policy............Cover
Certificate Insurer.....................Cover
Certificate Insurer's Fiscal Agent...... S-26
Certificateholders...................... ii
Certificates............................Cover
Class...................................Cover
Class A Carry-Forward Amount............ S-24
Class A Certificates....................Cover
Class A Interest Distribution Amount......S-4
Class A Principal Distribution
Amount..................................S-4
Closing Date............................ ii
Code.................................... S-7
Definitive Certificate....................S-1
Delinquent Mortgage Loans.................S-3
Depositor..................................ii
Distribution Date..........................ii
DOL..................................... S-39
DTC........................................ii
Due Date.................................S-12
Due Period.............................. S-22
Enhancement Act...........................S-8
ERISA.....................................S-8
Excess Subordinated Amount.............. S-22
Exemption............................... S-8
Freddie Mac............................. S-12
Future Distribution Amounts............. S-23
holders................................. ii
Initial Mortgage Loan................... S-2
Initial Mortgage Loans.....................ii
Insured Distribution Amount............. S-24
Insured Payment......................... S-6
Interest Accrual Period...................S-4
IRS..................................... S-38
Liquidated Loan Loss.................... S-22
Liquidated Mortgage Loan................ S-22
Mortgage................................ S-2
Mortgage Loans.............................ii
Mortgage Note........................... S-2
Mortgage Rate........................... S-3
Mortgaged Property...................... S-2
Net Monthly Excess Cashflow............. S-21
NIV..................................... S-36
Notice.................................. S-26
OID Regulations......................... S-38
Other Originators....................... S-12
Owned and Managed Servicing Portfolio... S-35
Owner................................... S-26
Pass-Through Rate....................... S-4
Plans................................... S-39
Pooling and Servicing Agreement...........S-4
Preference Amount....................... S-27
Pre-Funded Amount..........................ii
Pre-Funding Account..................... iii
Pre-Funding Period.........................ii
Premium Amount.......................... S-24
Principal Balance....................... S-25
PTE 83-1................................ S-39
Record Date............................. S-20
Reimbursement Amount.................... S-23
REMIC......................................ii
Required Subordinated Amount............ S-21
Residual Certificates...................Cover
Riegle Act.............................. S-11
Securities Act.......................... S-39
Security Balance........................ S-25
Servicer..................................S-1
Servicer Remittance Date................ S-24
Servicing Fee........................... S-1
Servicing Fee Rate...................... S-37
Similar Law..............................S-39
SPA..................................... S-29
Standard Non-Conforming Program......... S-12
Subordinated Amount..................... S-21
Subordination Deficit................... S-22
Subordination Increase Amount........... S-21
Subordination Reduction Amount.......... S-22
Subsequent Cut-off Date................. S-6
Subsequent Mortgage Loans..................ii
Subsequent Transfer Date................ S-10
Third-Party Servicing Portfolio......... S-35
Trust Fund.................................ii
Trustee....................................ii
Trustee's Fee........................... S-37
Underwriter.............................Cover
Underwriting Agreement.................. S-40
</TABLE>
S-43
<PAGE> 49
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement
Summary.................................... S-1
Risk Factors............................... S-9
Description of the Mortgage Loans.......... S-12
Description of the Certificates............ S-19
Certificate Insurer........................ S-27
Certain Yield and Prepayment
Considerations........................... S-28
The Servicer............................... S-34
Pooling and Servicing Agreement............ S-36
Federal Income Tax Consequences............ S-38
Legal Investment........................... S-39
ERISA Considerations....................... S-39
Method of Distribution..................... S-40
Secondary Market........................... S-41
Legal Opinions............................. S-41
Ratings.................................... S-41
Experts.................................... S-42
Index of Principal Definitions............. S-43
Prospectus
Summary of Prospectus...................... 1
Risk Factors............................... 11
Description of the Trust Funds............. 18
Use of Proceeds............................ 25
Yield Considerations....................... 26
The Depositor.............................. 31
Description of the Securities.............. 31
Description of the Agreements.............. 40
Description of Credit Support.............. 59
Certain Legal Aspects of Mortgage Loans.... 61
Certain Legal Aspects of the Contracts..... 73
Federal Income Tax Consequences............ 77
State and Other Tax Consequences........... 110
ERISA Considerations....................... 110
Legal Investment........................... 113
Methods of Distribution.................... 115
Legal Matters.............................. 116
Financial Information...................... 116
Rating..................................... 116
Index of Principal Definitions............. 117
</TABLE>
======================================================
======================================================
NATIONS ASSET
SECURITIES, INC.
$
ASSET BACKED CERTIFICATES,
SERIES 1997-
$ CLASS A-1 CERTIFICATES
$ CLASS A-2 CERTIFICATES
$ CLASS A-3 CERTIFICATES
$ CLASS A-4 CERTIFICATES
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
[NATIONSBANC
MONTGOMERY SECURITIES, INC.]
[OTHER UNDERWRITER]
, 199
======================================================
<PAGE> 50
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, OCTOBER 10, 1997
PROSPECTUS
ASSET BACKED CERTIFICATES
ASSET BACKED NOTES
(ISSUABLE IN SERIES)
NATIONSBANC ASSET SECURITIES, INC.
DEPOSITOR
---------------------
The Asset Backed Certificates (the "Certificates") and Asset Backed Notes
(the "Notes" and, together with the Certificates, the "Securities") offered
hereby and by Supplements to this Prospectus (the "Offered Securities") will be
offered from time to time in one or more series. Each series of Certificates
will represent in the aggregate the entire beneficial ownership interest in a
trust fund (with respect to any series, the "Trust Fund") consisting of one or
more segregated pools of various types of single family and/or multifamily
mortgage loans (or certain balances thereof) (collectively, the "Mortgage
Loans"), unsecured home improvement installment sales contracts and installment
loans ("Unsecured Home Improvement Loans"), undivided ownership interests in
pools of Mortgage Loans ("Mortgage Participations"), manufactured housing
installment sale contracts or installment loan agreements ("Contracts"), certain
direct obligations of the United States, agencies thereof or agencies created
thereby (the "Government Securities") or a combination of Mortgage Loans,
Unsecured Home Improvement Loans, Mortgage Participations, Contracts and/or
Government Securities (with respect to any series, collectively, "Assets"). The
Mortgage Loans and Mortgage Participations are collectively referred to herein
as the "Mortgage Assets." If so specified in the related Prospectus Supplement,
all or a portion of the Mortgage Loans will have been underwritten in accordance
with the underwriting for "non-conforming credits" as described under "Risk
Factors -- Risk of Delinquency and Foreclosure Relating to Non-Conforming
Credits." If a series of Securities includes Notes, such Notes will be issued
and secured pursuant to an indenture and will represent indebtedness of the
Trust Fund. If so specified in the related Prospectus Supplement, the Trust Fund
for a series of Securities may include letters of credit, insurance policies,
guarantees, reserve funds or other types of credit support, or any combination
thereof (with respect to any series, collectively, "Credit Support"), and
currency or interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). In addition, as so specified in the related Prospectus Supplement,
the Trust Fund will include monies on deposit in one or more trust accounts to
be established with a Trustee, which may include a Pre-Funding Account, as
described herein, which would be used to purchase additional Assets for the
related Trust Fund during the period specified in the related Prospectus
Supplement. See "Description of the Trust Funds," "Description of the
Securities" and "Description of Credit Support."
(cover continued on next page)
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OF EACH SERIES WILL NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
THE DEPOSITOR, NATIONSBANC MONTGOMERY SECURITIES, INC., ANY MASTER SERVICER, ANY
SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT TO THE
LIMITED EXTENT DESCRIBED HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY
OTHER PERSON, UNLESS AND TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE [ ] HEREIN AND SUCH INFORMATION AS MAY BE
SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT
BEFORE PURCHASING ANY OFFERED SECURITY.
---------------------
Prior to issuance there will have been no market for the Securities of any
series and there can be no assurance that a secondary market for any Offered
Securities will develop or that, if it does develop, it will continue. It is not
expected that any application will be made to list the Securities of a series on
any securities exchange. Accordingly the liquidity of the Securities may be
limited. This Prospectus may not be used to consummate sales of the Offered
Securities of any series unless accompanied by the Prospectus Supplement for
such series.
Offers of the Offered Securities may be made through one or more different
methods, including offerings through underwriters, including NationsBanc
Montgomery Securities, Inc., an affiliate of the Depositor, as more fully
described under "Methods of Distribution" herein and in the related Prospectus
Supplement.
---------------------
The date of this Prospectus is , 1997.
<PAGE> 51
(cover continued from previous page)
Each series of Securities will consist of one or more classes of Securities
that may (i) provide for the accrual of interest thereon based on fixed,
variable or adjustable rates; (ii) be senior or subordinate to one or more other
classes of Securities in respect of certain distributions on the Securities;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions; (iv) be entitled to interest
distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Securities of such series; (vi)
provide for distributions of principal as described in the related Prospectus
Supplement; and/or (vii) provide for distributions based on a combination of two
or more components thereof with one or more of the characteristics described in
this paragraph, to the extent of available funds, in each case as described in
the related Prospectus Supplement. Any such classes may include classes of
Offered Securities. See "Description of the Securities."
Principal and interest with respect to Securities will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the Securities
of any series will be made only from the assets of the related Trust Fund.
The yield on each class of Securities of a series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Assets in the related Trust Fund and the timing
of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination or one or more classes of Securities of a
series may be subject to purchase or redemption under the circumstances
described herein and in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
"real estate mortgage investment conduit" or as a "financial asset
securitization investment trust" for federal income tax purposes. See also
"Federal Income Tax Consequences" herein.
---------------------
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Securities covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Securities of each series will, among other things, set forth
with respect to such Securities, as appropriate: (i) a description of the class
or classes of Securities, the payment provisions with respect to each such class
and the Pass-Through Rate or interest rate or method of determining the
Pass-Through Rate or interest rate with respect to each such class; (ii) the
aggregate principal amount and distribution dates relating to such series and,
if applicable, the initial and final scheduled distribution dates for each
class; (iii) information as to the assets comprising the Trust Fund, including
the general characteristics of the assets included therein, including the Assets
and any Credit Support and Cash Flow Agreements (with respect to the Securities
of any series, the "Trust Assets"); (iv) the circumstances, if any, under which
the Trust Fund may be subject to early termination; (v) additional information
with respect to the method of distribution of such Securities; (vi) whether one
or more elections to treat the Trust Fund or portion thereof as a real estate
mortgage investment conduit ("REMIC") or a financial asset securitization
investment trust ("FASIT") will be made and designation of the regular interests
and residual interests; (vii) the aggregate original percentage ownership
interest in the Trust Fund to be evidenced by each class of Securities; (viii)
information as to any Master Servicer, any Servicer and the Trustee, as
applicable; (ix) information as to the nature and extent of subordination with
respect to any class of Securities that is subordinate in right of payment to
any other class; and (x) whether such Securities will be initially issued in
definitive or book-entry form.
(ii)
<PAGE> 52
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Securities. This Prospectus and the Prospectus Supplement relating to each
series of Securities contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the rules and regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Chicago Regional Office, Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661; and New York Regional Office, Seven World Trade Center,
13th Floor, New York, New York 10048. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the Commission.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Offered Securities
or an offer of the Offered Securities to any person in any state or other
jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus and any Prospectus Supplement hereto at any time does not imply that
information herein is correct as of any time subsequent to its date.
The Servicer, the Master Servicer or the Trustee will be required to mail
to registered holders of Securities (the "Securityholders") of each series
periodic unaudited reports concerning the related Trust Fund. If the Prospectus
Supplement for a series of Securities provides that one or more Classes of
Securities are to be issued in book-entry form, then unless and until definitive
Securities are issued, such reports with respect to book-entry Securities will
be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC") and registered holder of such
Securities, pursuant to the applicable Agreement or to such other entity set
forth in the related Prospectus Supplement. Such reports may be available to
beneficial owners of the Securities (the "Security Owners") upon request to
their respective DTC participants and indirect participants. See "Description of
the Securities -- Reports to Securityholders" and "Description of the
Agreements -- Certain Terms of the Pooling and Servicing Agreements, Trust
Agreements and Underlying Servicing Agreements -- Evidence as to Compliance."
The Depositor will file or cause to be filed with the Commission such periodic
reports with respect to each Trust Fund as are required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder, as interpreted by the staff of the
Commission thereunder. The Depositor does not intend to file periodic reports
under the Exchange Act following the expiration of the reporting period
prescribed by Rule 15d-1 of Regulation 15D under the Exchange Act.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
All documents subsequently filed by or on behalf of the Depositor with
respect to each Trust Fund referred to in the accompanying Prospectus Supplement
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus and prior to the termination of
any offering of the Securities issued by such Trust Fund shall be deemed to be
incorporated by reference in this Prospectus and to be a part of this Prospectus
from the date of the filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for all purposes of this Prospectus to the
extent that a statement contained herein (or in the accompanying Prospectus
Supplement) or in any other subsequently filed document which also is or is
deemed to be incorporated by reference modifies or replaces such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
(iii)
<PAGE> 53
Upon request, the Depositor will provide or cause to be provided without
charge to each person to whom this Prospectus is delivered in connection with
the offering of one or more classes of Offered Securities, a copy of any or all
documents or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to one or more of such classes of such
Offered Securities, other than the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents). Requests
to the Depositor should be directed in writing to NationsBanc Asset Securities,
Inc., NationsBank Corporate Center, Charlotte, North Carolina 28255, Attention:
Secretary, or by telephone at (704) 386-2400. The Depositor has determined that
its financial statements are not material to the offering of any Offered
Securities.
(iv)
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT....................................... ii
AVAILABLE INFORMATION....................................... iii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... iii
TABLE OF CONTENTS........................................... v
SUMMARY OF PROSPECTUS....................................... 1
Title of Securities....................................... 1
Depositor................................................. 1
Issuer.................................................... 1
Servicers................................................. 1
Master Servicer........................................... 1
Trustee; Indenture Trustee................................ 1
The Trust Assets.......................................... 1
Special Payment Provisions............................. 2
Mortgage Assets........................................ 2
Unsecured Home Improvement Loans....................... 3
Contracts.............................................. 3
Government Securities.................................. 4
Collection Accounts.................................... 4
Credit Support......................................... 4
Cash Flow Agreements................................... 4
Pre-Funding Account.................................... 5
Description of Securities................................. 5
Distributions on Securities............................... 6
Interest............................................... 7
Principal.............................................. 7
Advances.................................................. 7
Termination............................................... 8
Registration of Securities................................ 8
Tax Status of the Securities.............................. 8
Legal Investment.......................................... 9
ERISA Considerations...................................... 10
Rating.................................................... 10
Material Risks............................................ 10
RISK FACTORS................................................ 11
Limited Liquidity for Securities.......................... 11
Limited Assets for Payment of Securities.................. 11
Effect of Prepayments on Average Life of Securities and
Yields................................................. 12
Limited Nature of Ratings................................. 12
Risks Associated with Mortgage Loans and Mortgaged
Properties in General.................................. 12
Risk of Default of Balloon Payments....................... 13
Losses on Foreclosure of Junior Mortgage Loans............ 14
Risk of Delinquency & Foreclosure Relating Non-Conforming
Credits................................................ 14
Assets May Include Delinquent Mortgage Loans.............. 14
Consumer Protection Laws and Legal Considerations......... 15
Risks Associated with Contracts and Manufactured Homes in
General................................................ 15
Grant of Security Interest in Contracts; Risks of
Defective Security Interest and Effects of Certain
Other Legal Aspects of the Contracts................... 16
Risks Associated with Unsecured Home Improvement Loans.... 16
Credit Support Limitations................................ 16
</TABLE>
(v)
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Lowering of Rating on Securities.......................... 17
Risks of Subordination of the Subordinate Securities;
Effect of Losses on the Assets......................... 17
Special Federal Tax Considerations Regarding Residual
Securities and FASIT Securities........................ 18
Risks Associated with Book-Entry Registration............. 18
DESCRIPTION OF THE TRUST FUNDS.............................. 18
Assets.................................................... 18
Mortgage Loans............................................ 19
General................................................ 19
Loan-to-Value Ratio.................................... 20
Mortgage Loan Information in Prospectus Supplements.... 20
Payment Provisions of the Mortgage Loans............... 21
Revolving Credit Line Loans............................ 21
Mortgage Participations................................ 22
Unsecured Home Improvement Loans.......................... 22
Unsecured Home Improvement Loan Information in
Prospectus Supplements................................ 22
Contracts................................................. 22
General................................................ 22
Contract Information in Prospectus Supplements......... 23
Payment Provisions of the Contracts.................... 23
Government Securities..................................... 23
Pre-Funding Account....................................... 23
Accounts.................................................. 24
Credit Support............................................ 24
Cash Flow Agreements...................................... 24
USE OF PROCEEDS............................................. 25
YIELD CONSIDERATIONS........................................ 26
General................................................... 26
Pass-Through Rate and Interest Rate....................... 26
Timing of Payment of Interest............................. 26
Payments of Principal; Prepayments........................ 26
Prepayments -- Maturity and Weighted Average Life......... 27
Other Factors Affecting Weighted Average Life............. 28
Type of Asset.......................................... 28
Termination............................................ 30
Defaults............................................... 30
Foreclosures........................................... 30
Refinancing............................................ 30
Due-on-Sale Clauses.................................... 30
THE DEPOSITOR............................................... 31
DESCRIPTION OF THE SECURITIES............................... 31
General................................................... 31
Distributions............................................. 32
Available Distribution Amount............................. 32
Distributions of Interest on the Securities............... 33
Distributions of Principal of the Securities.............. 34
Components................................................ 34
Distributions on the Securities of Prepayment Premiums.... 34
Allocation of Losses and Shortfalls....................... 34
Advances in Respect of Delinquencies...................... 35
Reports to Securityholders................................ 35
Termination............................................... 37
</TABLE>
(vi)
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Optional Purchases........................................ 38
Book-Entry Registration and Definitive Securities......... 38
DESCRIPTION OF THE AGREEMENTS............................... 40
Agreements Applicable to a Series......................... 40
REMIC Securities, FASIT Securities, Grantor Trust
Securities............................................ 40
Securities That Are Partnership Interests for Tax
Purposes and Notes.................................... 40
Material Terms of the Pooling and Servicing Agreements,
Trust Agreements and Underlying Servicing Agreements... 40
General................................................ 40
Assignment of Assets; Repurchases...................... 41
Representations and Warranties; Repurchases............ 43
Collection Account and Related Accounts................ 44
General.............................................. 44
Deposits............................................. 44
Withdrawals.......................................... 45
Other Collection Accounts............................ 46
Collection and Other Servicing Procedures............ 46
Realization Upon Defaulted Assets...................... 47
Hazard Insurance Policies.............................. 49
Mortgage Loans....................................... 49
Contracts.............................................. 50
Fidelity Bonds and Errors and Omissions Insurance...... 50
Due-on-Sale Provisions................................. 51
Retained Interest; Servicing Compensation and Payment
of Expenses........................................... 51
Evidence as to Compliance.............................. 51
Certain Matters Regarding Servicers, the Master
Servicer and the Depositor............................ 52
Special Servicers...................................... 53
Events of Default under the Agreement.................. 53
Rights Upon Event of Default under the Agreements...... 53
Amendment.............................................. 54
The Trustee............................................ 55
Duties of the Trustee.................................. 55
Certain Matters Regarding the Trustee.................. 55
Resignation and Removal of the Trustee................. 55
Material Terms of the Indenture........................... 56
General................................................ 56
Events of Default...................................... 56
Discharge Indenture.................................... 57
Indenture Trustee's Annual Report...................... 58
The Indenture Trustee.................................. 58
DESCRIPTION OF CREDIT SUPPORT............................... 59
General................................................... 59
Subordinate Securities.................................... 59
Cross-Support Provisions.................................. 59
Limited Guarantee......................................... 60
Financial Guaranty Insurance Policy or Surety Bond........ 60
Letter of Credit.......................................... 60
Pool Insurance Policies................................... 60
Special Hazard Insurance Policies......................... 60
Mortgagor Bankruptcy Bond................................. 60
Reserve Funds............................................. 60
</TABLE>
(vii)
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Overcollateralization..................................... 61
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..................... 61
General................................................... 61
Types of Mortgage Instruments............................. 62
Interest in Real Property................................. 62
Cooperative Loans......................................... 62
Land Sale Contracts....................................... 63
Foreclosure............................................... 64
General................................................ 64
Judicial Foreclosure................................... 64
Equitable Limitations on Enforceability of Certain
Provisions............................................ 64
Non-Judicial Foreclosure/Power of Sale................. 65
Public Sale............................................ 65
Rights of Redemption................................... 66
Cooperative Loans...................................... 66
Junior Mortgages.......................................... 67
Anti-Deficiency Legislation and Other Limitations on
Lenders................................................ 68
Environmental Considerations.............................. 69
Due-on-Sale Clauses....................................... 71
Prepayment Charges........................................ 71
Subordinate Financing..................................... 71
Applicability of Usury Laws............................... 72
Alternative Mortgage Instruments.......................... 72
Soldiers' and Sailors' Civil Relief Act of 1940........... 73
Forfeitures in Drug and RICO Proceedings.................. 73
CERTAIN LEGAL ASPECTS OF THE CONTRACTS...................... 73
General................................................... 73
Security Interests in the Manufactured Homes.............. 74
Enforcement of Security Interests in Manufactured Homes... 75
Soldiers' and Sailors' Civil Relief Act of 1940........... 76
Consumer Protection Laws.................................. 76
Transfers of Manufactured Homes; Enforceability of
"Due-on-Sale" Clauses.................................. 76
Applicability of Usury Laws............................... 76
FEDERAL INCOME TAX CONSEQUENCES............................. 77
General................................................... 77
Taxable Mortgage Pools................................. 78
REMICS.................................................... 78
Classification of REMICS............................... 78
Characterization of Investments in REMIC Securities.... 80
Tiered REMIC Structures................................ 80
Taxation of Owners of Regular Securities............... 81
General.............................................. 81
Original Issue Discount.............................. 81
Acquisition Premium.................................. 83
Variable Rate Regular Securities..................... 83
Market Discount...................................... 84
Amortizable Premium.................................. 85
Election to Treat All Interest Under the Constant Yield
Method................................................ 86
Treatment of Losses.................................. 86
Sale or Exchange of Regular Securities............... 87
Taxation of Owners of Residual Securities.............. 88
</TABLE>
(viii)
<PAGE> 58
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxation of REMIC Income............................... 88
Basis and Losses....................................... 89
Treatment of Certain Items of REMIC Income and
Expense............................................... 89
Original Issue Discount and Premium.................. 89
Market Discount...................................... 90
Premium.............................................. 90
Limitations on Offset or Exemption of REMIC Income..... 90
Tax-Related Restrictions on Transfer of Residual
Securities............................................ 91
Disqualified Organizations........................... 91
Noneconomic Residual Interests....................... 92
Foreign Investors.................................... 92
Sale or Exchange of a Residual Security................ 93
Mark to Market Regulations............................. 94
Taxes That May Be Imposed on the REMIC Pool............... 94
Prohibited Transactions................................ 94
Contributions to the REMIC Pool After the Startup
Day................................................... 94
Net Income from Foreclosure Property................... 94
Liquidation of the REMIC Pool.......................... 94
Administrative Matters................................. 95
Limitations on Deduction of Certain Expenses........... 95
Taxation of Certain Foreign Investors.................. 96
Regular Securities..................................... 96
Residual Securities.................................... 96
Backup Withholding..................................... 96
Reporting Requirements................................. 97
Grantor Trust Funds....................................... 97
Classification of Grantor Trust Funds.................. 97
Standard Securities....................................... 98
General................................................ 98
Tax Status............................................. 98
Premium and Discount................................... 99
Premium.............................................. 99
Original Issue Discount.............................. 99
Market Discount...................................... 100
Recharacterization of Servicing Fees................... 100
Sale or Exchange of Standard Securities................ 100
Stripped Securities....................................... 101
General................................................ 101
Status of Stripped Securities.......................... 102
Taxation of Stripped Securities........................ 102
Original Issue Discount.............................. 102
Sale or Exchange of Stripped Securities.............. 103
Purchase of More Than One Class of Stripped
Securities.......................................... 103
Possible Alternative Characterization................ 103
Reporting Requirements and Backup Withholding.......... 104
Taxation of Certain Foreign Investors.................. 104
Partnership Trust Funds................................... 104
Classification of Partnership Trust Funds.............. 104
Characterization of Investments in Partnership
Securities and Debt Securities........................ 104
Taxation of Debt Securityholders....................... 105
Treatment of the Debt Securities as Indebtedness....... 105
</TABLE>
(ix)
<PAGE> 59
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxation of Owners of Partnership Securities.............. 105
Treatment of the Partnership Trust Fund as a
Partnership........................................... 105
Partnership Taxation................................... 105
Discount and Premium................................... 106
Section 708 Termination................................ 107
Disposition of Securities.............................. 107
Allocations Between Transferors and Transferees........ 107
Section 731 Distributions.............................. 108
Section 754 Election................................... 108
Administrative Matters................................. 108
Tax Consequences to Foreign Securityholders............ 109
Backup Withholding..................................... 110
STATE AND OTHER TAX CONSEQUENCES............................ 109
ERISA CONSIDERATIONS........................................ 110
LEGAL INVESTMENT............................................ 113
METHODS OF DISTRIBUTION..................................... 115
LEGAL MATTERS............................................... 116
FINANCIAL INFORMATION....................................... 116
RATING...................................................... 116
INDEX OF PRINCIPAL DEFINITIONS.............................. 117
</TABLE>
(x)
<PAGE> 60
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of such series. An Index of Principal Definitions is included at the
end of this Prospectus beginning on page [ ].
Title of Securities........ Asset Backed Certificates (the "Certificates") and
Asset Backed Notes (the "Notes" and, together
with the Certificates, the "Securities"),
issuable in series.
Depositor.................. NationsBanc Asset Securities, Inc. (the
"Depositor"), a wholly-owned indirect subsidiary
of NationsBank Corporation. The Depositor is an
affiliate of NationsBanc Montgomery Securities,
Inc. Neither NationsBank Corporation nor any of
its affiliates, including the Depositor and
NationsBanc Montgomery Securities, Inc., will
insure or guarantee the Securities or the Assets
or be otherwise obligated in respect thereof.
Issuer..................... With respect to each series of Securities, the
Trust Fund to be formed pursuant to either a
deposit trust agreement or a pooling and
servicing agreement.
Servicers.................. To the extent specified in the related Prospectus
Supplement, one or more entities identified
therein (each, a "Servicer") that will service
the Assets contained in each Trust Fund. In the
event there is only one Servicer performing the
servicing functions with respect to the Assets in
a Trust Fund, such Assets will be serviced
pursuant to a related pooling and servicing
agreement (each, a "Pooling and Servicing
Agreement"). In the event there are multiple
Servicers, or in the event the Securities consist
of Notes, each Servicer will perform such
servicing functions pursuant to a related
servicing agreement (each, an "Underlying
Servicing Agreement"). A Servicer may be an
affiliate of the Depositor. See "Description of
the Agreements."
Master Servicer............ In the event that there is more than one Servicer
for the Assets of the Trust Fund relating to a
series of Certificates, a master servicer (the
"Master Servicer") will perform certain
administration, calculation and reporting
functions with respect to the Trust Fund and will
supervise the Servicers pursuant to a Pooling and
Servicing Agreement. In addition, to the extent
described in the related Prospectus Supplement,
if advances are required to be made with respect
to delinquent scheduled payments on the Assets in
the Trust Fund the Master Servicer may be
required to make such advances to the extent the
related Servicer fails to do so. The Master
Servicer may be an affiliate of the Depositor.
See "Description of the Agreements" and
"Description of the Securities -- Advances in
Respect of Delinquencies."
Trustee; Indenture
Trustee.................... The trustee (the "Trustee") or indenture trustee
(the "Indenture Trustee") for each series of
Securities will be named in the related
Prospectus Supplement. See "Description of the
Agreements -- Certain Terms of the Pooling and
Servicing Agreements, Trust Agreements and
Underlying Servicing Agreements -- The Trustee"
and "Certain Terms of the Indenture -- The
Indenture Trustee."
1
<PAGE> 61
The Trust Assets........... Each series of Certificates will represent in the
aggregate the entire beneficial ownership
interest in a Trust Fund. If a series of
Securities includes Notes, such Notes will
represent indebtedness of the Trust Fund and will
be secured by a security interest in the Assets
of the Trust Fund. A Trust Fund will consist
primarily of any of the following assets: the
Mortgage Assets, Unsecured Home Improvement
Loans, Contracts and Government Securities
(referred to collectively or individually as
"Assets").
(a) Special Payment
Provisions............... The Assets included in a Trust Fund may be subject
to various types of payment provisions as
specified in the related Prospectus Supplement,
and may include Level Payment Assets, Adjustable
Rate Assets, Buydown Assets, GPM Assets, Step-up
Rate Assets, Interest Reduction Assets, GEM
Assets, Balloon Payment Assets, Convertible
Assets, Bi-Weekly Assets or Increasing Payment
Assets. See "Description of the Trust
Funds -- Assets."
(b) Mortgage Assets........ The Mortgage Assets with respect to a series of
Securities will consist of a pool of single
family and/or multifamily loans (or certain
balances thereof) (collectively, the "Mortgage
Loans") or undivided ownership interests in
Mortgage Loans ("Mortgage Participations") or a
combination of Mortgage Loans and/or Mortgage
Participations. The Mortgage Loans will not be
guaranteed or insured by the Depositor or any of
its affiliates. The Mortgage Loans will be
guaranteed or insured by a governmental agency or
instrumentality or other person only if and to
the extent expressly provided in the related
Prospectus Supplement. The Mortgage Loans will be
secured by first and/or junior liens on (i) one-
to four-family residential real properties or
security interests in shares issued by
cooperative housing corporations ("Single Family
Properties") and/or (ii) primarily residential
properties consisting of five or more residential
dwelling units and which may include limited
retail, office or other commercial space
("Multifamily Properties") (Single Family
Properties and Multifamily Properties are
sometimes referred to herein collectively as
"Mortgaged Properties"). The Mortgaged Properties
may be located in any one of the fifty states,
the District of Columbia, Guam, Puerto Rico or
any other territory of the United States. The
Mortgage Loans may include (i) closed-end and/or
revolving home equity loans or certain balances
thereof ("Home Equity Loans") and/or (ii) secured
home improvement installment sales contracts and
secured installment loan agreements ("Home
Improvement Contracts"). In addition, the
Mortgage Loans may include certain Mortgage Loans
evidenced by contracts ("Land Sale Contracts")
for the sale of properties pursuant to which the
mortgagor promises to pay the amount due thereon
to the holder thereof with fee title to the
related property held by such holder until the
mortgagor has made all of the payments required
pursuant to such Land Sale Contract, at which
time fee title is conveyed to the mortgagor. All
Mortgage Loans will have been originated by
persons other than the Depositor, and all
Mortgage Assets will have been purchased, either
directly or indirectly, by the Depositor on or
before the date of initial issuance of the
related series of Securities or, if the related
Trust Fund includes a Pre-Funding Account, as
described herein, within the period specified in
the related Prospectus Supple-
2
<PAGE> 62
ment following such date. The related Prospectus
Supplement will indicate if any such persons are
affiliates of the Depositor. To the extent
specified in the related Prospectus Supplement,
all or a portion of the Mortgage Loans will have
been underwritten in accordance with the
underwriting for "non-conforming credits" as
described under "Risk Factors -- Risk of
Delinquency and Foreclosure Relating to
Non-Conforming Credits."
Each Mortgage Loan may provide for accrual of
interest thereon at an interest rate (a "Mortgage
Rate") that is fixed over its term or that
adjusts from time to time, or that may be
converted from an adjustable to a fixed Mortgage
Rate, or from a fixed to an adjustable Mortgage
Rate, from time to time at the mortgagor's
election, in each case as described in the
related Prospectus Supplement. Adjustable
Mortgage Rates on the Mortgage Loans in a Trust
Fund may be based on one or more indices. Each
Mortgage Loan may provide for scheduled payments
to maturity, payments that adjust from time to
time to accommodate changes in the Mortgage Rate
or to reflect the occurrence of certain events,
and may provide for negative amortization or
accelerated amortization, in each case as
described in the related Prospectus Supplement.
Each Mortgage Loan may be fully amortizing or
require a balloon payment due on its stated
maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan
may contain prohibitions on prepayment or require
payment of a premium or a yield maintenance
penalty in connection with a prepayment, in each
case as described in the related Prospectus
Supplement. The Mortgage Loans may provide for
payments of principal, interest or both, on due
dates that occur monthly, quarterly,
semi-annually or at such other interval as is
specified in the related Prospectus Supplement.
See "Description of the Trust Funds -- Assets."
(c) Unsecured Home
Improvement Loans...... The Assets with respect to a series of Securities
may consist of or include home improvement
installment sales contracts or installment loans
that are unsecured ("Unsecured Home Improvement
Loans"). The Unsecured Home Improvement Loans
will not be insured or guaranteed by the
Depositor or any of its affiliates. The Unsecured
Home Improvement Loans will be insured or
guaranteed by a governmental agency or
instrumentality or other person only if and to
the extent expressly provided in the related
Prospectus Supplement. The Unsecured Home
Improvement Loans may have any of the features
described under "(a) Mortgage Assets" above,
except that they will not be secured by a lien on
or other security interest in any property.
(d) Contracts.............. The Contracts with respect to a series of
Securities will consist of manufactured housing
installment sale contracts and installment loan
agreements secured by a security interest in a
new or used manufactured home (each, a
"Manufactured Home"), and, to the extent, if any,
indicated in the related Prospectus Supplement,
by real property. The Contracts will not be
insured or guaranteed by the Depositor or any of
its affiliates. The Contracts will be insured or
guaranteed by a governmental agency or
instrumentality or other person only if and to
the extent expressly provided in the related
Prospectus Supplement. All Contracts will have
been originated by persons other than the
3
<PAGE> 63
Depositor, and all Contracts will have been
purchased, either directly or indirectly, by the
Depositor on or before the date of initial
issuance of the related series of Securities or,
if the related Trust Fund includes a Pre-Funding
Account, as described herein, within the period
specified in the related Prospectus Supplement
following such date. The related Prospectus
Supplement will indicate if any such persons are
affiliates of the Depositor. Each Contract may
provide for an annual percentage rate thereon (a
"Contract Rate") that is fixed over its term or
that adjusts as described in the related
Prospectus Supplement. The manner of determining
scheduled payments due on the Contract will be
described in the Prospectus Supplement. The
Prospectus Supplement will describe the minimum
principal balance of the Contracts at origination
and the maximum original term to maturity of the
Contracts.
(e) Government
Securities............. If so provided in the related Prospectus
Supplement, the Trust Fund may include, in
addition to Mortgage Assets, Unsecured Home
Improvement Loans and/or Contracts, certain
direct obligations of the United States, agencies
thereof or agencies created thereby which provide
for payment of interest and/or principal
(collectively, "Government Securities").
(f) Collection Accounts.... Each Trust Fund will include one or more accounts
established and maintained on behalf of the
Securityholders into which the person or persons
designated in the related Prospectus Supplement
will, to the extent described herein and in such
Prospectus Supplement, deposit all payments and
collections received or advanced with respect to
the Assets and other assets in the Trust Fund.
Such an account may be maintained as an interest
bearing or a non-interest bearing account, and
funds held therein may be held as cash or
invested in certain short-term, investment grade
obligations, in each case as described in the
related Prospectus Supplement. See "Description
of the Agreements -- Certain Terms of the Pooling
and Servicing Agreements, Trust Agreements and
Underlying Servicing Agreements -- Collection
Account and Related Accounts."
(g) Credit Support......... If so provided in the related Prospectus
Supplement, partial or full protection against
certain defaults and losses on the Assets in the
related Trust Fund may be provided to one or more
classes of Securities of the related series in
the form of subordination of one or more other
classes of Securities of such series, which other
classes may include one or more classes of
Offered Securities, or by one or more other types
of credit support, such as a letter of credit,
insurance policy, guarantee, reserve fund or
another type of credit support, or a combination
thereof (any such coverage with respect to the
Securities of any series, "Credit Support"). The
amount and types of coverage, the identification
of the entity providing the coverage (if
applicable) and related information with respect
to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a
series of Securities. See "Risk Factors -- Credit
Support Limitations" and "Description of Credit
Support."
(h) Cash Flow Agreements... If so provided in the related Prospectus
Supplement, the Trust Fund may include guaranteed
investment contracts pursuant to which moneys
held in the funds and accounts established for
the related series will be
4
<PAGE> 64
invested at a specified rate. The Trust Fund may
also include certain other agreements, such as
interest rate exchange agreements, interest rate
cap or floor agreements, currency exchange
agreements or similar agreements provided to
reduce the effects of interest rate or currency
exchange rate fluctuations on the Assets or on
one or more classes of Securities. Currency
exchange agreements might be included in the
Trust Fund if some or all of the Assets (such as
Mortgage Loans secured by Mortgaged Properties
located outside the United States) were
denominated in a non-United States currency. The
principal terms of any such guaranteed investment
contract or other agreement (any such agreement,
a "Cash Flow Agreement"), including, without
limitation, provisions relating to the timing,
manner and amount of payments thereunder and
provisions relating to the termination thereof,
will be described in the Prospectus Supplement
for the related series. In addition, the related
Prospectus Supplement will provide certain
information with respect to the obligor under any
such Cash Flow Agreement. See "Description of the
Trust Funds -- Cash Flow Agreements."
(i) Pre-Funding Account.... To the extent provided in the related Prospectus
Supplement, a portion of the proceeds of the
issuance of Securities may be deposited into an
account maintained with the Trustee (a
"Pre-Funding Account"). In such event, the
Depositor will be obligated (subject only to the
availability thereof) to sell at a predetermined
price, and the Trust Fund for the related series
of Securities will be obligated to purchase
(subject to the satisfaction of certain
conditions described in the applicable
Agreement), additional Assets (the "Subsequent
Assets") from time to time (as frequently as
daily) within the period (generally not to exceed
three months) specified in the Prospectus
Supplement (the "Pre-Funding Period") after the
issuance of such series of Securities having an
aggregate principal balance approximately equal
to the amount on deposit in the Pre-Funding
Account (the "Pre-Funded Amount") for such series
on date of such issuance. The Pre-Funded Amount
with respect to a series is not expected to
exceed 25% of the aggregate initial Security
Balance of the related Securities. Any portion of
the Pre-Funded Amount remaining in the
Pre-Funding Account at the end of the Pre-Funding
Period will be used to prepay one or more classes
of Securities in the amounts and in the manner
specified in the related Prospectus Supplement.
In addition, if specified in the related
Prospectus Supplement, the Depositor may be
required to deposit cash into an account
maintained by the Trustee (the "Capitalized
Interest Account") for the purpose of assuring
the availability of funds to pay interest with
respect to the Securities during the Pre-Funding
Period. Any amount remaining in the Capitalized
Interest Account at the end of the Pre-Funding
Period will be remitted as specified in the
related Prospectus Supplement. See "Description
of the Trust Funds -- Pre-Funding Account".
Description of
Securities................. Each series of Certificates will evidence an
interest in the related Trust Fund and will be
issued pursuant to a Pooling and Servicing
Agreement or a trust agreement (each, a "Trust
Agreement"). If a series of Securities includes
Notes, such Notes will represent indebtedness of
the related Trust Fund (which will be formed
pursuant to a deposit trust agreement (each, a
"Deposit Trust Agreement") between the
5
<PAGE> 65
Depositor and an owner trustee specified in the
related Prospectus Supplement) and will be
secured by a security interest in the Assets of
the Trust Fund (or a specified group thereof)
pursuant to an indenture (each, an "Indenture").
Some or all of the Assets in a Trust Fund may be
serviced pursuant to one or more Underlying
Servicing Agreements. Pooling and Servicing
Agreements, Trust Agreements and Underlying
Servicing Agreements are referred to herein as
the "Agreements."
Each series of Securities will include one or more
classes. Each class of Securities (other than
certain Strip Securities, as defined below) will
have a stated principal amount (a "Security
Balance") and except for certain Strip
Securities, as defined below, will accrue
interest thereon based on a fixed, variable or
adjustable interest rate (in the case of
Certificates, a "Pass-Through Rate"). The related
Prospectus Supplement will specify the Security
Balance, if any, and the Pass-Through Rate or
interest rate for each class of Securities or, in
the case of a variable or adjustable Pass-Through
Rate or interest rate, the method for determining
the Pass-Through Rate or interest rate.
Distributions on
Securities................. Each series of Securities will consist of one or
more classes of Securities that may (i) provide
for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be
senior (collectively, "Senior Securities") or
subordinate (collectively, "Subordinate
Securities") to one or more other classes of
Securities in respect of certain distributions on
the Securities; (iii) be entitled either to (A)
principal distributions, with disproportionately
low, nominal or no interest distributions or (B)
interest distributions, with disproportionately
low, nominal or no principal distributions
(collectively, "Strip Securities"); (iv) provide
for distributions of accrued interest thereon
commencing only following the occurrence of
certain events, such as the retirement of one or
more other classes of Securities of such series
(collectively, "Accrual Securities"); (v) provide
for distributions of principal as described in
the related Prospectus Supplement; and/or (vi)
provide for distributions based on a combination
of two or more components thereof with one or
more of the characteristics described in this
paragraph, including one or more Strip Security
or Accrual Security components, to the extent of
available funds, in each case as described in the
related Prospectus Supplement. If so specified in
the related Prospectus Supplement, distributions
on one or more classes of a series of Securities
may be limited to collections from a designated
portion of the Assets in the related Trust Fund
(each such portion of Assets, an "Asset Group").
See "Description of the Securities -- General."
Any such classes may include classes of Offered
Securities. With respect to Securities with two
or more components, references herein to Security
Balance, notional amount and Pass-Through Rate or
interest rate refer to the principal balance, if
any, notional amount, if any, and the
Pass-Through Rate or interest rate, if any, for
any such component.
The Securities will not be guaranteed or insured by
the Depositor or any of its affiliates, by any
governmental agency or instrumentality or by any
other person, unless and to the extent provided
in the related
6
<PAGE> 66
Prospectus Supplement. See "Risk
Factors -- Limited Assets for Payment of
Securities" and "Description of the Securities."
(a) Interest............... Interest on each class of Offered Securities (other
than certain classes of Strip Securities) of each
series will accrue at the applicable Pass-Through
Rate or interest rate on the outstanding Security
Balance thereof and will be distributed to
Securityholders as provided in the related
Prospectus Supplement. The specified date on
which distributions are to be made is a
"Distribution Date." Distributions with respect
to interest on certain classes of Strip
Securities may be made on each Distribution Date
on the basis of a notional amount as described in
the related Prospectus Supplement. Distributions
of interest with respect to one or more classes
of Securities may be reduced to the extent of
certain delinquencies, losses, prepayment
interest shortfalls, and other contingencies
described herein and in the related Prospectus
Supplement. See "Risk Factors -- Effect of
Prepayments on Average Life of Securities and
Yields," "Yield Considerations" and "Description
of the Securities -- Distributions of Interest on
the Securities."
(b) Principal.............. The Securities of each series initially will have
an aggregate Security Balance no greater than the
outstanding principal balance of the Assets as
of, unless the related Prospectus Supplement
provides otherwise, the close of business on the
first day of the month of formation of the
related Trust Fund (the "Cut-off Date"), after
application of scheduled payments due on or
before such date, whether or not received. The
Security Balance of a Security outstanding from
time to time represents the maximum amount that
the holder thereof is then entitled to receive in
respect of principal from future cash flow on the
assets in the related Trust Fund. Distributions
of principal will be made on each Distribution
Date to the class or classes of Securities in the
amounts and in accordance with the priorities
specified in the related Prospectus Supplement.
Distributions of principal of any class of
Securities will be made on a pro rata basis among
all of the Securityholders of such class, by
random selection, or as described in the related
Prospectus Supplement. Certain classes of Strip
Securities with no Security Balance will not
receive distributions in respect of principal.
See "Description of the
Securities -- Distributions of Principal of the
Securities."
Advances................... If so specified in the related Prospectus
Supplement, the Servicer will be obligated as
part of its servicing responsibilities to make
certain advances that in its good faith judgment
it deems recoverable with respect to delinquent
scheduled payments on the Assets serviced by such
Servicer in such Trust Fund. If so specified in
the related Prospectus Supplement, the Master
Servicer, the Trustee or other entity so
specified will be required to make such advances
in the event a Servicer fails to do so. Neither
the Depositor nor, except to the extent specified
in the related Prospectus Supplement, any of its
affiliates will have any responsibility to make
such advances. Advances are reimbursable
generally from subsequent recoveries in respect
of such Assets and otherwise to the extent
described herein and in the related Prospectus
Supplement. If and to the extent provided in the
Prospectus Supplement for any series, a Servicer
or another entity will
7
<PAGE> 67
be entitled to receive interest on its
outstanding advances, payable from amounts in the
related Trust Fund. See "Description of the
Securities -- Advances in Respect of
Delinquencies."
Termination................ If so specified in the related Prospectus
Supplement, a series of Securities may be subject
to optional early termination through the
repurchase of the Assets in the related Trust
Fund by the party specified therein, under the
circumstances and in the manner set forth
therein. If so provided in the related Prospectus
Supplement, upon the reduction of the Security
Balance of a specified class or classes of
Securities to a specified percentage or on and
after a date specified in such Prospectus
Supplement, the party specified therein will
solicit bids for the purchase of all of the
Assets of the Trust Fund, or of a sufficient
portion of such Assets to retire such class or
classes, or purchase such Assets at a price set
forth in the related Prospectus Supplement. Any
such purchase or solicitation of bids may be made
only when the aggregate security balance of such
class or classes declines to a percentage of the
initial Security Balance of such Securities (not
to exceed 10%) specified in the related
Prospectus Supplement. In addition, if so
provided in the related Prospectus Supplement,
certain classes of Securities may be purchased or
redeemed in the manner set forth therein. See
"Description of the Securities -- Termination."
Registration of
Securities................. If so provided in the related Prospectus
Supplement, one or more classes of the Offered
Securities will initially be represented by one
or more certificates or notes, as applicable,
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an interest
in Offered Securities so registered will be
entitled to receive a definitive certificate or
note, as applicable, representing such person's
interest except in the event that definitive
certificates or notes, as applicable, are issued
under the limited circumstances described herein.
See "Risk Factors -- Risks Associated with
Book-Entry Registration" and "Description of the
Securities -- Book-Entry Registration and
Definitive Securities."
Tax Status of the
Securities................. The following discussion represents the opinion of
Cadwalader, Wickersham & Taft or Hunton and
Williams, as specified in the related Prospectus
Supplement. The Securities of each series offered
hereby will constitute either (i) "regular
interests" ("Regular Securities") and "residual
interests" ("Residual Securities") in a Trust
Fund treated as a real estate mortgage investment
conduit ("REMIC") under Sections 860A through
860G of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) interests ("Grantor
Trust Securities") in a Trust Fund treated as a
grantor trust under applicable provisions of the
Code, (iii) interests ("Partnership Securities")
in a Trust Fund treated as a partnership under
applicable provisions of the Code, (iv) evidences
of indebtedness ("Debt Securities") of a Trust
Fund treated as debt instruments for federal
income tax purposes or (v) "regular interests" or
"ownership interests" ("FASIT Securities") in a
Trust Fund treated as a financial asset
securitization investment trust ("FASIT") under
Sections 860H through 860L of the Code.
In general, to the extent the assets and income of
the Trust Fund are treated as qualifying assets
and income under the following sections of the
Code, Regular Securities (i) owned by a "domestic
building and
8
<PAGE> 68
loan association" will be treated as "loans . . .
secured by an interest in real property which
is . . . residential real property" within the
meaning of Code Section 7701(a)(19)(C) and (ii)
owned by a real estate investment trust will be
treated as "real estate assets" for purposes of
Section 856(c)(5)(A) of the Code and interest
income therefrom will be treated as "interest on
obligations secured by mortgages on real
property" for purposes of Section 856(c)(3)(B) of
the Code. In addition, Regular Securities will be
"qualified mortgages" within the meaning of
Section 860G(a)(3) of the Code if transferred to
another REMIC on its startup in exchange for
regular or residual interests therein. Moreover,
if 95% or more of the assets and the income of
the Trust Fund qualify for any of the foregoing
treatments, the Regular Securities will qualify
for the foregoing treatments in their entirety.
Residual Securities generally will be treated as
representing an interest in qualifying assets and
income to the same extent described above for
institutions subject to Sections 7701(a)(19)(C),
856(c)(5)(A) and 856(c)(3)(B) of the Code. A
portion (or, in certain cases, all) of the income
from Residual Securities (i) may not be offset by
any losses from other activities of the holder of
such Residual Securities, (ii) may be treated as
unrelated business taxable income, for holders of
Residual Securities that are subject to tax on
unrelated business taxable income (as defined in
Section 511 of the Code), and (iii) may be
subject to U.S. federal income tax withholding
rules. In addition, transfers of certain Residual
Securities may be disregarded under some
circumstances for all federal income tax
purposes. See "Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of
Residual Securities-Excess Inclusions," and
"Noneconomic Residual Securities" herein.
Grantor Trust Securities may be either Securities
having the same percentage ownership of principal
and interest payments on the Mortgage Loans or
Strip Securities having a different percentage
ownership interests in such principal and
interest payments. Holders of Grantor Trust
Securities generally will be treated as owning an
interest in qualifying assets and income under
Sections 7701(a)(19)(C), 856(c)(5)(A),
856(c)(3)(B) and 860G(a)(3)(A) of the Code.
Partnership Securities will be treated as
partnership interests for purposes of federal
income taxation, and accordingly, will not
represent an interest in qualifying assets for
purposes of Section 7701(a)(19)(C) of the Code,
but will represent qualifying assets and income
under Sections 856(c)(5)(A) and 856(c)(3)(B) of
the Code to the extent their proportionate share
of the assets of the related Trust Fund so
qualify. Debt Securities will not represent
qualifying assets or income for purposes of any
of the preceding sections. FASIT Securities will
qualify for purposes of the preceding sections to
the extent provided in the applicable Prospectus
Supplement.
See "Federal Income Tax Consequences" herein and in
the related Prospectus Supplement.
Legal Investment........... The Prospectus Supplement for each series of
Securities will specify which class or classes of
Offered Securities of such series, if any, will
constitute "mortgage related securities" for
purposes of the Secondary
9
<PAGE> 69
Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"). Investors whose investment
authority is subject to legal restrictions should
consult their own legal advisors to determine
whether and to what extent the Offered Securities
constitute legal investments for them. See "Legal
Investment" herein and in the related Prospectus
Supplement.
ERISA Considerations....... An investment in Offered Securities by an employee
benefit plan or other retirement plan or
arrangement that is subject to Title I of the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA") or Section 4975 of the Code
(each, a "Plan") may cause the Assets of the
related Trust Fund to be deemed "plan assets" and
could give rise to a "prohibited transaction"
within the meaning of ERISA and the Code. The
U.S. Department of Labor has issued an individual
exemption, Prohibited Transaction Exemption 93-31
(the "Exemption"), to NationsBank Corporation
("NationsBank") that generally exempts from the
application of certain of the prohibited
transaction provisions of ERISA and the excise
taxes imposed on such prohibited transactions by
Section 4975 of the Code, transactions relating
to the purchase, sale and holding of pass-through
securities underwritten by NationsBank and
certain affiliates thereof, including NationsBanc
Montgomery Securities, Inc. ("NCMI") and the
servicing and operation of pools of assets such
as certain of the Assets, provided that certain
conditions are satisfied. To the extent the
Securities are not treated as equity interests in
the related Trust Fund for purposes of ERISA, a
Plan's investment in such Securities would not
cause the Assets to be deemed "plan assets."
However, the purchase or holding of such
non-equity Securities by a Plan with respect to
which an affiliate of the Depositor or an equity
investor is a "party in interest" (within the
meaning of ERISA) or a "disqualified person"
(within the meaning of the Code) could give rise
to a prohibited transaction unless one or more
statutory or administrative exemptions apply to
such investment. The Prospectus Supplement with
respect to a series of Securities may contain
additional information regarding the application
of the Exemption or any other exemption with
respect to the Securities offered thereby. See
"ERISA Considerations" herein.
Rating..................... At the date of issuance, as to each series, each
class of Offered Securities will be rated in one
of the four highest rating categories by one or
more nationally recognized statistical rating
agencies (each, a "Rating Agency"). A security
rating is not a recommendation to buy, sell or
hold such Securities and is subject to revision
or withdrawal at any time by the assigning Rating
Agency. Further, such ratings do not address the
possibility that, as a result of principal
prepayments, holders of Securities may receive a
lower than anticipated yield. See "Rating"
herein.
Material Risks............. Prospective investors are urged to read "Risk
Factors" herein and in the applicable Prospectus
Supplement for a discussion of the material risks
associated with an investment in the Securities.
10
<PAGE> 70
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Securities, among other things, the following factors.
LIMITED LIQUIDITY FOR SECURITIES
At the time of issuance of a series of Securities, there will be no
secondary market for any of the Securities. NationsBanc Montgomery Securities,
Inc. and the other underwriters, if any, specified in the related Prospectus
Supplement, currently expect to make a secondary market in the Offered
Securities, but have no obligation to do so. There can be no assurance that a
secondary market for the Securities of any series will develop or, if it does
develop, that it will provide holders with liquidity of investment or will
continue while Securities of such series remain outstanding. It is not expected
that any application will be made to list the Securities of a series on any
securities exchange. Accordingly, the liquidity of the Securities may be
limited.
LIMITED ASSETS FOR PAYMENT OF SECURITIES
The Securities will not represent an interest in or obligation of the
Depositor, any Master Servicer, any Servicer, the Trustee or any of their
affiliates. The only obligations with respect to the Securities or the Assets
will be the obligations (if any) of the Warranting Party (as defined herein)
pursuant to certain limited representations and warranties made with respect to
the Assets, the Master Servicer's obligations and any Servicer's servicing
obligations under the related Agreement (including the limited obligation to
make certain advances in the event of delinquencies on the Assets, but only to
the extent deemed recoverable) and, if and to the extent expressly described in
the related Prospectus Supplement, certain limited obligations of a Servicer or
Master Servicer in connection with an agreement to purchase or act as
remarketing agent with respect to a convertible ARM Loan (as defined herein)
upon conversion to a fixed rate or a different index. Since certain
representations and warranties with respect to the Assets may have been made
and/or assigned in connection with transfers of such Assets prior to the
issuance of the Securities, the rights of the Trustee and the Securityholders
with respect to such representations or warranties will be limited to their
rights as an assignee thereof. Except to the extent, if any, specified in the
related Prospectus Supplement, none of the Depositor, any Master Servicer, any
Servicer, the Trustee or any of their affiliates will have any obligation with
respect to representations or warranties made by any other entity. Except to the
extent, if any, specified in the related Prospectus Supplement, neither the
Securities nor the underlying Assets will be guaranteed or insured by any
governmental agency or instrumentality, or by the Depositor, any Master
Servicer, any Servicer, the Trustee or any of their affiliates. Proceeds of the
assets included in the related Trust Fund for each series of Securities
(including the Assets and any form of credit enhancement) will be the sole
source of payments on the Securities, and there will be no recourse to the
Depositor or any other entity in the event that such proceeds are insufficient
or otherwise unavailable to make all payments provided for under the Securities.
EXCEPT TO THE EXTENT, IF ANY, SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT, A SERIES OF SECURITIES WILL NOT HAVE ANY CLAIM AGAINST OR SECURITY
INTEREST IN THE TRUST FUNDS FOR ANY OTHER SERIES AND THE ASSETS INCLUDED IN THE
RELATED TRUST FUND WILL BE THE SOLE SOURCE OF PAYMENTS ON THE SECURITIES OF A
SERIES. IF THE RELATED TRUST FUND IS INSUFFICIENT TO MAKE PAYMENTS ON SUCH
SECURITIES, NO OTHER ASSETS WILL BE AVAILABLE FOR PAYMENT OF THE DEFICIENCY.
Additionally, certain amounts remaining in certain funds or accounts, including
the Collection Account and any accounts maintained as Credit Support, may be
withdrawn under certain conditions, as described in the related Prospectus
Supplement. In the event of such withdrawal, such amounts will not be available
for future payment of principal of or interest on the Securities. If so provided
in the Prospectus Supplement for a series of Securities containing one or more
classes of Subordinate Securities, on any Distribution Date in respect of which
losses or shortfalls in collections on the Assets have been incurred, the amount
of such losses or shortfalls will be borne first by one or more classes of the
Subordinate Securities, and, thereafter, by the remaining classes of Securities
in the priority and manner and subject to the limitations specified in such
Prospectus Supplement.
11
<PAGE> 71
EFFECT OF PREPAYMENTS ON AVERAGE LIFE OF SECURITIES AND YIELDS
Prepayments (including those caused by defaults) on the Assets in any Trust
Fund generally will result in a faster rate of principal payments on one or more
classes of the related Securities than if payments on such Assets were made as
scheduled. Thus, the prepayment experience on the Assets may affect the average
life of each class of related Securities. The rate of principal payments on
pools of mortgage loans or manufactured housing contracts varies between pools
and from time to time is influenced by a variety of economic, demographic,
geographic, social, tax, legal and other factors. There can be no assurance as
to the rate of prepayment on the Assets in any Trust Fund or that the rate of
payments will conform to any model described herein or in any Prospectus
Supplement. If prevailing interest rates fall significantly below the applicable
mortgage interest rates, principal prepayments are likely to be higher than if
prevailing rates remain at or above the rates borne by the Mortgage Loans
underlying or comprising the Mortgage Assets in any Trust Fund. As a result, the
actual maturity of any class of Securities evidencing an interest in or an
obligation of a Trust Fund containing Mortgage Assets could occur significantly
earlier than expected. Conversely, if prevailing interest rates rise
significantly above the applicable mortgage interest rates, principal
prepayments are likely to be lower than if prevailing rates remain at or below
the rates borne by the Mortgage Loans underlying or comprising the Mortgage
Assets in any Trust Fund and the maturity of any class of Securities evidencing
an interest in or an obligation of such Trust Fund could occur significantly
later than expected. The relationship of prevailing interest rates and
prepayment rates on Contracts will be discussed in the related Prospectus
Supplement. In addition, certain prepayments may result in the collection of
less interest than would otherwise be the case in the month of prepayment.
A series of Securities may include one or more classes of Securities with
priorities of payment and, as a result, yields on other classes of Securities,
including classes of Offered Securities, of such series may be more sensitive to
prepayments on Assets. A series of Securities may include one or more classes
offered at a significant premium or discount. Yields on such classes of
Securities will be sensitive, and in some cases extremely sensitive, to
prepayments on Assets and, where the amount of interest payable with respect to
a class is disproportionately high, as compared to the amount of principal, as
with certain classes of Strip Securities, a holder might, in some prepayment
scenarios, fail to recoup its original investment. A series of Securities may
include one or more classes of Securities, including classes of Offered
Securities, that provide for distribution of principal thereof from amounts
attributable to interest accrued but not currently distributable on one or more
classes of Accrual Securities and, as a result, yields on such Securities will
be sensitive to (a) the provisions of such Accrual Securities relating to the
timing of distributions of interest thereon and (b) if such Accrual Securities
accrue interest at a variable or adjustable Pass-Through Rate or interest rate,
changes in such rate. See "Yield Considerations" herein and, if applicable, in
the related Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Securities will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Securities of such class will receive payments to which such Securityholders are
entitled under the related Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments (including those caused
by defaults) on the related Mortgage Assets will be made, the degree to which
the rate of such prepayments might differ from that originally anticipated or
the likelihood of early optional termination or redemption of the series of
Securities. Such rating will not address the possibility that prepayment at
higher or lower rates than anticipated by an investor may cause such investor to
experience a lower than anticipated yield or that an investor purchasing a
Security at a significant premium might fail to recoup its initial investment
under certain prepayment scenarios. Each Prospectus Supplement will identify any
payment to which holders of Offered Securities of the related series are
entitled that is not covered by the applicable rating.
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES IN GENERAL
An investment in securities such as the Securities which represent
interests in Mortgage Loans may be affected generally by, among other things, a
decline in real estate values and changes in the mortgagors'
12
<PAGE> 72
financial condition. No assurance can be given that values of the Mortgaged
Properties have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the residential real estate market
should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties, become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, in the case of Mortgage Loans that are subject to negative
amortization, due to the addition to the principal balance of deferred interest,
the principal balances of such Mortgage Loans could be increased to an amount
equal to or in excess of the value of the underlying Mortgaged Properties,
thereby increasing the likelihood of default. To the extent that such losses are
not covered by the applicable Credit Support, if any, holders of Securities of
the series evidencing interests in the related Mortgage Loans will bear all risk
of loss resulting from default by mortgagors and will have to look primarily to
the value of the Mortgaged Properties for recovery of the outstanding principal
and unpaid interest on the defaulted Mortgage Loans.
Certain of the types of Mortgage Loans may involve additional uncertainties
not present in traditional types of loans. For example, certain Mortgage Loans
provide for escalating or variable payments by the mortgagor under the Mortgage
Loan, as to which the mortgagor is generally qualified on the basis of the
initial payment amount. In some instances the mortgagors' income may not be
sufficient to enable them to continue to make their loan payments as such
payments increase and thus the likelihood of default will increase. In addition
to the foregoing, certain geographic regions of the United States from time to
time will experience weaker regional economic conditions and housing markets,
and, consequently, will experience higher rates of loss and delinquency than
will be experienced on mortgage loans generally. The Mortgage Loans underlying
certain series of Securities may be concentrated in these regions, and such
concentration may present risk considerations in addition to those generally
present for similar mortgage-backed securities without such concentration.
Furthermore, the rate of default on Mortgage Loans that are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Additionally, a
decline in the value of the Mortgaged Properties will increase the risk of loss
particularly with respect to any related junior Mortgage Loans. See "-- Losses
on Foreclosure of Junior Mortgage Loans."
Mortgage Loans secured by Multifamily Properties may entail risks of
delinquency and foreclosure, and risks of loss in the event thereof, that are
greater than similar risks associated with loans secured by Single Family
Properties. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower; thus, the value of an income-producing property
typically is directly related to the net operating income derived from such
property. If the net operating income of the property is reduced (for example,
if rental or occupancy rates decline or real estate tax rates or other operating
expenses increase), the borrower's ability to repay the loan may be impaired. In
addition, the concentration of default, foreclosure and loss risk for a pool of
Mortgage Loans secured by Multifamily Properties may be greater than for a pool
of Mortgage Loans secured by Single Family Properties of comparable aggregate
unpaid principal balance because the pool of Mortgage Loans secured by
Multifamily Properties is likely to consist of a smaller number of higher
balance loans.
If applicable, certain legal aspects of the Mortgage Loans for a series of
Securities may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of Mortgage Loans" herein.
RISKS OF DEFAULT OF BALLOON PAYMENTS
Certain of the Mortgage Assets (the "Balloon Payment Assets") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and, thus,
will require substantial principal payments (i.e., balloon payments) at their
stated maturity. Mortgage Assets with balloon payments involve a greater degree
of risk because the ability of an obligor to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related property. The ability of a mortgagor to accomplish either of
these goals will be affected by a number of factors, including the level of
available mortgage interest rates at the time of sale or refinancing, the
obligor's equity in the related property, the financial condition of the
13
<PAGE> 73
obligor, the value of the property, tax laws, prevailing general economic
conditions and the availability of credit for single family or multifamily real
properties generally.
LOSSES ON FORECLOSURE OF JUNIOR MORTGAGE LOANS
Certain of the Mortgage Loans may be secured by junior liens and the
related first and other senior liens, if any (collectively, the "senior lien"),
may not be included in the Trust Fund. The primary risk to holders of Mortgage
Loans secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related senior lien to satisfy
fully both the senior lien and the Mortgage Loan. In the event that a holder of
the senior lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the senior
lien. The claims of the holder of the senior lien will be satisfied in full out
of proceeds of the liquidation of the Mortgaged Property, if such proceeds are
sufficient, before the Trust Fund as holder of the junior lien receives any
payments in respect of the Mortgage Loan. If a Servicer were to foreclose on any
Mortgaged Property, it would do so subject to any related senior lien. In order
for the debt related to the Mortgaged Property to be paid in full at such sale,
a bidder at the foreclosure sale of such Mortgage Loan would have to bid an
amount sufficient to pay off all sums due under the Mortgage Loan and the senior
lien or purchase the Mortgaged Property subject to the senior lien. In the event
that such proceeds from a foreclosure or similar sale of the related Mortgaged
Property were insufficient to satisfy both loans in the aggregate, the Trust
Fund, as the holder of the junior lien, and, accordingly, holders of the related
Securities, would bear the risk of delay in distributions while a deficiency
judgment against the borrower was being obtained and the risk of loss if the
deficiency judgment were not realized upon. Moreover, deficiency judgments may
not be available in certain jurisdictions. In addition, a junior mortgagee may
not foreclose on the property securing a junior mortgage unless it forecloses
subject to the senior mortgage.
RISK OF DELINQUENCY AND FORECLOSURE RELATING TO NON-CONFORMING CREDITS
All or a portion of the Assets may consist of mortgage loans underwritten
in accordance with the underwriting for "non-conforming credits." A mortgage
loan made to a "non-conforming credit" means a mortgage loan that is ineligible
for purchase by Fannie Mae ("Fannie Mae") or the Federal Home Loan Mortgage
Corporation ("Freddie Mac") due to borrower credit characteristics, property
characteristics, loan documentation guidelines or other characteristics that do
not meet Fannie Mae or Freddie Mac underwriting guidelines, including a loan
made to a borrower whose creditworthiness and repayment ability do not satisfy
such Fannie Mae or Freddie Mac underwriting guidelines and a borrower who may
have a record of major derogatory credit items such as default on a prior
mortgage loan, credit write-offs, outstanding judgments or prior bankruptcies.
As a consequence, delinquencies and foreclosures can be expected to be more
prevalent with respect to such Mortgage Loans than with respect to mortgage
loans originated in accordance with Fannie Mae or Freddie Mac underwriting
guidelines and changes in the values of the Mortgaged Properties may have a
greater effect on the loss experience of such Mortgage Loans than on mortgage
loans originated in accordance with Fannie Mae or Freddie Mac underwriting
guidelines. Each prospective investor must make its own decision as to the
effect of non-conforming credits upon the delinquency, foreclosure, and
prepayment experience of the Mortgage Loans.
ASSETS MAY INCLUDE DELINQUENT MORTGAGE LOANS
All or a portion of the Mortgage Loans may be delinquent upon the issuance
of the related Securities. Credit enhancement provided with respect to a
particular series of Securities may not cover all losses related thereto.
Prospective investors should consider the risk that the inclusion of such
Mortgage Loans in the Trust Fund for a series may cause the rate of defaults and
prepayments on the Mortgage Loans to increase and, in turn, may cause losses to
exceed the available credit enhancement for such series and affect the yield on
the Securities of such series.
14
<PAGE> 74
CONSUMER PROTECTION LAWS AND OTHER LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and may require licensing of the persons who
originated the Mortgage Loans (the "Originators") and Servicers. In addition,
most states have other laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and
practices which may apply to the origination, servicing and collection of the
Mortgage Loans. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws, policies
and principles may limit the ability of a Servicer to collect all or part of the
principal of or interest on the Mortgage Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject such Servicer
to damages and administrative sanctions. See "Certain Legal Aspects of Mortgage
Loans."
The Mortgage Loans may also be subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Mortgage
Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; (iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience; and (iv)
the National Housing Act of 1934 (the "National Housing Act") with respect to
Mortgage Loans insured thereunder.
The Mortgage Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Home Ownership Act"), which amended the Federal
Truth in Lending Act as it applies to mortgages subject to the Home Ownership
Act. The Home Ownership Act requires certain additional disclosures, specifies
the timing of such disclosures and limits or prohibits the inclusion of certain
provisions in mortgages subject to the Home Ownership Act. The Home Ownership
Act also provides that any purchaser or assignee of a mortgage covered by the
Home Ownership Act is subject to all of the claims and defenses which the
borrower could assert against the original lender. The maximum damages that may
be recovered in an action under the Home Ownership Act from an assignee is the
remaining amount of indebtedness plus the total amount paid by the borrower in
connection with the mortgage loan. Any Trust Fund for which the Mortgage Assets
include Mortgage Loans subject to the Home Ownership Act would be subject to all
of the claims and defenses that the borrower could assert against the original
lender. Any violation of the Home Ownership Act that would result in such
liability would be a breach of the applicable Warranting Party's representations
and warranties, and the Warranting Party would be obligated to cure, repurchase
or, if permitted by the related Agreement, substitute for the Mortgage Loan in
question.
RISKS ASSOCIATED WITH CONTRACTS AND MANUFACTURED HOMES IN GENERAL
An investment in Securities evidencing an interest in or obligation of a
Trust Fund containing Contracts may be affected by, among other things, a
downturn in national, regional or local economic conditions. The geographic
location of the Manufactured Homes securing the Contracts in any Trust Fund at
origination of the related Contract will be set forth in the related Prospectus
Supplement. Regional and local economic conditions are often volatile and,
historically, regional and local economic conditions, as well as national
economic conditions, have affected the delinquency, loan loss and repossession
experience of manufactured housing installment sales contracts and/or
installment loan contracts (hereinafter generally referred to as "contracts" or
"manufactured housing contracts"). Moreover, regardless of its location,
manufactured housing generally depreciates in value. Thus, Securityholders
should expect that, as a general matter, the market value of any Manufactured
Home will be lower than the outstanding principal balance of the related
Contract. Sufficiently high delinquencies and liquidation losses on the
Contracts in a Trust Fund will have the effect of reducing, and could eliminate,
the protection against loss afforded by any credit enhancement supporting any
class of the related Securities. If such protection is eliminated with respect
to a class of Securities, the holders of such Securities will bear all risk of
loss on the related Contracts and will have to rely on the value of the related
Manufactured Homes for recovery of the outstanding principal of and unpaid
interest on any defaulted Contracts in the related Trust Fund. See "Description
of Credit Support."
15
<PAGE> 75
GRANT OF SECURITY INTEREST IN CONTRACTS; RISKS OF DEFECTIVE SECURITY INTEREST
AND EFFECTS OF CERTAIN OTHER LEGAL ASPECTS OF THE CONTRACTS
The Asset Seller in respect of a Contract will represent that such Contract
is secured by a security interest in a Manufactured Home. Perfection of security
interests in the Manufactured Homes and enforcement of rights to realize upon
the value of the Manufactured Homes as collateral for the Contracts are subject
to a number of federal and state laws, including the Uniform Commercial Code as
adopted in each state and each state's certificate of title statutes. The steps
necessary to perfect the security interest in a Manufactured Home will vary from
state to state. Because of the expense and administrative inconvenience
involved, the Servicer will not amend any certificates of title to change the
lienholder specified therein from the Asset Seller to the Trustee and will not
deliver any certificate of title to the Trustee or note thereon the Trustee's
interest. Consequently, in some states, in the absence of such an amendment, the
assignment to the Trustee of the security interest in the Manufactured Home may
not be effective or such security interest may not be perfected and, in the
absence of such notation or delivery to the Trustee, the assignment of the
security interest in the Manufactured Home may not be effective against
creditors of the Asset Seller or a trustee in bankruptcy of the Asset Seller. In
addition, numerous federal and state consumer protection laws impose
requirements on lending under installment sales contracts and installment loan
agreements such as the Contracts, and the failure by the lender or seller of
goods to comply with such requirements could give rise to liabilities of
assignees for amounts due under such agreements and claims by such assignees may
be subject to set-off as result of such lender's or seller's noncompliance.
These laws would apply to the Trustee as assignee of the Contracts. The Asset
Seller of the Contracts to the Depositor will warrant that each Contract
complies with all requirements of law and will make certain warranties relating
to the validity, subsistence, perfection and priority of the security interest
in each Manufactured Home securing a Contract. A breach of any such warranty
that materially adversely affects any Contract would create an obligation of the
Asset Seller to repurchase, or if permitted by the applicable Agreement,
substitute for, such Contract unless such breach is cured. If the Credit Support
is exhausted and recovery of amounts due on the Contracts is dependent on
repossession and resale of Manufactured Homes securing Contracts that are in
default, certain other factors may limit the ability to realize upon the
Manufactured Home or may limit the amount realized by Securityholders to less
than the amount due. See "Certain Legal Aspects of the Contracts."
RISKS ASSOCIATED WITH UNSECURED HOME IMPROVEMENT LOANS
The obligations of the borrower under any Unsecured Home Improvement Loan
included in a Trust Fund will not be secured by an interest in the related real
estate or any other property, and the Trust Fund will be a general unsecured
creditor as to such obligations. In the event of a default under an Unsecured
Home Improvement Loan, the related Trust Fund will have recourse only against
the borrower's assets generally, along with all other general unsecured
creditors of the borrower. In a bankruptcy or insolvency proceeding relating to
a borrower on an Unsecured Home Improvement Loan, the obligations of the
borrower under such Unsecured Home Improvement Loan may be discharged in their
entirety, notwithstanding the fact that the portion of such borrower's assets
made available to the related Trust Fund as a general unsecured creditor to pay
amounts due and owing thereunder are insufficient to pay all such amounts. A
borrower on an Unsecured Home Improvement Loan may not demonstrate the same
degree of concern over performance of the borrower's obligations under such Home
Improvement Loan as if such obligations were secured by the real estate or other
assets owned by such borrower.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Securities will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the conditions
and limitations described herein and in the related Prospectus Supplement.
Moreover, such Credit Support may not cover all potential losses or risks; for
example, Credit Support may or may not cover fraud or negligence by a mortgage
loan or contract originator or other parties.
16
<PAGE> 76
A series of Securities may include one or more classes of Subordinate
Securities (which may include Offered Securities), if so provided in the related
Prospectus Supplement. Although subordination is intended to reduce the risk to
holders of Senior Securities of delinquent distributions or ultimate losses, the
amount of subordination will be limited and may decline under certain
circumstances. In addition, if principal payments on one or more classes of
Securities of a series are made in a specified order of priority, any limits
with respect to the aggregate amount of claims under any related Credit Support
may be exhausted before the principal of the lower priority classes of
Securities of such series has been repaid. As a result, the impact of
significant losses and shortfalls on the Assets may fall primarily upon those
classes of Securities having a lower priority of payment. Moreover, if a form of
Credit Support covers more than one series of Securities (each, a "Covered
Trust"), holders of Securities evidencing an interest in a Covered Trust will be
subject to the risk that such Credit Support will be exhausted by the claims of
other Covered Trusts.
The amount of any applicable Credit Support supporting one or more classes
of Offered Securities, including the subordination of one or more classes of
Securities, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Securities based on an assumed level of
defaults, delinquencies, other losses or other factors. There can, however, be
no assurance that the loss experience on the related Assets will not exceed such
assumed levels. See "-- Limited Nature of Ratings," "Description of the
Securities" and "Description of Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Servicer or the Master
Servicer will generally be permitted to reduce, terminate or substitute all or a
portion of the credit enhancement for any series of Securities, if the
applicable Rating Agency indicates that the then-current rating thereof will not
be adversely affected.
LOWERING OF RATING ON SECURITIES
The rating of any series of Securities by any applicable Rating Agency may
be lowered following the initial issuance thereof as a result of the downgrading
of the obligations of any applicable Credit Support provider, or as a result of
losses on the related Assets substantially in excess of the levels contemplated
by such Rating Agency at the time of its initial rating analysis. The lowering
of a rating on a series or class of Securities may adversely affect the market
value of such Securities and the liquidity of such Securities. None of the
Depositor, any Master Servicer, any Servicer or any of their affiliates will
have any obligation to replace or supplement any Credit Support or to take any
other action to maintain any rating of any series of Securities.
RISKS OF SUBORDINATION OF THE SUBORDINATE SECURITIES; EFFECT OF LOSSES ON THE
ASSETS
The rights of Subordinate Securityholders to receive distributions to which
they would otherwise be entitled with respect to the Assets will be subordinate
to the rights of the Servicer (to the extent of its servicing fee, including any
unpaid servicing fees with respect to one or more prior Due Periods, and is
reimbursed for certain unreimbursed advances and unreimbursed liquidation
expenses), any Master Servicer (to the extent of its master servicing fee,
including any unpaid master servicing fee with respect to one or more prior Due
Periods, and is reimbursed for certain unreimbursed advances) and the Senior
Securityholders to the extent described in the related Prospectus Supplement. As
a result of the foregoing, investors must be prepared to bear the risk that they
may be subject to delays in payment and may not recover their initial
investments in the Subordinate Securities. See "Description of the
Securities -- General" and "-- Allocation of Losses and Shortfalls."
The yields on the Subordinate Securities may be extremely sensitive to the
loss experience of the Assets and the timing of any such losses. If the actual
rate and amount of losses experienced by the Assets exceed the rate and amount
of such losses assumed by an investor, the yields to maturity on the Subordinate
Securities may be lower than anticipated.
17
<PAGE> 77
SPECIAL FEDERAL TAX CONSIDERATIONS REGARDING RESIDUAL SECURITIES AND FASIT
SECURITIES
Holders of Residual Securities will be required to report on their federal
income tax returns as ordinary income their pro rata share of the taxable income
of the related REMIC, regardless of the amount or timing of their receipt of
cash payments, as described in "Federal Income Tax Consequences -- REMICs."
Accordingly, under certain circumstances, holders of Offered Securities that
constitute Residual Securities may have taxable income and tax liabilities
arising from such investment during a taxable year in excess of the cash
received during such period. Individual holders of Residual Securities may be
limited in their ability to deduct servicing fees and other expenses of the
REMIC. In addition, Residual Securities are subject to certain restrictions on
transfer. Because of the special tax treatment of Residual Securities, the
taxable income arising in a given year on a Residual Security will not be equal
to the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Residual Securities may be significantly
less than that of a corporate bond or stripped instrument having similar cash
flow characteristics. Additionally, prospective purchasers of Residual
Securities should be aware that applicable regulations prevent the ability to
mark-to-market REMIC residual interests. See "Federal Income Tax
Consequences -- REMICs." Special tax considerations relating to FASIT Securities
will be discussed in the related Prospectus Supplement.
RISKS ASSOCIATED WITH BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Offered Securities will be initially represented by one or more certificates or
notes registered in the name of Cede, the nominee for DTC, and will not be
registered in the names of the Security Owners or their nominees. Because of
this, unless and until Securities are issued in fully registered, certificated
form ("Definitive Securities"), Security Owners will not be recognized by the
Trustee as "Securityholders" (as that term is to be used in the related
Agreement). Hence, until such time, Security Owners will be able to exercise the
rights of Securityholders only indirectly through DTC and its participating
organizations. See "Description of the Securities -- Book-Entry Registration and
Definitive Securities."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "Assets") will include (i)
single family and/or multifamily mortgage loans (or certain balances thereof)
(collectively, the "Mortgage Loans"), including without limitation, Home Equity
Loans, Home Improvement Contracts and Land Sale Contracts, (ii) unsecured home
improvement loans ("Unsecured Home Improvement Loans"), (iii) undivided
ownership interests in Mortgage Loans ("Mortgage Participations"), (iv)
manufactured housing installment sale contracts or installment loan agreements
(the "Contracts"), (v) direct obligations of the United States, agencies thereof
or agencies created thereby which are not subject to redemption prior to
maturity at the option of the issuer and are (a) interest-bearing securities,
(b) non-interest-bearing securities, (c) originally interest-bearing securities
from which coupons representing the right to payment of interest have been
removed, or (d) interest-bearing securities from which the right to payment of
principal has been removed (the "Government Securities"), or (vii) a combination
of Mortgage Loans, Unsecured Home Improvement Loans, Mortgage Participations,
Contracts and/or Government Securities. As used herein, "Mortgage Loans" refers
to both whole Mortgage Loans (or certain balances thereof) and, unless the
context otherwise requires, Mortgage Loans underlying Mortgage Participations or
MBS. Mortgage Loans that secure, or interests in which are evidenced by, MBS are
herein sometimes referred to as "Underlying Mortgage Loans." Mortgage Loans and
Mortgage Participations are sometimes referred to herein as "Mortgage Assets."
The Mortgage Assets will not be guaranteed or insured by NationsBanc Asset
Securities, Inc. (the "Depositor") or any of its affiliates. The Mortgage Assets
will be guaranteed or insured by a governmental agency or instrumentality or
other person only if and to the extent expressly provided in the related
Prospectus Supplement. Each Asset will be selected by the Depositor for
inclusion in a Trust Fund from among those purchased, either directly or
indirectly, from
18
<PAGE> 78
a prior holder thereof (an "Asset Seller"), which may be an affiliate of the
Depositor and which prior holder may or may not be the originator of such
Mortgage Loan, Unsecured Home Improvement Loan or Contract.
The Assets included in the Trust Fund for a series may be subject to
various types of payment provisions. Such Assets may consist of (1) "Level
Payment Assets," which may provide for the payment of interest and full
repayment of principal in level monthly payments with a fixed rate of interest
computed on their declining principal balances; (2) "Adjustable Rate Assets,"
which may provide for periodic adjustments to their rates of interest to equal
the sum (which may be rounded) of a fixed margin and an index; (3) "Buy Down
Assets," which are Assets for which funds have been provided by someone other
than the related Obligors to reduce the Obligors' monthly payments during the
early period after origination of such Assets; (4) "Increasing Payment Assets,"
as described below; (5) "Interest Reduction Assets," which provide for the
one-time reduction of the interest rate payable thereon; (6) "GEM Assets," which
provide for (a) monthly payments during the first year after origination that
are at least sufficient to pay interest due thereon, and (b) an increase in such
monthly payments in subsequent years at a predetermined rate resulting in full
repayment over a shorter term than the initial amortization terms of such
Assets; (7) "GPM Assets," which allow for payments during a portion of their
terms which are or may be less than the amount of interest due on the unpaid
principal balances thereof, and which unpaid interest will be added to the
principal balances of such Assets and will be paid, together with interest
thereon, in later years; (8) "Step-up Rate Assets" which provide for interest
rates that increase over time; (9) "Balloon Payment Assets;" (10) "Convertible
Assets" which are Adjustable Rate Assets subject to provisions pursuant to
which, subject to certain limitations, the related Obligors may exercise an
option to convert the adjustable interest rate to a fixed interest rate; and
(11) "Bi-weekly Assets," which provide for Obligor payments to be made on a
bi-weekly basis.
An Increasing Payment Asset is an Asset that provides for monthly payments
that are fixed for an initial period to be specified in the related Prospectus
Supplement and which increase thereafter (at a predetermined rate expressed as a
percentage of the monthly payment during the preceding payment period, subject
to any caps on the amount of any single monthly payment increase) for a period
to be specified in the related Prospectus Supplement from the date of
origination, after which the monthly payment is fixed at a level-payment amount
so as to fully amortize the Asset over its remaining term to maturity. The
scheduled monthly payment with respect to an Increasing Payment Asset is the
total amount required to be paid each month in accordance with its terms and
equals the sum of (1) the Obligor's monthly payments referred to in the
preceding sentence and (2) in the case of certain Increasing Payment Assets,
payments made by the respective Servicers pursuant to buy-down or subsidy
agreements. The Obligor's initial monthly payments for each Increasing Payment
Asset are set at the level-payment amount that would apply to an otherwise
identical Level Payment Asset having an interest rate a certain number of
percentage points below the Asset Rate of such Increasing Payment Asset. The
Obligor's Monthly Payments on each Increasing Payment Asset, together with any
payments made thereon by the related Servicers pursuant to buy-down or subsidy
agreements, will in all cases be sufficient to allow payment of accrued interest
on such Increasing Payment Asset at the related interest rate, without negative
amortization. An Obligor's monthly payments on such an Asset may, however, not
be sufficient to result in any reduction of the principal balance of such Asset
until after the period when such payments may be increased.
The Securities will be entitled to payment only from the assets of the
related Trust Fund and will not be entitled to payments in respect of the assets
of any other trust fund established by the Depositor. If specified in the
related Prospectus Supplement, the assets of a Trust Fund will consist of
certificates representing beneficial ownership interests in, or indebtedness of,
another trust fund that contains the Assets.
MORTGAGE LOANS
General
Each Mortgage Loan will generally be secured by a lien on (i) a one- to
four-family residential property or a security interest in shares issued by a
cooperative housing corporation (a "Single Family Property" and the related
Mortgage Loan a "Single Family Mortgage Loan") or (ii) a primarily residential
property which consists of five or more residential dwelling units, and which
may include limited retail, office or other
19
<PAGE> 79
commercial space (a "Multifamily Property" and the related Mortgage Loan a
"Multifamily Mortgage Loan"). Single Family Properties and Multifamily
Properties are sometimes referred to herein collectively as "Mortgaged
Properties." To the extent specified in the related Prospectus Supplement, the
Mortgage Loans will be secured by first and/or junior mortgages or deeds of
trust or other similar security instruments creating a first or junior lien on
Mortgaged Property. The Mortgaged Properties may include apartments owned by
cooperative housing corporations ("Cooperatives"). The Mortgaged Properties may
include leasehold interests in properties, the title to which is held by third
party lessors. The term of any such leasehold shall exceed the term of the
related mortgage note by at least five years or such other time period specified
in the related Prospectus Supplement. The Mortgage Loans may include (i)
closed-end and/or revolving home equity loans or certain balances thereof ("Home
Equity Loans") and/or (ii) secured home improvement installment sales contracts
and secured installment loan agreements ("Home Improvement Contracts"). In
addition, the Mortgage Loans may include certain Mortgage Loans evidenced by
contracts ("Land Sale Contracts") for the sale of properties pursuant to which
the mortgagor promises to pay the amount due thereon to the holder thereof with
fee title to the related property held by such holder until the mortgagor has
made all of the payments required pursuant to such Land Sale Contract, at which
time fee title is conveyed to the mortgagor. The Originator of each Mortgage
Loan will have been a person other than the Depositor. The related Prospectus
Supplement will indicate if any Originator is an affiliate of the Depositor. The
Mortgage Loans will be evidenced by promissory notes (the "Mortgage Notes")
secured by mortgages, deeds of trust or other security instruments (the
"Mortgages") creating a lien on the Mortgaged Properties.
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of the then outstanding principal balance of the
Mortgage Loan to the Value of the related Mortgaged Property. The "Value" of a
Mortgaged Property, other than with respect to Refinance Loans, is generally the
lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. "Refinance Loans" are loans made to refinance existing loans. Unless
otherwise set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The value of a Mortgaged Property as of the date of initial issuance of
the related series of Securities may be less than the Value at origination and
will fluctuate from time to time based upon changes in economic conditions and
the real estate market.
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the dates
specified in such Prospectus Supplement and to the extent then applicable and
specifically known to the Depositor, with respect to the Mortgage Loans,
including (i) the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the Mortgage Loans as of
the applicable Cut-off Date, (ii) the type of property securing the Mortgage
Loans, (iii) the weighted average (by principal balance) of the original and
remaining terms to maturity of the Mortgage Loans, (iv) the earliest and latest
origination date and maturity date of the Mortgage Loans, (v) the range of the
Loan-to-Value Ratios at origination of the Mortgage Loans, (vi) the Mortgage
Rates or range of Mortgage Rates and the weighted average Mortgage Rate borne by
the Mortgage Loans, (vii) the state or states in which most of the Mortgaged
Properties are located, (viii) information with respect to the prepayment
provisions, if any, of the Mortgage Loans, (ix) with respect to Mortgage Loans
with adjustable Mortgage Rates ("ARM Loans"), the index, the frequency of the
adjustment dates, the range of margins added to the index, and the maximum
Mortgage Rate or monthly payment variation at the time of any adjustment thereof
and over the life of the ARM Loan, (x) information regarding the payment
characteristics of the Mortgage Loans, including without limitation balloon
payment and other amortization provisions, (xi) the number of Mortgage Loans
that are delinquent and the number of days or ranges of the number of days such
Mortgage Loans are delinquent and (xii) the material underwriting standards used
for the Mortgage Loans. If specific information respecting the Mortgage Loans is
not known to the Depositor at the time Securities are initially offered, more
general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report
20
<PAGE> 80
which will be available to purchasers of the related Securities at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Securities and Exchange Commission within fifteen days after such
initial issuance.
The related Prospectus Supplement will specify whether the Mortgage Loans
include (i) Home Equity Loans, which may be secured by Mortgages that are junior
to other liens on the related Mortgaged Property and/or (ii) Home Improvement
Contracts originated by a home improvement contractor and secured by a Mortgage
on the related Mortgaged Property that is junior to other liens on the Mortgaged
Property. The home improvements purchased with the Home Improvement Contracts
typically include replacement windows, house siding, roofs, swimming pools,
satellite dishes, kitchen and bathroom remodeling goods, solar heating panels,
patios, decks, room additions and garages. The related Prospectus Supplement
will specify whether the Home Improvement Contracts are partially insured under
Title I of the National Housing Act and, if so, the limitations on such
insurance. In addition, the related Prospectus Supplement will specify whether
the Mortgage Loans contain certain Mortgage Loans evidenced by Land Sale
Contracts.
Payment Provisions of the Mortgage Loans
All of the Mortgage Loans will provide for payments of principal, interest
or both, on due dates that occur monthly, quarterly or semi-annually or at such
other interval as is specified in the related Prospectus Supplement or for
payments in another manner described in the related Prospectus Supplement. Each
Mortgage Loan may provide for no accrual of interest or for accrual of interest
thereon at an interest rate (a "Mortgage Rate") that is fixed over its term or
that adjusts from time to time, or that may be converted from an adjustable to a
fixed Mortgage Rate or a different adjustable Mortgage Rate, or from a fixed to
an adjustable Mortgage Rate, from time to time pursuant to an election or as
otherwise specified on the related Mortgage Note, in each case as described in
the related Prospectus Supplement. Each Mortgage Loan may provide for scheduled
payments to maturity or payments that adjust from time to time to accommodate
changes in the Mortgage Rate or to reflect the occurrence of certain events or
that adjust on the basis of other methodologies, and may provide for negative
amortization or accelerated amortization, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may be fully amortizing or
require a balloon payment due on its stated maturity date, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may contain
prohibitions on prepayment (a "Lock-out Period" and, the date of expiration
thereof, a "Lock-out Date") or require payment of a premium or a yield
maintenance penalty (a "Prepayment Premium") in connection with a prepayment, in
each case as described in the related Prospectus Supplement. In the event that
holders of any class or classes of Offered Securities will be entitled to all or
a portion of any Prepayment Premiums collected in respect of Mortgage Loans, the
related Prospectus Supplement will specify the method or methods by which any
such amounts will be allocated. See "-- The Assets" above.
Revolving Credit Line Loans
As more fully described in the related Prospectus Supplement, the Mortgage
Loans may consist, in whole or in part, of revolving Home Equity Loans or
certain balances thereof ("Revolving Credit Line Loans"). Interest on each
Revolving Credit Line Loan, excluding introductory rates offered from time to
time during promotional periods, may be computed and payable monthly on the
average daily outstanding principal balance of such loan. From time to time
prior to the expiration of the related draw period specified in a Revolving
Credit Line Loan, principal amounts on such Revolving Credit Line Loan may be
drawn down (up to a maximum amount as set forth in the related Prospectus
Supplement) or repaid. If specified in the related Prospectus Supplement, new
draws by borrowers under the Revolving Credit Line Loans will automatically
become part of the Trust Fund described in such Prospectus Supplement. As a
result, the aggregate balance of the Revolving Credit Line Loans will fluctuate
from day to day as new draws by borrowers are added to the Trust Fund and
principal payments are applied to such balances and such amounts will usually
differ each day, as more specifically described in the related Prospectus
Supplement. Under certain circumstances, under a Revolving Credit Line Loan, a
borrower may, during the related draw period, choose an interest only payment
option, during which the borrower is obligated to pay only the amount of
interest which accrues on the loan
21
<PAGE> 81
during the billing cycle, and may also elect to pay all or a portion of the
principal. An interest only payment option may terminate at the end of the
related draw period, after which the borrower must begin paying at least a
minimum monthly portion of the average outstanding principal balance of the
loan.
Mortgage Participations
Mortgage Participations will evidence an undivided ownership interest in
Underlying Mortgage Loans. To the extent available to the Depositor, the related
Prospectus Supplement will contain information in respect of the Underlying
Mortgage Loans substantially similar to the information described above in
respect of Mortgage Loans. Such Prospectus Supplement will also specify the
amount of the participation interest and describe the servicing provisions of
the participation and servicing agreements.
UNSECURED HOME IMPROVEMENT LOANS
The Unsecured Home Improvement Loans may consist of conventional unsecured
home improvement loans and FHA insured unsecured home improvement loans. Except
as otherwise set forth in the related Prospectus Supplement, the Unsecured Home
Improvement Loans will be fully amortizing and will bear interest at a fixed or
variable annual percentage rate.
Unsecured Home Improvement Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the dates
specified in such Prospectus Supplement and to the extent then applicable and
specifically known to the Depositor, with respect to the Unsecured Home
Improvement Loans, including (i) the aggregate outstanding principal balance and
the largest, smallest and average outstanding principal balance of the Unsecured
Home Improvement Loans as of the applicable Cut-Off Date, (ii) the weighted
average (by principal balance) of the original and remaining terms to maturity
of the Unsecured Home Improvement Loans, (iii) the earliest and latest
origination date and maturity date of the Unsecured Home Improvements Loans,
(iv) the interest rates or range of interest rates and the weighted average
interest rates borne by the Unsecured Home Improvement Loans, (v) the state or
states in which most of the Unsecured Home Improvement Loans were originated,
(vi) information with respect to the prepayment provisions, if any, of the
Unsecured Home Improvement Loans, (vii) with respect to the Unsecured Home
Improvement Loans with adjustable interest rates ("ARM Unsecured Home
Improvement Loans"), the index, the frequency of the adjustment dates, the range
of margins added to the index, and the maximum interest rate or monthly payment
variation at the time of any adjustment thereof and over the life of the ARM
Unsecured Home Improvement Loan, (viii) information regarding the payment
characteristics of the Unsecured Home Improvement Loan, (ix) the number of
Unsecured Home Improvement Loans that are delinquent and the number of days or
ranges of the number of days such Unsecured Home Improvement Loans are
delinquent and (x) the material underwriting standards used for the Unsecured
Home Improvement Loans. If specific information respecting the Unsecured Home
Improvement Loans is not known to the Depositor at the time Securities are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Securities at or before the initial issuance thereof and will be filed as part
of a Current Report on Form 8-K with the Securities and Exchange Commission
within fifteen days after such initial issuance.
CONTRACTS
General
To the extent provided in the related Prospectus Supplement, each Contract
will be secured by a security interest in a new or used Manufactured Home. Such
Prospectus Supplement will specify the states or other jurisdictions in which
the Manufactured Homes are located as of the related Cut-off Date. The method of
computing the "Loan-to-Value Ratio" of a Contract will be described in the
related Prospectus Supplement.
22
<PAGE> 82
Contract Information in Prospectus Supplements
Each Prospectus Supplement will contain certain information, as of the
dates specified in such Prospectus Supplement and to the extent then applicable
and specifically known to the Depositor, with respect to the Contracts,
including (i) the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the Contracts as of the
applicable Cut-off Date, (ii) whether the Manufactured Homes were new or used as
of the origination of the related Contracts, (iii) the weighted average (by
principal balance) of the original and remaining terms to maturity of the
Contracts, (iv) the earliest and latest origination date and maturity date of
the Contracts, (v) the range of the Loan-to-Value Ratios at origination of the
Contracts, (vi) the Contract Rates or range of Contract Rates and the weighted
average Contract Rate borne by the Contracts, (vii) the state or states in which
most of the Manufactured Homes are located at origination, (viii) information
with respect to the prepayment provisions, if any, of the Contracts, (ix) with
respect to Contracts with adjustable Contract Rates ("ARM Contracts"), the
index, the frequency of the adjustment dates, and the maximum Contract Rate or
monthly payment variation at the time of any adjustment thereof and over the
life of the ARM Contract, (x) the number of Contracts that are delinquent and
the number of days or ranges of the number of days such Contracts are
delinquent, (xi) information regarding the payment characteristics of the
Contracts and (xii) the material underwriting standards used for the Contracts.
If specific information respecting the Contracts is not known to the Depositor
at the time Securities are initially offered, more general information of the
nature described above will be provided in the Prospectus Supplement, and
specific information will be set forth in a report which will be available to
purchasers of the related Securities at or before the initial issuance thereof
and will be filed as part of a Current Report on Form 8-K with the Securities
and Exchange Commission within fifteen days after such initial issuance.
Payment Provisions of the Contracts
All of the Contracts will provide for payments of principal, interest or
both, on due dates that occur monthly or at such other interval as is specified
in the related Prospectus Supplement or for payments in another manner described
in the Prospectus Supplement. Each Contract may provide for no accrual of
interest or for accrual of interest thereon at an annual percentage rate (a
"Contract Rate") that is fixed over its term or that adjusts from time to time,
or as otherwise specified in the related Prospectus Supplement. Each Contract
may provide for scheduled payments to maturity or payments that adjust from time
to time to accommodate changes in the Contract Rate as otherwise described in
the related Prospectus Supplement. See "-- Assets" above.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Securities evidencing interests
in Assets of a Trust Fund that include Government Securities will specify, to
the extent available, (i) the aggregate approximate initial and outstanding
principal amounts or notional amounts, as applicable, and types of the
Government Securities to be included in the Trust Fund, (ii) the original and
remaining terms to stated maturity of the Government Securities, (iii) whether
such Government Securities are entitled only to interest payments, only to
principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
PRE-FUNDING ACCOUNT
To the extent provided in a Prospectus Supplement, a portion of the
proceeds of the issuance of Securities may be deposited into an account
maintained with the Trustee (a "Pre-Funding Account"). In such event, the
Depositor will be obligated (subject only to the availability thereof) to sell
at a predetermined price, and the Trust Fund for the related series of
Securities will be obligated to purchase (subject to the availability thereof),
additional Assets (the "Subsequent Assets") from time to time (as frequently as
daily) within the period (generally not to exceed three months) specified in the
related Prospectus Supplement (the "Pre-Funding Period") after the issuance of
such series of Securities having an aggregate principal balance
23
<PAGE> 83
approximately equal to the amount on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") for such series on the date of such issuance. The
Pre-Funded Amount with respect to a series is not expected to exceed 25% of the
aggregate initial Security Balance of the related Securities. Any Subsequent
Assets will be required to satisfy certain eligibility criteria more fully set
forth in the related Prospectus Supplement, which eligibility criteria will be
consistent with the eligibility criteria of the Assets initially included in the
Trust Fund, subject to such exceptions as are expressly stated in the Prospectus
Supplement. For example, the Subsequent Assets will be subject to the same
underwriting standards, representations and warranties as the Assets initially
included in the Trust Fund. In addition, certain conditions must be satisfied
before the Subsequent Assets are transferred into the Trust Fund such as the
delivery to the Rating Agencies and the Trustee of certain opinions of counsel
(including bankruptcy, corporate and tax opinions).
Any portion of the Pre-Funded Amount remaining in the Pre-Funding Account
at the end of the Pre-Funding Period will be used to prepay one or more classes
of Securities in the amounts and in the manner specified in the related
Prospectus Supplement. In addition, if specified in the related Prospectus
Supplement, the Depositor may be required to deposit cash into an account
maintained by the Trustee (the "Capitalized Interest Account") for the purpose
of assuring the availability of funds to pay interest with respect to the
Securities during the Pre-Funding Period. Any amount remaining in the
Capitalized Interest Account at the end of the Pre-Funding Period will be
remitted as specified in the related Prospectus Supplement.
ACCOUNTS
Each Trust Fund will include one or more accounts, established and
maintained on behalf of the Securityholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement. See "Description of the Agreements -- Certain
Terms of the Pooling and Servicing Agreements, Trust Agreements and Underlying
Servicing Agreement -- Collection Account and Related Accounts."
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Securities in the related
series in the form of subordination of one or more other classes of Securities
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Securities of any series, "Credit Support"). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Securities. See "Risk
Factors -- Credit Support Limitations" and "Description of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets or
on one or more classes of Securities. (Currency exchange agreements might be
included in the Trust Fund if some or all of the Mortgage Assets were
denominated in a non-United States currency.) The principal terms of any such
guaranteed investment contract or other agreement (any such agreement, a "Cash
Flow Agreement"), including, without limitation, provisions relating to the
timing, manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the Prospectus Supplement
24
<PAGE> 84
for the related series. In addition, the related Prospectus Supplement will
provide certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will be
applied by the Depositor to the purchase of Assets, or the repayment of the
financing incurred in such purchase, and to pay for certain expenses incurred in
connection with such purchase of Assets and sale of Securities. The Depositor
expects to sell the Securities from time to time, but the timing and amount of
offerings of Securities will depend on a number of factors, including the volume
of Assets acquired by the Depositor, prevailing interest rates, availability of
funds and general market conditions.
25
<PAGE> 85
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Security will depend on the price paid by the
Securityholder, the Pass-Through Rate of the Security, the receipt and timing of
receipt of distributions on the Security and the weighted average life of the
Assets in the related Trust Fund (which may be affected by prepayments,
defaults, liquidations or repurchases). See "Risk Factors."
PASS-THROUGH RATE AND INTEREST RATE
Securities of any class within a series may have fixed, variable or
adjustable Pass-Through Rates or interest rates, which may or may not be based
upon the interest rates borne by the Assets in the related Trust Fund. The
Prospectus Supplement with respect to any series of Securities will specify the
Pass-Through Rate or interest rate for each class of such Securities or, in the
case of a variable or adjustable Pass-Through Rate or interest rate, the method
of determining the Pass-Through Rate or interest rate; the effect, if any, of
the prepayment of any Asset on the Pass-Through Rate or interest rate of one or
more classes of Securities; and whether the distributions of interest on the
Securities of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
If so specified in the related Prospectus Supplement, the effective yield
to maturity to each holder of Securities entitled to payments of interest will
be below that otherwise produced by the applicable Pass-Through Rate or interest
rate and purchase price of such Security because, while interest may accrue on
each Asset during a certain period (each, an "Interest Accrual Period"), the
distribution of such interest will be made on a day which may be several days,
weeks or months following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Securities (or addition to the Security
Balance of a class of Accrual Securities) on a Distribution Date will include
interest accrued during the Interest Accrual Period for such Distribution Date.
As indicated above under "-- Pass-Through Rate and Interest Rate," if the
Interest Accrual Period ends on a date other than the day before a Distribution
Date for the related series, the yield realized by the holders of such
Securities may be lower than the yield that would result if the Interest Accrual
Period ended on such day before the Distribution Date.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Securities will be affected by the rate of
principal payments on the Assets (including principal prepayments on Mortgage
Loans and Contracts resulting from both voluntary prepayments by the borrowers
and involuntary liquidations). The rate at which principal prepayments occur on
the Mortgage Loans and Contracts will be affected by a variety of factors,
including, without limitation, the terms of the Mortgage Loans and Contracts,
the level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. In this regard, it should be noted that certain Assets may
consist of Mortgage Loans with different Mortgage Rates and the stated pass-
through or pay-through interest rate of certain MBS may be a number of
percentage points higher or lower than certain of the Underlying Mortgage Loans.
The rate of principal payments on some or all of the classes of Securities of a
series will correspond to the rate of principal payments on the Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Assets, and by the extent to which the servicer of any such
Mortgage Loan is able to enforce such provisions. Mortgage Loans with a Lock-out
Period or a Prepayment Premium provision, to the extent enforceable, generally
would be expected to experience a lower rate of principal prepayments than
otherwise identical Mortgage Loans without such provisions, with shorter Lock-
26
<PAGE> 86
out Periods or with lower Prepayment Premiums. Because of the depreciating
nature of manufactured housing, which limits the possibilities for refinancing,
and because the terms and principal amounts of manufactured housing contracts
are generally shorter and smaller than the terms and principal amounts of
mortgage loans secured by site-built homes, changes in interest rates have a
correspondingly smaller effect on the amount of the monthly payments on
manufactured housing contracts than on the amount of the monthly payments on
mortgage loans secured by site-built homes. Consequently, changes in interest
rates may play a smaller role in prepayment behavior of manufactured housing
contracts than they do in the prepayment behavior of loans secured by mortgage
on site-built homes. Conversely, local economic conditions and certain of the
other factors mentioned above may play a larger role in the prepayment behavior
of manufactured housing contracts than they do in the prepayment behavior of
loans secured by mortgages on site-built homes.
If the purchaser of a Security offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Security offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the Assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the Prospectus Supplement for a series of Securities, the effect on yield on
one or more classes of the Securities of such series of prepayments of the
Assets in the related Trust Fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to such
classes.
When a full prepayment is made on a Mortgage Loan or a Contract, the
obligor is charged interest on the principal amount of the Mortgage Loan or
Contract so prepaid for the number of days in the month actually elapsed up to
the date of the prepayment or such other period specified in the related
Prospectus Supplement. Generally, the effect of prepayments in full will be to
reduce the amount of interest paid in the following month to holders of
Securities entitled to payments of interest because interest on the principal
amount of any Mortgage Loan or Contract so prepaid will be paid only to the date
of prepayment rather than for a full month. A partial prepayment of principal is
applied so as to reduce the outstanding principal balance of the related
Mortgage Loan or Contract as of the Due Date in the month in which such partial
prepayment is receive or such other date as is specified in the related
Prospectus Supplement.
The timing of changes in the rate of principal payments on the Assets may
significantly affect an investor's actual yield to maturity, even if the average
rate of distributions of principal is consistent with an investor's expectation.
In general, the earlier a principal payment is received on the Mortgage Assets
and distributed on a Security, the greater the effect on such investor's yield
to maturity. The effect on an investor's yield of principal payments occurring
at a rate higher (or lower) than the rate anticipated by the investor during a
given period may not be offset by a subsequent like decrease (or increase) in
the rate of principal payments.
The Securityholder will bear the risk of being able to reinvest principal
received in respect of a Security at a yield at least equal to the yield on such
Security.
PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets included
in or comprising a Trust Fund and the rate at which payments are made from any
Credit Support or Cash Flow Agreement for the related series of Securities may
affect the ultimate maturity and the weighted average life of each class of such
series. Prepayments on the Mortgage Loans or Contracts comprising or underlying
the Assets in a particular Trust Fund will generally accelerate the rate at
which principal is paid on some or all of the classes of the Securities of the
related series.
If so provided in the Prospectus Supplement for a series of Securities, one
or more classes of Securities may have a final scheduled Distribution Date,
which is the date on or prior to which the Security Balance thereof is scheduled
to be reduced to zero, calculated on the basis of the assumptions applicable to
such series set forth therein. Weighted average life refers to the average
amount of time that will elapse from the date of issue of a security until each
dollar of principal of such security will be repaid to the investor. The
weighted
27
<PAGE> 87
average life of a class of Securities of a series will be influenced by the rate
at which principal on the Assets is paid to such class, which may be in the form
of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, in whole or in part, and liquidations due to
default).
In addition, the weighted average life of the Securities may be affected by
the varying maturities of the Assets in a Trust Fund. If any Assets in a
particular Trust Fund have actual terms to maturity less than those assumed in
calculating final scheduled Distribution Dates for the classes of Securities of
the related series, one or more classes of such Securities may be fully paid
prior to their respective final scheduled Distribution Dates, even in the
absence of prepayments. Accordingly, the prepayment experience of the Assets
will, to some extent, be a function of the mix of Mortgage Rates or Contract
Rates and maturities of the Mortgage Loans or Contracts comprising or underlying
such Assets. See "Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model, each as
described below. CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans for the
life of such loans. SPA represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans. A
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans or Contracts underlying or comprising the Assets.
The Prospectus Supplement with respect to each series of Securities may
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Securities of such series and the percentage of the
initial Security Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Assets are made at rates corresponding to
various percentages of CPR, SPA or such other standard specified in such
Prospectus Supplement. Such tables and assumptions are intended to illustrate
the sensitivity of the weighted average life of the Securities to various
prepayment rates and will not be intended to predict or to provide information
that will enable investors to predict the actual weighted average life of the
Securities. It is unlikely that prepayment of any Mortgage Loans or Contracts
comprising or underlying the Assets for any series will conform to any
particular level of CPR, SPA or any other rate specified in the related
Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Asset
If so specified in the related Prospectus Supplement, a number of Mortgage
Loans may have balloon payments due at maturity (which, based on the
amortization schedule of such Mortgage Loans, may be a substantial amount), and
because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Balloon Payment Assets may
default at maturity. The ability to obtain refinancing will depend on a number
of factors prevailing at the time refinancing or sale is required, including,
without limitation, real estate values, the mortgagor's financial situation,
prevailing mortgage loan interest rates, the mortgagor's equity in the related
Mortgaged Property, tax laws and prevailing general economic conditions. Neither
the Depositor, the Servicer, the Master Servicer, nor any of their affiliates
will be obligated to refinance or repurchase any Mortgage Loan or to sell the
Mortgaged Property except to the extent provided in the related Prospectus
Supplement. In the case of defaults, recovery of proceeds may be delayed by,
among other things, bankruptcy of the mortgagor or adverse conditions in the
market where the property is located. In order to minimize losses on defaulted
Mortgage Loans, the Servicer may, to the extent and under the circumstances
28
<PAGE> 88
set forth in the related Prospectus Supplement, be permitted to modify Mortgage
Loans that are in default or as to which a payment default is reasonably
foreseeable. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan will tend to extend the weighted average life of the
Securities and may thereby lengthen the period of time elapsed from the date of
issuance of a Security until it is retired.
With respect to certain Mortgage Loans, including ARM Loans, the Mortgage
Rate at origination may be below the rate that would result if the index and
margin relating thereto were applied at origination. With respect to certain
Contracts, the Contract Rate may be "stepped up" during its term or may
otherwise vary or be adjusted. Under the applicable underwriting standards, the
mortgagor or obligor under each Mortgage Loan or Contract generally will be
qualified on the basis of the Mortgage Rate or Contract Rate in effect at
origination. The repayment of any such Mortgage Loan or Contract may thus be
dependent on the ability of the mortgagor or obligor to make larger level
monthly payments following the adjustment of the Mortgage Rate or Contract Rate.
In addition, certain Mortgage Loans may be subject to temporary buydown plans
("Buydown Mortgage Loans") pursuant to which the monthly payments made by the
mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments thereon (the "Buydown Period"). The periodic increase
in the amount paid by the mortgagor of a Buydown Mortgage Loan during or at the
end of the applicable Buydown Period may create a greater financial burden for
the mortgagor, who might not have otherwise qualified for a mortgage, and may
accordingly increase the risk of default with respect to the related Mortgage
Loan.
The Mortgage Rates on certain ARM Loans subject to negative amortization
generally adjust monthly and their amortization schedules adjust less
frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the applicable index at origination and the related margin over such index at
which interest accrues), the amount of interest accruing on the principal
balance of such Mortgage Loans may exceed the amount of the minimum scheduled
monthly payment thereon. As a result, a portion of the accrued interest on
negatively amortizing Mortgage Loans may be added to the principal balance
thereof and will bear interest at the applicable Mortgage Rate. The addition of
any such deferred interest to the principal balance of any related class or
classes of Securities will lengthen the weighted average life thereof and may
adversely affect yield to holders thereof, depending upon the price at which
such Securities were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce the principal balance of the related class or classes of Securities,
the weighted average life of such Securities will be reduced and may adversely
affect yield to holders thereof, depending upon the price at which such
Securities were purchased.
As may be described in the related Prospectus Supplement, the related
Agreement may provide that all or a portion of the principal collected on or
with respect to the related Mortgage Loans may be applied by the related Trustee
to the acquisition of additional Mortgage Loans during a specified period
(rather than used to fund payments of principal to Securityholders during such
period) with the result that the related securities possess an interest-only
period, also commonly referred to as a revolving period, which will be followed
by an amortization period. Any such interest-only or revolving period may, upon
the occurrence of certain events to be described in the related Prospectus
Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Agreement may provide that all or a portion of such collected
principal may be retained by the Trustee (and held in certain temporary
investments, including Mortgage Loans) for a specified period prior to being
used to fund payments of principal to Securityholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Mortgage Loans, or to attempt
to match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the
29
<PAGE> 89
occurrence of events to be described in the related Prospectus Supplement,
resulting in the current funding of principal payments to the related
Securityholders and an acceleration of the amortization of such Securities.
Termination
If so specified in the related Prospectus Supplement, a series of
Securities may be subject to optional early termination through the repurchase
of the Assets in the related Trust Fund by the party specified therein, on any
date on which the aggregate Security Balance of the Securities of such series
declines to a percentage specified in the related Prospectus Supplement (not to
exceed 10%) of the Initial Security Balance, under the circumstances and in the
manner set forth therein. In addition, if so provided in the related Prospectus
Supplement, certain classes of Securities may be purchased or redeemed in the
manner set forth therein. See "Description of the Securities -- Termination."
Defaults
The rate of defaults on the Assets will also affect the rate, timing and
amount of principal payments on the Assets and thus the yield on the Securities.
In general, defaults on mortgage loans or contracts are expected to occur with
greater frequency in their early years. The rate of default on Mortgage Loans
which are refinance or limited documentation mortgage loans, and on Mortgage
Loans with high Loan-to-Value Ratios, may be higher than for other types of
Mortgage Loans. Furthermore, the rate and timing of prepayments, defaults and
liquidations on the Mortgage Loans and Contracts will be affected by the general
economic condition of the region of the country in which the related Mortgage
Properties or Manufactured Homes are located. The risk of delinquencies and loss
is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values.
Foreclosures
The number of foreclosures or repossessions and the principal amount of the
Mortgage Loans or Contracts comprising or underlying the Assets that are
foreclosed or repossessed in relation to the number and principal amount of
Mortgage Loans or Contracts that are repaid in accordance with their terms will
affect the weighted average life of the Mortgage Loans or Contracts comprising
or underlying the Assets and that of the related series of Securities.
Refinancing
At the request of a mortgagor, the Servicer may allow the refinancing of a
Mortgage Loan or Contract in any Trust Fund by accepting prepayments thereon and
permitting a new loan secured by a mortgage on the same property. In the event
of such a refinancing, the new loan would not be included in the related Trust
Fund and, therefore, such refinancing would have the same effect as a prepayment
in full of the related Mortgage Loan or Contract. A Servicer may, from time to
time, implement programs designed to encourage refinancing. Such programs may
include, without limitation, modifications of existing loans, general or
targeted solicitations, the offering of pre-approved applications, reduced
origination fees or closing costs, or other financial incentives. In addition,
Servicers may encourage the refinancing of Mortgage Loans or Contracts,
including defaulted Mortgage Loans or Contracts, that would permit creditworthy
borrowers to assume the outstanding indebtedness of such Mortgage Loans or
Contracts.
Due-on-Sale Clauses
Acceleration of mortgage payments as a result of certain transfers of
underlying Mortgaged Property is another factor affecting prepayment rates that
may not be reflected in the prepayment standards or models used in the relevant
Prospectus Supplement. A number of the Mortgage Loans comprising or underlying
the Assets may include "due-on-sale clauses" that allow the holder of the
Mortgage Loans to demand payment in full of the remaining principal balance of
the Mortgage Loans upon sale, transfer or conveyance of the related Mortgaged
Property. With respect to any Mortgage Loans, except as set forth in the related
Prospectus
30
<PAGE> 90
Supplement, the Servicer will generally enforce any due-on-sale clause to the
extent it has knowledge of the conveyance or proposed conveyance of the
underlying Mortgaged Property and it is entitled to do so under applicable law;
provided, however, that the Servicer will not take any action in relation to the
enforcement of any due-on-sale provision which would adversely affect or
jeopardize coverage under any applicable insurance policy. See "Certain Legal
Aspects of Mortgage Loans -- Due-on-Sale Clauses" and "Description of the
Agreements -- Certain Terms of the Pooling and Servicing Agreements, Trust
Agreements and Underlying Servicing Agreements -- Due-on-Sale Provisions." The
Contracts, in general, prohibit the sale or transfer of the related Manufactured
Homes without the consent of the Servicer and permit the acceleration of the
maturity of the Contracts by the Servicer upon any such sale or transfer that is
not consented to. It is expected that the Servicer will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts. In
certain cases, the transfer may be made by a delinquent obligor in order to
avoid a repossession of the Manufactured Home. In the case of a transfer of a
Manufactured Home after which the Servicer desires to accelerate the maturity of
the related Contract, the Servicer's ability to do so will depend on the
enforceability under state law of the "due-on-sale clause". See "Certain Legal
Aspects of the Contracts -- Transfers of Manufactured Homes; Enforceability of
Due-on-Sale Clauses."
THE DEPOSITOR
NationsBanc Asset Securities, Inc., the Depositor, is a direct wholly-owned
subsidiary of NationsBanc Mortgage Capital Corporation and was incorporated in
the State of Delaware on July 23, 1997. The principal executive offices of the
Depositor are located at NationsBank Corporate Center, Charlotte, North Carolina
28255. Its telephone number is (704) 386-2400.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
DESCRIPTION OF THE SECURITIES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. If a series of Securities
includes Notes, such Notes will represent indebtedness of the related Trust Fund
and will be issued and secured pursuant to an Indenture. Each series of
Securities will consist of one or more classes of Securities that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Securities") or
subordinate (collectively, "Subordinate Securities") to one or more other
classes of Securities in respect of certain distributions on the Securities;
(iii) be entitled either to (A) principal distributions, with disproportionately
low, nominal or no interest distributions or (B) interest distributions, with
disproportionately low, nominal or no principal distributions (collectively,
"Strip Securities"); (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Securities of such series
(collectively, "Accrual Securities"); (v) provide for payments of principal as
described in the related Prospectus Supplement, from all or only a portion of
the Assets in such Trust Fund, to the extent of available funds, in each case as
described in the related Prospectus Supplement; and/or (vi) provide for
distributions based on a combination of two or more components thereof with one
or more of the characteristics described in this paragraph including a Strip
Security component. If so specified in the related Prospectus Supplement,
distributions on one or more classes of a series of Securities may be limited to
collections from a designated portion of the Assets in the related Trust Fund
(each such portion of Assets, an "Asset Group"). Any such classes may include
classes of Offered Securities.
Each class of Offered Securities of a series will be issued in minimum
denominations corresponding to the Security Balances or, in the case of certain
classes of Strip Securities, notional amounts or percentage interests specified
in the related Prospectus Supplement. The transfer of any Offered Securities may
be registered and such Securities may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent
31
<PAGE> 91
thereof may require payment of a sum sufficient to cover any tax or other
governmental charge. One or more classes of Securities of a series may be issued
as Definitive Securities or in book-entry form ("Book-Entry Securities"), as
provided in the related Prospectus Supplement. See "Risk Factors -- Risks
Associated with Book-Entry Registration" and "Description of the
Securities -- Book-Entry Registration and Definitive Securities." Definitive
Securities will be exchangeable for other Securities of the same class and
series of a like aggregate Security Balance, notional amount or percentage
interest but of different authorized denominations. See "Risk Factors -- Limited
Liquidity for Securities" and "-- Limited Assets for Payment of Securities."
DISTRIBUTIONS
Distributions on the Securities of each series will be made by or on behalf
of the Trustee on each Distribution Date as specified in the related Prospectus
Supplement from the Available Distribution Amount for such series and such
Distribution Date. Distributions (other than the final distribution) will be
made to the persons in whose names the Securities are registered at the close of
business on, unless a different date is specified in the related Prospectus
Supplement, the last business day of the month preceding the month in which the
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Securities on each Distribution Date
will be allocated pro rata among the outstanding Securityholders in such class
or by random selection or as described in the related Prospectus Supplement.
Payments will be made either by wire transfer in immediately available funds to
the account of a Securityholder at a bank or other entity having appropriate
facilities therefor, if such Securityholder has so notified the Trustee or other
person required to make such payments no later than the date specified in the
related Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, holds Securities in the requisite amount specified therein), or by
check mailed to the address of the person entitled thereto as it appears on the
Security Register; provided, however, that the final distribution in retirement
of the Securities will be made only upon presentation and surrender of the
Securities at the location specified in the notice to Securityholders of such
final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Securities of each series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement.
Generally, the "Available Distribution Amount" for each Distribution Date equals
the sum of the following amounts:
(i) the total amount of all cash on deposit in the related Collection
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Period (unless a different
period is specified in the related Prospectus Supplement, a "Due Period"
with respect to any Distribution Date will commence on the second day of
the month in which the immediately preceding Distribution Date occurs,
or the day after the Cut-off Date in the case of the first Due Period,
and will end on the first day of the month of the related Distribution
Date),
(b) all prepayments, together with related payments of the interest
thereon and related Prepayment Premiums, all proceeds of any insurance
policies to be maintained in respect of each Asset (to the extent such
proceeds are not applied to the restoration of the Asset or released in
accordance with the normal servicing procedures of a Servicer, subject
to the terms and conditions applicable to the related Asset)
(collectively, "Insurance Proceeds"), all other amounts received and
retained in connection with the liquidation of Assets in default in the
Trust Fund ("Liquidation Proceeds"), and other unscheduled recoveries
received subsequent to the related Due Period,
(c) all amounts in the Collection Account that are due or
reimbursable to the Depositor, the Trustee, an Asset Seller, a Servicer,
the Master Servicer or any other entity as specified in the
32
<PAGE> 92
related Prospectus Supplement or that are payable in respect of certain
expenses of the related Trust Fund, and
(d) all amounts received for a repurchase of an Asset from the
Trust Fund for defective documentation or a breach of representation or
warranty received subsequent to the related Due Period;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Collection Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Servicer or the Master Servicer or any
other entity as specified in the related Prospectus Supplement with respect
to such Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Servicer or any other entity as specified in
the related Prospectus Supplement with respect to interest shortfalls
resulting from prepayments during the related Prepayment Period; and
(v) to the extent not on deposit in the related Collection Account as
of the corresponding Determination Date, any amounts collected under, from
or in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Securities (including any Securities not offered
hereby) on each Distribution Date, and accordingly will be released from the
Trust Fund and will not be available for any future distributions.
The related Prospectus Supplement for a series of Securities will describe
any variation in the calculation of the Available Distribution Amount for such
series.
DISTRIBUTIONS OF INTEREST ON THE SECURITIES
Each class of Securities (other than classes of Strip Securities that have
no Pass-Through Rate or interest rate) may have a different Pass-Through Rate or
interest rate, which will be a fixed, variable or adjustable rate at which
interest will accrue on such class or a component thereof (the "Pass-Through
Rate" in the case of Certificates). The related Prospectus Supplement will
specify the Pass-Through Rate or interest rate for each class or component or,
in the case of a variable or adjustable Pass-Through Rate or interest rate, the
method for determining the Pass-Through Rate or interest rate. Interest on the
Securities will be calculated on the basis of a 360-day year consisting of
twelve 30-day months unless the related Prospectus Supplement specifies a
different basis.
Distributions of interest in respect of the Securities of any class will be
made on each Distribution Date (other than any class of Accrual Securities,
which will be entitled to distributions of accrued interest commencing only on
the Distribution Date, or under the circumstances, specified in the related
Prospectus Supplement, and any class of Strip Securities that are not entitled
to any distributions of interest) based on the Accrued Security Interest for
such class and such Distribution Date, subject to the sufficiency of the portion
of the Available Distribution Amount allocable to such class on such
Distribution Date. Prior to the time interest is distributable on any class of
Accrual Securities, the amount of Accrued Security Interest otherwise
distributable on such class will be added to the Security Balance thereof on
each Distribution Date. With respect to each class of Securities and each
Distribution Date (other than certain classes of Strip Securities), "Accrued
Security Interest" will be equal to interest accrued during the related Interest
Accrual Period on the outstanding Security Balance thereof immediately prior to
the Distribution Date, at the applicable Pass-Through Rate or interest rate,
reduced as described below. Accrued Security Interest on certain classes of
Strip Securities will be equal to interest accrued during the related Interest
Accrual Period on the outstanding notional amount thereof immediately prior to
each Distribution Date, at the applicable Pass-Through Rate or interest rate,
reduced as described below, or interest accrual in the manner described in the
related Prospectus Supplement. The method of determining the notional amount for
a certain class of Strip Securities will be described in the related Prospectus
Supplement. Reference to notional amount is solely for convenience in certain
calculations and does not represent the right to receive any distributions of
principal. Unless otherwise
33
<PAGE> 93
provided in the related Prospectus Supplement, the Accrued Security Interest on
a series of Securities will be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full accrual
period resulting from prepayments prior to the due date in such accrual period
on the Mortgage Loans or Contracts comprising or underlying the Assets in the
Trust Fund for such series. The particular manner in which such shortfalls are
to be allocated among some or all of the classes of Securities of that series
will be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Securities, that may otherwise be added to the Security Balance of) a
class of Offered Securities may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Loans or Contracts comprising or underlying the Assets
in the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any reduction in the amount of Accrued Security Interest otherwise
distributable on a class of Securities by reason of the allocation to such class
of a portion of any deferred interest on the Mortgage Loans or Contracts
comprising or underlying the Assets in the related Trust Fund will result in a
corresponding increase in the Security Balance of such class. See "Risk
Factors -- Average Life of Securities; Prepayments; Yields" and "Yield
Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE SECURITIES
The Securities of each series, other than certain classes of Strip
Securities, will have a "Security Balance" which, at any time, will equal the
then maximum amount that the holder will be entitled to receive in respect of
principal out of the future cash flow on the Assets and other assets included in
the related Trust Fund. The outstanding Security Balance of a Security will be
reduced to the extent of distributions of principal thereon from time to time
and, if and to the extent so provided in the related Prospectus Supplement, by
the amount of losses incurred in respect of the related Assets, may be increased
in respect of deferred interest on the related Mortgage Loans to the extent
provided in the related Prospectus Supplement and, in the case of Accrual
Securities prior to the Distribution Date on which distributions of interest are
required to commence, will be increased by any related Accrued Security
Interest. If so specified in the related Prospectus Supplement, the initial
aggregate Security Balance of all classes of Securities of a series will be
greater than the outstanding aggregate principal balance of the related Assets
as of the applicable Cut-off Date. The initial aggregate Security Balance of a
series and each class thereof will be specified in the related Prospectus
Supplement. Distributions of principal will be made on each Distribution Date to
the class or classes of Securities in the amounts and in accordance with the
priorities specified in the related Prospectus Supplement. Certain classes of
Strip Securities with no Security Balance are not entitled to any distributions
of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement, distribution
on a class of Securities may be based on a combination of two or more different
components as described under "-- General" above. To such extent, the
descriptions set forth under "-- Distributions of Interest on the Securities"
and "-- Distributions of Principal of the Securities" above also relate to
components of such a class of Securities. In such case, reference in such
sections to Security Balance and Pass-Through Rate or interest rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate or
interest rate, if any, on any such component, respectively.
DISTRIBUTIONS ON THE SECURITIES OF PREPAYMENT PREMIUMS
If so provided in the related Prospectus Supplement, Prepayment Premiums
that are collected on the Mortgage Assets in the related Trust Fund will be
distributed on each Distribution Date to the class or classes of Securities
entitled thereto in accordance with the provisions described in such Prospectus
Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Securities
consisting of one or more classes of Subordinate Securities, on any Distribution
Date in respect of which losses or shortfalls in collections on the Assets have
been incurred, the amount of such losses or shortfalls will be borne first by a
class of Subordinate
34
<PAGE> 94
Securities in the priority and manner and subject to the limitations specified
in such Prospectus Supplement. See "Description of Credit Support" for a
description of the types of protection that may be included in a Trust Fund
against losses and shortfalls on Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Securities evidencing an interest in a Trust
Fund, if so provided in the related Prospectus Supplement, the Servicer or
another entity described therein will be required as part of its servicing
responsibilities to advance on or before each Distribution Date its own funds or
funds held in the Collection Account that are not included in the Available
Distribution Amount for such Distribution Date, in an amount equal to the
aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Assets in such Trust Fund during the related Due Period and were delinquent
on the related Determination Date, subject to the Servicer's (or another
entity's) good faith determination that such advances will be reimbursable from
Related Proceeds (as defined below). In the case of a series of Securities that
includes one or more classes of Subordinate Securities and if so provided in the
related Prospectus Supplement, the Servicer's (or another entity's) advance
obligation may be limited only to the portion of such delinquencies necessary to
make the required distributions on one or more classes of Senior Securities
and/or may be subject to the Servicer's (or another entity's) good faith
determination that such advances will be reimbursable not only from Related
Proceeds but also from collections on other Assets otherwise distributable on
one or more classes of such Subordinate Securities. See "Description of Credit
Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Securities entitled
thereto, rather than to guarantee or insure against losses. Advances of the
Servicer's (or another entity's) funds will be reimbursable only out of related
recoveries on the Assets (including amounts received under any form of Credit
Support) respecting which such advances were made (as to any Assets, "Related
Proceeds") and from any other amounts specified in the related Prospectus
Supplement, including out of any amounts otherwise distributable on one or more
classes of Subordinate Securities of such series; provided, however, that any
such advance will be reimbursable from any amounts in the Collection Account
prior to any distributions being made on the Securities to the extent that the
Servicer (or such other entity) shall determine in good faith that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Assets otherwise distributable on
such Subordinate Securities. If advances have been made by the Servicer from
excess funds in the Collection Account, the Servicer is required to replace such
funds in the Collection Account on any future Distribution Date to the extent
that funds in the Collection Account on such Distribution Date are less than
payments required to be made to Securityholders on such date. If so specified in
the related Prospectus Supplement, the obligations of the Servicer (or another
entity) to make advances may be secured by a cash advance reserve fund, a surety
bond, a letter of credit or another form of limited guaranty. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If and to the extent so provided in the related Prospectus Supplement, the
Servicer (or another entity) will be entitled to receive interest at the rate
specified therein on its outstanding advances and will be entitled to pay itself
such interest periodically from general collections on the Assets prior to any
payment to Securityholders or as otherwise provided in the related Agreement and
described in such Prospectus Supplement.
If specified in the related Prospectus Supplement, the Master Servicer or
the Trustee will be required to make advances, subject to certain conditions
described in the Prospectus Supplement, in the event of a Servicer default.
REPORTS TO SECURITYHOLDERS
With each distribution to holders of any class of Securities of a series,
the Servicer, the Master Servicer or the Trustee, as provided in the related
Prospectus Supplement, will forward or cause to be forwarded to
35
<PAGE> 95
each such holder, to the Depositor and to such other parties as may be specified
in the related Agreement, a statement generally setting forth, in each case to
the extent applicable and available:
(i) the amount of such distribution to holders of Securities of such
class applied to reduce the Security Balance thereof;
(ii) the amount of such distribution to holders of Securities of such
class allocable to Accrued Security Interest;
(iii) the amount of such distribution allocable to Prepayment
Premiums;
(iv) the amount of related servicing compensation and such other
customary information as is required to enable Securityholders to prepare
their tax returns;
(v) the aggregate amount of advances included in such distribution,
and the aggregate amount of unreimbursed advances at the close of business
on such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Mortgage Loans or
Contracts in respect of which (a) one scheduled payment is delinquent, (b)
two scheduled payments are delinquent, (c) three or more scheduled payments
are delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to any Mortgage Loan or Contract liquidated during
the related Due Period, (a) the portion of such liquidation proceeds
payable or reimbursable to a Servicer (or any other entity) in respect of
such Mortgage Loan and (b) the amount of any loss to Securityholders;
(ix) with respect to collateral acquired by the Trust Fund through
foreclosure or otherwise (an "REO Property") relating to a Mortgage Loan or
Contract and included in the Trust Fund as of the end of the related Due
Period, the date of acquisition;
(x) with respect to each REO Property relating to a Mortgage Loan or
Contract and included in the Trust Fund as of the end of the related Due
Period, (a) the book value, (b) the principal balance of the related
Mortgage Loan or Contract immediately following such Distribution Date
(calculated as if such Mortgage Loan or Contract were still outstanding
taking into account certain limited modifications to the terms thereof
specified in the Agreement), (c) the aggregate amount of unreimbursed
servicing expenses and unreimbursed advances in respect thereof and (d) if
applicable, the aggregate amount of interest accrued and payable on related
servicing expenses and related advances;
(xi) with respect to any such REO Property sold during the related Due
Period (a) the aggregate amount of sale proceeds, (b) the portion of such
sales proceeds payable or reimbursable to the Master Servicer in respect of
such REO Property or the related Mortgage Loan or Contract and (c) the
amount of any loss to Securityholders in respect of the related Mortgage
Loan;
(xii) the aggregate Security Balance or notional amount, as the case
may be, of each class of Securities (including any class of Securities not
offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Security Balance due to the
allocation of any loss and increase in the Security Balance of a class of
Accrual Securities in the event that Accrued Security Interest has been
added to such balance;
(xiii) the aggregate amount of principal prepayments made during the
related Due Period;
(xiv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xv) the amount remaining in the reserve fund, if any, as of the close
of business on such Distribution Date;
(xvi) the aggregate unpaid Accrued Security Interest, if any, on each
class of Securities at the close of business on such Distribution Date;
36
<PAGE> 96
(xvii) in the case of Securities with a variable Pass-Through Rate or
interest rate, the Pass-Through Rate or interest rate applicable to such
Distribution Date, and, if available, the immediately succeeding
Distribution Date, as calculated in accordance with the method specified in
the related Prospectus Supplement;
(xviii) in the case of Securities with an adjustable Pass-Through Rate
or interest rate, for statements to be distributed in any month in which an
adjustment date occurs, the adjustable Pass-Through Rate or interest rate
applicable to such Distribution Date, if available, and the immediately
succeeding Distribution Date as calculated in accordance with the method
specified in the related Prospectus Supplement;
(xix) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date;
(xx) during the Pre-Funding Period, the remaining Pre-Funded Amount
and the portion of the Pre-Funding Amount used to acquire Subsequent
Mortgage Loans since the preceding Distribution Date;
(xxi) during the Pre-Funding Period, the amount remaining in the
Capitalized Interest Account; and
(xxii) the aggregate amount of payments by the obligors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
The Servicer, the Master Servicer or the Trustee, as specified in the
related Prospectus Supplement, will forward or cause to be forwarded to each
holder, to the Depositor and to such other parties as may be specified in the
Agreement, a copy of any statements or reports received by the Servicer, the
Master Servicer or the Trustee, as applicable, with respect to any MBS. The
Prospectus Supplement for each series of Offered Securities will describe any
additional information to be included in reports to the holders of such
Securities.
Within a reasonable period of time after the end of each calendar year, the
Servicer, the Master Servicer or the Trustee, as provided in the related
Prospectus Supplement, shall furnish to each Securityholder of record at any
time during the calendar year such information required by the Code and
applicable regulations thereunder to enable Securityholders to prepare their tax
returns. See "Description of the Securities -- Book-Entry Registration and
Definitive Securities."
TERMINATION
The obligations created by the related Agreement for each series of
Securities will terminate upon the payment to Securityholders of that series of
all amounts held in the Collection Account or by a Servicer, the Master
Servicer, if any, or the Trustee and required to be paid to them pursuant to
such Agreement following the earlier of (i) the final payment or other
liquidation of the last Asset subject thereto or the disposition of all property
acquired upon foreclosure of any Mortgage Loan or Contract subject thereto and
(ii) the purchase of all of the assets of the Trust Fund by the party entitled
to effect such termination, under the circumstances and in the manner set forth
in the related Prospectus Supplement. In no event, however, will the Trust Fund
continue beyond the date specified in the related Prospectus Supplement. Written
notice of termination of the Agreement will be given to each Securityholder, and
the final distribution will be made only upon presentation and surrender of the
Securities at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Securities may be subject to optional early termination through the repurchase
of the Assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Security Balance of a
specified class or classes of Securities by a specified percentage, the party
specified therein will solicit bids for the purchase of all assets of the Trust
Fund, or of a sufficient portion of such assets to retire such class or classes
or purchase such class or classes at a price set forth in the related Prospectus
Supplement, in each case, under the circumstances and in the manner set forth
therein. Such price will at least equal the outstanding Security Balances and
any accrued and unpaid interest thereon (including any unpaid interest
shortfalls for prior Distribution Dates). Any sale of the
37
<PAGE> 97
Assets of the Trust Fund will be without recourse to the Trust Fund or the
Securityholders. Any such purchase or solicitation of bids may be made only when
the aggregate Security Balance of such class or classes declines to a percentage
of the Initial Security Balance of such Securities (not to exceed 10%) specified
in the related Prospectus Supplement. In addition, if so provided in the related
Prospectus Supplement, certain classes of Securities may be purchased or
redeemed in the manner set forth therein.
OPTIONAL PURCHASES
Subject to the provisions of the applicable Agreement, the Depositor, the
Servicer or such other party specified in the related Prospectus Supplement may,
at such party's option, repurchase any Mortgage Loan which is in default or as
to which default is reasonably foreseeable if, in the Depositor's, the
Servicer's or such other party's judgment, the related default is not likely to
be cured by the borrower or default is not likely to be averted, at a price
equal to the unpaid principal balance thereof plus accrued interest thereon and
under the conditions set forth in the applicable Prospectus Supplement.
BOOK-ENTRY REGISTRATION AND DEFINITIVE SECURITIES
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Securities of any series will be issued as Book-Entry Securities,
and each such class will be represented by one or more single Securities
registered in the name of a nominee for the depository, The Depository Trust
Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Book-Entry Securities may do so only through Participants and Indirect
Participants or in such other manner as is provided for in the related
Prospectus Supplement. In addition, such investors ("Security Owners") will
receive all distributions on the Book-Entry Securities through DTC and its
Participants. Under a book-entry format, Security Owners will receive payments
after the related Distribution Date because, while payments are required to be
forwarded to Cede & Co., as nominee for DTC ("Cede"), on each such date, DTC
will forward such payments to its Participants which thereafter will be required
to forward them to Indirect Participants or Security Owners. The only
"Securityholder" (as such term is used in the Agreement or Indenture, as
applicable) will be Cede, as nominee of DTC or such other entity specified in
the related Prospectus Supplement, and the Security Owners will not be
recognized by the Trustee as Securityholders under the Agreement or Indenture,
as applicable. Security Owners will be permitted to exercise the rights of
Securityholders under the related Agreement or Indenture, as applicable, only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Book-Entry Securities and is
required to receive and transmit distributions of principal of and interest on
the Book-Entry Securities. Participants and Indirect Participants with which
Security Owners have accounts with respect to the Book-Entry Securities
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Security Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Security
Owner to pledge its interest in the Book-Entry Securities to persons
38
<PAGE> 98
or entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in the Book-Entry Securities, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Securityholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Securities are credited.
Securities initially issued in book-entry form will be issued as Definitive
Securities to Security Owners or their nominees, rather than to DTC or its
nominee only (i) if the Depositor advises the Trustee in writing that DTC is no
longer willing or able to properly discharge its responsibilities as depository
with respect to the Securities and the Depositor is unable to locate a qualified
successor, (ii) if the Depositor, at its option, elects to terminate the
book-entry system through DTC or (iii) in accordance with such other provisions
described in the related Prospectus Supplement.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Securities for the Security Owners. Upon
surrender by DTC of the certificate or certificates representing the Book-Entry
Securities, together with instructions for registration, the Trustee will issue
(or cause to be issued) to the Security Owners identified in such instructions
the Definitive Securities to which they are entitled, and thereafter the Trustee
will recognize the holders of such Definitive Securities as Securityholders
under the Agreement.
None of the Depositor, any Master Servicer, any Servicer, the Trustee, or
any of their affiliates will have any responsibility for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Book-Entry Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
39
<PAGE> 99
DESCRIPTION OF THE AGREEMENTS
AGREEMENTS APPLICABLE TO A SERIES
REMIC Securities, FASIT Securities, Grantor Trust Securities
Securities representing interests in a Trust Fund, or a portion thereof,
that the Trustee will elect to have treated as a real estate mortgage investment
conduit under Sections 860A through 860G of the Code ("REMIC Securities"), FASIT
Securities or Grantor Trust Securities will be issued, and the related Trust
Fund will be created, pursuant to a pooling and servicing agreement (a "Pooling
and Servicing Agreement") among the Depositor, the Trustee and the sole Servicer
or Master Servicer, as applicable. The Assets of such Trust Fund will be
transferred to the Trust Fund and thereafter serviced in accordance with the
terms of the Pooling and Servicing Agreement. In the event there are multiple
Servicers of the Assets of such Trust Fund, each Servicer will perform its
servicing functions pursuant to a servicing agreement (each, a "Pooling
Servicing Agreement"). Notwithstanding the foregoing, if the Assets of the Trust
Fund for such a series consists only of Government Securities, such Assets will
be conveyed to the Trust Fund and administered pursuant to a trust agreement
between the Depositor and the Trustee (a "Trust Agreement").
Securities That Are Partnership Interests for Tax Purposes and Notes
Securities that are partnership interests for tax purposes will be issued,
and the related Trust Fund will be created, pursuant to a Trust Agreement or a
Pooling and Servicing Agreement.
A series of Notes issued by a Trust Fund will be issued pursuant to an
indenture (the "Indenture") between the related Trust Fund and an indenture
trustee (the "Indenture Trustee") named in the related Prospectus Supplement.
The Trust Fund will be established pursuant to a deposit trust agreement (each,
a "Deposit Trust Agreement") between the Depositor and an owner trustee
specified in the Prospectus Supplement relating to such series of Notes. The
Assets securing payment on the Notes will be serviced in accordance with a
servicing agreement (each, an "Indenture Servicing Agreement") between the
related Trust Fund as issuer of the Notes, the Servicer and the Indenture
Trustee. The Pooling Servicing Agreements and the Indenture Servicing Agreements
are referred to herein as "Underlying Servicing Agreements."
MATERIAL TERMS OF THE POOLING AND SERVICING AGREEMENTS, TRUST AGREEMENTS AND
UNDERLYING SERVICING AGREEMENTS
General
The following summaries describe the material provisions that may appear in
each Pooling and Servicing Agreement, Trust Agreement and Underlying Servicing
Agreement (each an "Agreement"). The Prospectus Supplement for a series of
Securities will describe any provision of the Agreement relating to such series
that materially differs from the description thereof contained in this
Prospectus. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. The provisions of each Agreement will vary
depending upon the nature of the Securities to be issued thereunder and the
nature of the related Trust Fund. As used herein with respect to any series, the
term "Security" refers to all of the Securities of that series, whether or not
offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. A form of a Pooling and Servicing Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The Depositor will provide a copy of the Pooling and Servicing Agreement
(without exhibits) relating to any series of Securities without charge upon
written request of a Securityholder of such series addressed to NationsBanc
Asset Securities, Inc., NationsBank Corporate Center, Charlotte, North Carolina
28255, Attention: Vice President.
The Servicers, any Master Servicer and the Trustee with respect to any
series of Securities will be named in the related Prospectus Supplement. In the
event there are multiple Servicers for the Assets in a Trust Fund, a Master
Servicer will perform certain administration, calculation and reporting
functions with respect to such Trust Fund and will supervise the related
Servicers pursuant to a Pooling and Servicing Agreement. With respect to series
involving a Master Servicer, references in this Prospectus to the Servicer will
apply to the
40
<PAGE> 100
Master Servicer where non-servicing obligations are described. If so specified
in the related Prospectus Supplement, a manager or administrator may be
appointed pursuant to the Trust Agreement for any Trust Fund to administer such
Trust Fund.
Assignment of Assets; Repurchases
At the time of issuance of any series of Securities, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest to
be received on or with respect to such Assets after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date and other than any
Retained Interest. The Trustee will, concurrently with such assignment, deliver
the Securities to the Depositor in exchange for the Assets and the other assets
comprising the Trust Fund for such series. Each Asset will be identified in a
schedule appearing as an exhibit to the related Agreement. Such schedule will
include detailed information to the extent available and relevant (i) in respect
of each Mortgage Loan included in the related Trust Fund, including without
limitation, the city and state of the related Mortgaged Property and type of
such property, the Mortgage Rate and, if applicable, the applicable index,
margin, adjustment date and any rate cap information, the original and remaining
term to maturity, the original and outstanding principal balance and balloon
payment, if any, the Loan-to-Value Ratio as of the date indicated and payment
and prepayment provisions, if applicable; and (ii) in respect of each Contract
included in the related Trust Fund, including without limitation the outstanding
principal amount and the Contract Rate.
With respect to each Mortgage Loan, except as otherwise specified in the
related Prospectus Supplement, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to) certain
loan documents, which will generally include the original Mortgage Note
endorsed, without recourse, in blank or to the order of the Trustee, the
original Mortgage (or a certified copy thereof) with evidence of recording
indicated thereon and an assignment of the Mortgage to the Trustee in recordable
form. Notwithstanding the foregoing, a Trust Fund may include Mortgage Loans
where the original Mortgage Note is not delivered to the Trustee if the
Depositor delivers to the Trustee or the custodian a copy or a duplicate
original of the Mortgage Note, together with an affidavit certifying that the
original thereof has been lost or destroyed. With respect to such Mortgage
Loans, the Trustee (or its nominee) may not be able to enforce the Mortgage Note
against the related borrower. The Asset Seller or other entity specified in the
related Prospectus Supplement will be required to agree to repurchase, or
substitute for, each such Mortgage Loan that is subsequently in default if the
enforcement thereof or of the related Mortgage is materially adversely affected
by the absence of the original Mortgage Note. The related Agreement will
generally require the Depositor or another party specified in the related
Prospectus Supplement to promptly cause each such assignment of Mortgage to be
recorded in the appropriate public office for real property records, except in
the State of California or in other states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the related Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Depositor, the
Servicer, the relevant Asset Seller or any other prior holder of the Mortgage
Loan.
The Trustee (or a custodian) will review such Mortgage Loan documents
within a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Securityholders. If any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Servicer and the Depositor, and the Servicer shall immediately notify the
relevant Asset Seller or other entity specified in the related Prospectus
Supplement. If the Asset Seller cannot cure the omission or defect within a
specified number of days after receipt of such notice, then unless otherwise
specified in the related Prospectus Supplement, the Asset Seller or other entity
specified in the related Prospectus Supplement will be obligated, within a
specified number of days of receipt of such notice, to repurchase the related
Mortgage Loan from the Trustee at a price equal to the sum of the unpaid
principal balance thereof, plus unpaid accrued interest at the interest rate for
such Asset from the date as to which interest was last paid to the due date in
the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are payable to the Servicer or such other price as
specified in the related Prospectus Supplement (the "Purchase Price") or
substitute for such Mortgage Loan. There can be no
41
<PAGE> 101
assurance that an Asset Seller or other named entity will fulfill this
repurchase or substitution obligation, and neither the Servicer nor the
Depositor will be obligated to repurchase or substitute for such Mortgage Loan
if the Asset Seller or other named entity defaults on its obligation. This
repurchase or substitution obligation constitutes the sole remedy available to
the Securityholders or the Trustee for omission of, or a material defect in, a
constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Asset or
repurchasing or substituting for such Asset, the Asset Seller or other named
entity may agree to cover any losses suffered by the Trust Fund as a result of
such breach or defect.
Notwithstanding the preceding two paragraphs, the documents with respect to
Home Equity Loans, Home Improvement Contracts and Unsecured Home Improvement
Loans will be delivered to the Trustee (or a custodian) only to the extent
specified in the related Prospectus Supplement. Generally such documents will be
retained by the Servicer, which may also be the Asset Seller. In addition,
assignments of the related Mortgages to the Trustee will be recorded only to the
extent specified in the related Prospectus Supplement.
With respect to each Contract, the Servicer (which may also be the Asset
Seller) generally will maintain custody of the original Contract and copies of
documents and instruments related to each Contract and the security interest in
the Manufactured Home securing each Contract. In order to give notice of the
right, title and interest of the Trustee in the Contracts, the Depositor will
cause UCC-1 financing statements to be executed by the related Asset Seller
identifying the Depositor as secured party and by the Depositor identifying the
Trustee as the secured party and, in each case, identifying all Contracts as
collateral. The Contracts will be stamped or otherwise marked to reflect their
assignment from the Company to the Trust Fund only to the extent specified in
the related Prospectus Supplement. Therefore, if, through negligence, fraud or
otherwise, a subsequent purchaser were able to take physical possession of the
Contracts without notice of such assignment, the interest of the Trustee in the
Contracts could be defeated. See "Certain Legal Aspects of the Contracts."
While the Contract documents will not be reviewed by the Trustee or the
Servicer, if the Servicer finds that any such document is missing or defective
in any material respect, the Servicer will be required to immediately notify the
Depositor and the relevant Asset Seller or other entity specified in the related
Prospectus Supplement. If the Asset Seller or such other entity cannot cure the
omission or defect within a specified number of days after receipt of such
notice, then the Asset Seller or such other entity will be obligated, within a
specified number of days of receipt of such notice, to repurchase the related
Contract from the Trustee at the Purchase Price or substitute for such Contract.
There can be no assurance that an Asset Seller or such other entity will fulfill
this repurchase or substitution obligation, and neither the Servicer nor the
Depositor will be obligated to repurchase or substitute for such Contract if the
Asset Seller or such other entity defaults on its obligation. This repurchase or
substitution obligation constitutes the sole remedy available to the
Securityholders or the Trustee for omission of, or a material defect in, a
constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Asset or
repurchasing or substituting for such Asset, the Asset Seller may agree to cover
any losses suffered by the Trust Fund as a result of such breach or defect.
With respect to each Government Security in certificated form, the
Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security together with bond power or other instruments,
certifications or documents required to transfer fully such Government Security,
to the Trustee for the benefit of the Securityholders. With respect to each
Government Security in uncertificated or book-entry form or held through a
"clearing corporation" within the meaning of the UCC, the Depositor and the
Trustee will cause such Government Security to be registered directly or on the
books of such clearing corporation or of a financial intermediary in the name of
the Trustee for the benefit of the Securityholders. The related Agreement will
require that either the Depositor or the Trustee promptly cause any Government
Securities in certificated form not registered in the name of the Trustee to be
re-registered, with the applicable persons, in the name of the Trustee.
42
<PAGE> 102
Representations and Warranties; Repurchases
To the extent provided in the related Prospectus Supplement the Depositor
will, with respect to each Asset, assign certain representations and warranties,
as of a specified date (the person making such representations and warranties,
the "Warranting Party") covering, by way of example, the following types of
matters: (i) the accuracy of the information set forth for such Asset on the
schedule of Assets appearing as an exhibit to the related Agreement; (ii) in the
case of a Mortgage Loan, the existence of title insurance insuring the lien
priority of the Mortgage Loan and, in the case of a Contract, that the Contract
creates a valid first security interest in or lien on the related Manufactured
Home; (iii) the authority of the Warranting Party to sell the Asset; (iv) the
payment status of the Asset; (v) in the case of a Mortgage Loan, the existence
of customary provisions in the related Mortgage Note and Mortgage to permit
realization against the Mortgaged Property of the benefit of the security of the
Mortgage; and (vi) the existence of hazard and extended perils insurance
coverage on the Mortgaged Property or Manufactured Home.
Any Warranting Party shall be an Asset Seller or an affiliate thereof or
such other person acceptable to the Depositor and shall be identified in the
related Prospectus Supplement.
Representations and warranties made in respect of an Asset may have been
made as of a date prior to the applicable Cut-off Date. A substantial period of
time may have elapsed between such date and the date of initial issuance of the
related series of Securities evidencing an interest in such Asset. In the event
of a breach of any such representation or warranty, the Warranting Party will be
obligated to reimburse the Trust Fund for losses caused by any such breach or
either cure such breach or repurchase or replace the affected Asset as described
below. Since the representations and warranties may not address events that may
occur following the date as of which they were made, the Warranting Party will
have a reimbursement, cure, repurchase or substitution obligation in connection
with a breach of such a representation and warranty only if the relevant event
that causes such breach occurs prior to such date. Such party would have no such
obligations if the relevant event that causes such breach occurs after such
date.
Each Agreement will provide that the Servicer and/or Trustee or such other
entity identified in the related Prospectus Supplement will be required to
notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of an Asset that materially and
adversely affects the value of such Asset or the interests therein of the
Securityholders. If such Warranting Party cannot cure such breach within a
specified period following the date on which such party was notified of such
breach, then such Warranting Party will be obligated to repurchase such Asset
from the Trustee within a specified period from the date on which the Warranting
Party was notified of such breach, at the Purchase Price therefor. If so
provided in the Prospectus Supplement for a series, a Warranting Party, rather
than repurchase an Asset as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such series of
Securities, to cause the removal of such Asset from the Trust Fund and
substitute in its place one or more other Assets, as applicable, in accordance
with the standards described in the related Prospectus Supplement. If so
provided in the Prospectus Supplement for a series, a Warranting Party, rather
than repurchase or substitute an Asset as to which a breach has occurred, will
have the option to reimburse the Trust Fund or the Securityholders for any
losses caused by such breach. This reimbursement, repurchase or substitution
obligation will constitute the sole remedy available to Securityholders or the
Trustee for a breach of representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor the Servicer will be obligated to purchase or substitute for an Asset
if a Warranting Party defaults on its obligation to do so, and no assurance can
be given that Warranting Parties will carry out such obligations with respect to
the Assets.
To the extent provided in the related Prospectus Supplement the Warranting
Party will, with respect to a Trust Fund that includes Government Securities,
make or assign certain representations or warranties, as of a specified date,
with respect to such Government Securities, covering (i) the accuracy of the
information set forth therefor on the schedule of Assets appearing as an exhibit
to the related Agreement and (ii) the authority of the Warranting Party to sell
such Assets. The related Prospectus Supplement will describe the remedies for a
breach thereof.
43
<PAGE> 103
A Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Agreement. A breach of any such representation of the Servicer which
materially and adversely affects the interests of the Securityholders and which
continues unremedied for the number of days specified in the Agreement after the
giving of written notice of such breach to the Servicer by the Trustee or the
Depositor, or to the Servicer, the Depositor and the Trustee by the holders of
Securities evidencing not less than 25% of the Voting Rights or such other
percentage specified in the related Prospectus Supplement, will constitute an
Event of Default under such Agreement. See "Events of Default" and "Rights Upon
Event of Default."
Collection Account and Related Accounts
General. The Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
(collectively, the "Collection Account"), which must be either (i) an account or
accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the Securityholders have a claim with
respect to the funds in the Collection Account or a perfected first priority
security interest against any collateral securing such funds that is superior to
the claims of any other depositors or general creditors of the institution with
which the Collection Account is maintained or (ii) otherwise maintained with a
bank or trust company, and in a manner, satisfactory to the Rating Agency or
Agencies rating any class of Securities of such series. The collateral eligible
to secure amounts in the Collection Account is limited to United States
government securities and other investment grade obligations specified in the
Agreement ("Permitted Investments"). A Collection Account may be maintained as
an interest bearing or a non-interest bearing account and the funds held therein
may be invested pending each succeeding Distribution Date in certain short-term
Permitted Investments. Any interest or other income earned on funds in the
Collection Account will be paid to the Servicer or its designee as additional
servicing compensation. The Collection Account may be maintained with an
institution that is an affiliate of the Servicer, if applicable, provided that
such institution meets the standards imposed by the Rating Agency or Agencies.
If permitted by the Rating Agency or Agencies, a Collection Account may contain
funds relating to more than one series of mortgage pass-through certificates and
may contain other funds respecting payments on mortgage loans belonging to the
Servicer or serviced or master serviced by it on behalf of others.
Deposits. A Servicer or the Trustee will deposit or cause to be deposited
in the Collection Account for one or more Trust Funds on a daily basis, or such
other period provided in the related Agreement, the following payments and
collections received, or advances made, by the Servicer or the Trustee or on its
behalf subsequent to the Cut-off Date (other than payments due on or before the
Cut-off Date, and exclusive of any amounts representing a Retained Interest):
(i) all payments on account of principal, including principal
prepayments, on the Assets;
(ii) all payments on account of interest on the Assets, including any
default interest collected, in each case net of any portion thereof
retained by a Servicer as its servicing compensation and net of any
Retained Interest;
(iii) Liquidation Proceeds and Insurance Proceeds, together with the
net proceeds on a monthly basis with respect to any Assets acquired for the
benefit of Securityholders;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Securities as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the
Securities -- Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described
under "Description of the Trust Funds -- Cash Flow Agreements";
44
<PAGE> 104
(vii) all proceeds of any Asset or, with respect to a Mortgage Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person as described under "Assignment of
Assets; Repurchases" and "Representations and Warranties; Repurchases," all
proceeds of any defaulted Mortgage Loan purchased as described under
"Realization Upon Defaulted Assets," and all proceeds of any Asset
purchased as described under "Description of the
Securities -- Termination";
(viii) any amounts paid by a Servicer to cover certain interest
shortfalls arising out of the prepayment of Assets in the Trust Fund as
described under "Description of the Agreements -- Retained Interest;
Servicing Compensation and Payment of Expenses";
(ix) to the extent that any such item does not constitute additional
servicing compensation to a Servicer, any payments on account of
modification or assumption fees, late payment charges or Prepayment
Premiums on the Mortgage Assets;
(x) all payments required to be deposited in the Collection Account
with respect to any deductible clause in any blanket insurance policy
described under "Hazard Insurance Policies";
(xi) any amount required to be deposited by a Servicer or the Trustee
in connection with losses realized on investments for the benefit of the
Servicer or the Trustee, as the case may be, of funds held in the
Collection Account; and
(xii) any other amounts required to be deposited in the Collection
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
Withdrawals. A Servicer or the Trustee may, from time to time, make
withdrawals from the Collection Account for each Trust Fund for any of the
following purposes:
(i) to make distributions to the Securityholders on each Distribution
Date;
(ii) to reimburse a Servicer for unreimbursed amounts advanced as
described under "Description of the Securities -- Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Servicer as late collections of interest
(net of related servicing fees and Retained Interest) on and principal of
the particular Assets with respect to which the advances were made or out
of amounts drawn under any form of Credit Support with respect to such
Assets;
(iii) to reimburse a Servicer for unpaid servicing fees earned and
certain unreimbursed servicing expenses incurred with respect to Assets and
properties acquired in respect thereof, such reimbursement to be made out
of amounts that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Assets and properties, and net income collected
on the particular properties, with respect to which such fees were earned
or such expenses were incurred or out of amounts drawn under any form of
Credit Support with respect to such Assets and properties;
(iv) to reimburse a Servicer for any advances described in clause (ii)
above and any servicing expenses described in clause (iii) above which, in
the Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (ii) and (iii), respectively, such
reimbursement to be made from amounts collected on other Assets or, if and
to the extent so provided by the related Agreement and described in the
related Prospectus Supplement, just from that portion of amounts collected
on other Assets that is otherwise distributable on one or more classes of
Subordinate Securities, if any, remain outstanding, and otherwise any
outstanding class of Securities, of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay a Servicer interest accrued on the advances described in
clause (ii) above and the servicing expenses described in clause (iii)
above while such advances and servicing expenses remain outstanding and
unreimbursed;
(vi) to reimburse a Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be,
for certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "Certain Matters Regarding Servicers, the Master
Servicer and the Depositor";
45
<PAGE> 105
(vii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(viii) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "Certain
Matters Regarding the Trustee";
(ix) to pay a Servicer, as additional servicing compensation, interest
and investment income earned in respect of amounts held in the Collection
Account;
(x) to pay the person entitled thereto any amounts deposited in the
Collection Account that were identified and applied by the Servicer as
recoveries of Retained Interest;
(xi) to pay for costs reasonably incurred in connection with the
proper management and maintenance of any Mortgaged Property acquired for
the benefit of Securityholders by foreclosure or by deed in lieu of
foreclosure or otherwise, such payments to be made out of income received
on such property;
(xii) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC or a FASIT, to pay any federal,
state or local taxes imposed on the Trust Fund or its assets or
transactions, as and to the extent described under "Federal Income Tax
Consequences -- REMICs -- Taxes That May Be Imposed on the REMIC Pool" or
in the applicable Prospectus Supplement, respectively;
(xiii) to pay for the cost of an independent appraiser or other expert
in real estate matters retained to determine a fair sale price for a
defaulted Mortgage Loan or a property acquired in respect thereof in
connection with the liquidation of such Mortgage Loan or property;
(xiv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Securityholders;
(xv) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Securityholders, provided that such payment shall not constitute a waiver
with respect to the obligation of the Warranting Party to remedy any breach
of representation or warranty under the Agreement;
(xvi) to pay the person entitled thereto any amounts deposited in the
Collection Account in error, including amounts received on any Asset after
its removal from the Trust Fund whether by reason of purchase or
substitution as contemplated by "Assignment of Assets; Repurchase" and
"Representations and Warranties; Repurchases" or otherwise;
(xvii) to make any other withdrawals permitted by the related Agreement;
and
(xviii) to clear and terminate the Collection Account at the
termination of the Trust Fund.
Other Collection Accounts. Notwithstanding the foregoing, if so specified
in the related Prospectus Supplement, the Agreement for any series of Securities
may provide for the establishment and maintenance of a separate collection
account into which the Servicer will deposit on a daily basis the amounts
described under "-- Deposits" above for one or more series of Securities. Any
amounts on deposit in any such collection account will be withdrawn therefrom
and deposited into the appropriate Collection Account by a time specified in the
related Prospectus Supplement. To the extent specified in the related Prospectus
Supplement, any amounts which could be withdrawn from the Collection Account as
described under "-- Withdrawals" above, may also be withdrawn from any such
collection account. The Prospectus Supplement will set forth any restrictions
with respect to any such collection account, including investment restrictions
and any restrictions with respect to financial institutions with which any such
collection account may be maintained.
Collection and Other Servicing Procedures. The Servicer is required to
make reasonable efforts to collect all scheduled payments under the Assets and
will follow or cause to be followed such collection procedures as it would
follow with respect to assets that are comparable to the Assets and held for its
own account, provided such procedures are consistent with (i) the terms of the
related Agreement and any related
46
<PAGE> 106
hazard insurance policy or instrument of Credit Support, if any, included in the
related Trust Fund described herein or under "Description of Credit Support,"
(ii) applicable law and (iii) the general servicing standard specified in the
related Prospectus Supplement or, if no such standard is so specified, its
normal servicing practices (in either case, the "Servicing Standard"). In
connection therewith, the Servicer will be permitted in its discretion to waive
any late payment charge or penalty interest in respect of a late payment on an
Asset.
Each Servicer will also be required to perform other customary functions of
a servicer of comparable assets, including maintaining hazard insurance policies
as described herein and in any related Prospectus Supplement, and filing and
settling claims thereunder; maintaining, to the extent required by the
Agreement, escrow or impoundment accounts of obligors for payment of taxes,
insurance and other items required to be paid by any obligor pursuant to the
terms of the Assets; processing assumptions or substitutions in those cases
where the Servicer has determined not to enforce any applicable due-on-sale
clause; attempting to cure delinquencies; supervising foreclosures or
repossessions; inspecting and managing Mortgaged Properties or Manufactured
Homes under certain circumstances; and maintaining accounting records relating
to the Assets. The Servicer or such other entity specified in the related
Prospectus Supplement will be responsible for filing and settling claims in
respect of particular Assets under any applicable instrument of Credit Support.
See "Description of Credit Support."
The Servicer may agree to modify, waive or amend any term of any Asset in a
manner consistent with the Servicing Standard so long as the modification,
waiver or amendment will not (i) affect the amount or timing of any scheduled
payments of principal or interest on the Asset or (ii) in its judgment,
materially impair the security for the Asset or reduce the likelihood of timely
payment of amounts due thereon. The Servicer also may agree to any modification,
waiver or amendment that would so affect or impair the payments on, or the
security for, an Asset if, unless otherwise provided in the related Prospectus
Supplement, (i) in its judgment, a material default on the Asset has occurred or
a payment default is reasonably foreseeable and (ii) in its judgment, such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Asset on a present value basis than would
liquidation. The Servicer is required to notify the Trustee in the event of any
modification, waiver or amendment of any Asset.
In the case of Multifamily Loans, a mortgagor's failure to make required
Mortgage Loan payments may mean that operating income is insufficient to service
the Mortgage Loan debt, or may reflect the diversion of that income from the
servicing of the Mortgage Loan debt. In addition, a mortgagor under a
Multifamily Loan that is unable to make Mortgage Loan payments may also be
unable to make timely payment of all required taxes and otherwise to maintain
and insure the related Mortgaged Property. In general, the Servicer will be
required to monitor any Multifamily Loan that is in default, evaluate whether
the causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the mortgagor if cure is likely, inspect
the related Multifamily Property and take such other actions as are consistent
with the related Agreement. A significant period of time may elapse before the
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Servicer can make the
initial determination of appropriate action, evaluate the success of corrective
action, develop additional initiatives, institute foreclosure proceedings and
actually foreclose may vary considerably depending on the particular Multifamily
Loan, the Multifamily Property, the mortgagor, the presence of an acceptable
party to assume the Multifamily Loan and the laws of the jurisdiction in which
the Multifamily Property is located.
Realization Upon Defaulted Assets
Generally, the Servicer is required to monitor any Assets which is in
default, initiate corrective action in cooperation with the mortgagor or obligor
if cure is likely, inspect the Asset and take such other actions as are
consistent with the Servicing Standard. A significant period of time may elapse
before the Servicer is able to assess the success of such corrective action or
the need for additional initiatives.
Any Agreement relating to a Trust Fund that includes Mortgage Loans or
Contracts may grant to the Servicer and/or the holder or holders of certain
classes of Securities a right of first refusal to purchase from the Trust Fund
at a predetermined purchase price any such Mortgage Loan or Contract as to which
a specified
47
<PAGE> 107
number of scheduled payments thereunder are delinquent. Any such right granted
to the holder of an Offered Security will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases."
If so specified in the related Prospectus Supplement, the Servicer may
offer to sell any defaulted Mortgage Loan or Contract described in the preceding
paragraph and not otherwise purchased by any person having a right of first
refusal with respect thereto, if and when the Servicer determines, consistent
with the Servicing Standard, that such a sale would produce a greater recovery
on a present value basis than would liquidation through foreclosure,
repossession or similar proceedings. The related Agreement will provide that any
such offering be made in a commercially reasonable manner for a specified period
and that the Servicer accept the highest cash bid received from any person
(including itself, an affiliate of the Servicer or any Securityholder) that
constitutes a fair price for such defaulted Mortgage Loan or Contract. In the
absence of any bid determined in accordance with the related Agreement to be
fair, the Servicer shall proceed with respect to such defaulted Mortgage Loan or
Contract as described below. Any bid in an amount at least equal to the Purchase
Price described under "Representations and Warranties; Repurchases" will in all
cases be deemed fair.
The Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Mortgage Loan by operation of law or otherwise and may at
any time repossess and realize upon any Manufactured Home, if such action is
consistent with the Servicing Standard and a default on such Mortgage Loan or
Contract has occurred or, in the Servicer's judgment, is imminent.
If title to any Mortgaged Property is acquired by a Trust Fund as to which
a REMIC election or a FASIT election has been made, the Servicer, on behalf of
the Trust Fund, will be required to sell the Mortgaged Property within two years
of acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund subsequent to two years after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund to fail to qualify
as a REMIC or as a FASIT, as the case may be, under the Code at any time that
any Securities are outstanding. Subject to the foregoing, the Servicer will be
required to (i) solicit bids for any Mortgaged Property so acquired in such a
manner as will be reasonably likely to realize a fair price for such property
and (ii) accept the first (and, if multiple bids are contemporaneously received,
the highest) cash bid received from any person that constitutes a fair price.
The limitations imposed by the related Agreement and the REMIC provisions
or the FASIT provisions of the Code (if a REMIC election or a FASIT election,
respectively, has been made with respect to the related Trust Fund) on the
ownership and management of any Mortgaged Property acquired on behalf of the
Trust Fund may result in the recovery of an amount less than the amount that
would otherwise be recovered. See "Certain Legal Aspects of Mortgage
Loans -- Foreclosure."
If recovery on a defaulted Asset under any related instrument of Credit
Support is not available, the Servicer nevertheless will be obligated to follow
or cause to be followed such normal practices and procedures as it deems
necessary or advisable to realize upon the defaulted Asset. If the proceeds of
any liquidation of the property securing the defaulted Asset are less than the
outstanding principal balance of the defaulted Asset plus interest accrued
thereon at the applicable interest rate, plus the aggregate amount of expenses
incurred by the Servicer in connection with such proceedings and which are
reimbursable under the Agreement, the Trust Fund will realize a loss in the
amount of such difference. The Servicer will be entitled to withdraw or cause to
be withdrawn from the Collection Account out of the Liquidation Proceeds
recovered on any defaulted Asset, prior to the distribution of such Liquidation
Proceeds to Securityholders, amounts representing its normal servicing
compensation on the Security, unreimbursed servicing expenses incurred with
respect to the Asset and any unreimbursed advances of delinquent payments made
with respect to the Asset.
If any property securing a defaulted Asset is damaged the Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
48
<PAGE> 108
Securityholders on liquidation of the Asset after reimbursement of the Servicer
for its expenses and (ii) that such expenses will be recoverable by it from
related Insurance Proceeds or Liquidation Proceeds.
As servicer of the Assets, a Servicer, on behalf of itself, the Trustee and
the Securityholders, will present claims to the obligor under each instrument of
Credit Support, and will take such reasonable steps as are necessary to receive
payment or to permit recovery thereunder with respect to defaulted Assets.
If a Servicer or its designee recovers payments under any instrument of
Credit Support with respect to any defaulted Assets, the Servicer will be
entitled to withdraw or cause to be withdrawn from the Collection Account out of
such proceeds, prior to distribution thereof to Securityholders, amounts
representing its normal servicing compensation on such Asset, unreimbursed
servicing expenses incurred with respect to the Asset and any unreimbursed
advances of delinquent payments made with respect to the Asset. See "Hazard
Insurance Policies" and "Description of Credit Support."
Hazard Insurance Policies
Mortgage Loans. Generally, each Agreement for a Trust Fund comprised of
Mortgage Loans will require the Servicer to cause the mortgagor on each Mortgage
Loan to maintain a hazard insurance policy providing for such coverage as is
required under the related Mortgage or, if any Mortgage permits the holder
thereof to dictate to the mortgagor the insurance coverage to be maintained on
the related Mortgaged Property, then such coverage as is consistent with the
Servicing Standard. Such coverage will be in general in an amount equal to the
lesser of the principal balance owing on such Mortgage Loan (but not less than
the amount necessary to avoid the application of any co-insurance clause
contained in the hazard insurance policy) and the amount necessary to fully
compensate for any damage or loss to the improvements on the Mortgaged Property
on a replacement cost basis or such other amount specified in the related
Prospectus Supplement. The ability of the Servicer to assure that hazard
insurance proceeds are appropriately applied may be dependent upon its being
named as an additional insured under any hazard insurance policy and under any
other insurance policy referred to below, or upon the extent to which
information in this regard is furnished by mortgagors. All amounts collected by
the Servicer under any such policy (except for amounts 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, subject to the terms
and conditions of the related Mortgage and Mortgage Note) will be deposited in
the Collection Account. The Agreement may provide that the Servicer may satisfy
its obligation to cause each mortgagor to maintain such a hazard insurance
policy by the Servicer's maintaining a blanket policy insuring against hazard
losses on the Mortgage Loans. If such blanket policy contains a deductible
clause, the Servicer will be required to deposit in the Collection Account all
sums that would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Mortgage Loans will typically contain a coinsurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
49
<PAGE> 109
Each Agreement for a Trust Fund comprised of Mortgage Loans will require
the Servicer to cause the mortgagor on each Mortgage Loan to maintain all such
other insurance coverage with respect to the related Mortgaged Property as is
consistent with the terms of the related Mortgage and the Servicing Standard,
which insurance may typically include flood insurance (if the related Mortgaged
Property was located at the time of origination in a federally designated flood
area).
Any cost incurred by the Servicer in maintaining any such insurance policy
will be added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; provided, however, that the addition of such cost will
not be taken into account for purposes of calculating the distribution to be
made to Securityholders. Such costs may be recovered by the Servicer from the
Collection Account, with interest thereon, as provided by the Agreement.
Under the terms of the Mortgage Loans, mortgagors will generally be
required to present claims to insurers under hazard insurance policies
maintained on the related Mortgaged Properties. The Servicer, on behalf of the
Trustee and Securityholders, is obligated to present or cause to be presented
claims under any blanket insurance policy insuring against hazard losses on
Mortgaged Properties securing the Mortgage Loans. However, the ability of the
Servicer to present or cause to be presented such claims is dependent upon the
extent to which information in this regard is furnished to the Servicer by
mortgagors.
Contracts
Generally, the terms of the Agreement for a Trust Fund comprised of
Contracts will require the Servicer to cause to be maintained with respect to
each Contract one or more hazard insurance policies which provide, at a minimum,
the same coverage as a standard form fire and extended coverage insurance policy
that is customary for manufactured housing, issued by a company authorized to
issue such policies in the state in which the Manufactured Home is located, and
in an amount which is not less than the maximum insurable value of such
Manufactured Home or the principal balance due from the obligor on the related
Contract, whichever is less; provided, however, that the amount of coverage
provided by each such hazard insurance policy shall be sufficient to avoid the
application of any co-insurance clause contained therein. When a Manufactured
Home's location was, at the time of origination of the related Contract, within
a federally designated special flood hazard area, the Servicer shall cause such
flood insurance to be maintained, which coverage shall be at least equal to the
minimum amount specified in the preceding sentence or such lesser amount as may
be available under the federal flood insurance program. Each hazard insurance
policy caused to be maintained by the Servicer shall contain a standard loss
payee clause in favor of the Servicer and its successors and assigns. If any
obligor is in default in the payment of premiums on its hazard insurance policy
or policies, the Servicer shall pay such premiums out of its own funds, and may
add separately such premium to the obligor's obligation as provided by the
Contract, but may not add such premium to the remaining principal balance of the
Contract.
The Servicer may maintain, in lieu of causing individual hazard insurance
policies to be maintained with respect to each Manufactured Home, and shall
maintain, to the extent that the related Contract does not require the obligor
to maintain a hazard insurance policy with respect to the related Manufactured
Home, one or more blanket insurance policies covering losses on the obligor's
interest in the Contracts resulting from the absence or insufficiency of
individual hazard insurance policies. The Servicer shall pay the premium for
such blanket policy on the basis described therein and shall pay any deductible
amount with respect to claims under such policy relating to the Contracts.
Fidelity Bonds and Errors and Omissions Insurance
Each Agreement will require that the Servicer obtain and maintain in effect
a fidelity bond or similar form of insurance coverage (which may provide blanket
coverage) or any combination thereof insuring against loss occasioned by fraud,
theft or other intentional misconduct of the officers, employees and agents of
the Servicer. The related Agreement will allow the Servicer to self-insure
against loss occasioned by the errors and omissions of the officers, employees
and agents of the Servicer so long as certain criteria set forth in the
Agreement are met.
50
<PAGE> 110
Due-on-Sale Provisions
The Mortgage Loans may contain clauses requiring the consent of the
mortgagee to any sale or other transfer of the related Mortgaged Property, or
due-on-sale clauses entitling the mortgagee to accelerate payment of the
Mortgage Loan upon any sale, transfer or conveyance of the related Mortgaged
Property. The Servicer will generally enforce any due-on-sale clause to the
extent it has knowledge of the conveyance or proposed conveyance of the
underlying Mortgaged Property and it is entitled to do so under applicable law;
provided, however, that the Servicer will not take any action in relation to the
enforcement of any due-on-sale provision which would adversely affect or
jeopardize coverage under any applicable insurance policy. Any fee collected by
or on behalf of the Servicer for entering into an assumption agreement will be
retained by or on behalf of the Servicer as additional servicing compensation.
See "Certain Legal Aspects of Mortgage Loans -- Due-on-Sale Clauses." The
Contracts may also contain such clauses. The Servicer will generally permit such
transfer so long as the transferee satisfies the Servicer's then applicable
underwriting standards. The purpose of such transfers is often to avoid a
default by the transferring obligor. See "Certain Legal Aspects of the
Contracts -- Transfers of Manufactured Homes; Enforceability of "Due-on-Sale"
Clauses."
Retained Interest; Servicing Compensation and Payment of Expenses
The Prospectus Supplement for a series of Securities will specify whether
there will be any Retained Interest in the Assets, and, if so, the initial owner
thereof. If so, the Retained Interest will be established on a loan-by-loan
basis and will be specified on an exhibit to the related Agreement. A "Retained
Interest" in an Asset represents a specified portion of the interest payable
thereon. The Retained Interest will be deducted from mortgagor payments as
received and will not be part of the related Trust Fund.
The Servicer's primary servicing compensation with respect to a series of
Securities will come from the periodic payment to it of a portion of the
interest payment on each Asset or such other amount specified in the related
Prospectus Supplement. Since any Retained Interest and a Servicer's primary
compensation are percentages of the principal balance of each Asset, such
amounts will decrease in accordance with the amortization of the Assets. The
Prospectus Supplement with respect to a series of Securities evidencing
interests in a Trust Fund that includes Mortgage Loans or Contracts may provide
that, as additional compensation, the Servicer may retain all or a portion of
assumption fees, modification fees, late payment charges or Prepayment Premiums
collected from mortgagors and any interest or other income which may be earned
on funds held in the Collection Account or any account established by a Servicer
pursuant to the Agreement.
The Servicer may, to the extent provided in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the Assets, including, without
limitation, payment of the fees and disbursements of the Trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to Securityholders, and payment of any other expenses described in the
related Prospectus Supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the Assets and, to the extent
so provided in the related Prospectus Supplement, interest thereon at the rate
specified therein may be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any Due Period to certain interest
shortfalls resulting from the voluntary prepayment of any Assets in the related
Trust Fund during such period prior to their respective due dates therein.
Evidence as to Compliance
Each Agreement relating to Assets which include Mortgage Loans or Contracts
will provide that on or before a specified date in each year, beginning with the
first such date at least six months after the related Cut-off Date, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that, on the basis of the examination by such firm conducted
substantially in compliance with either the Uniform Single Attestation Program
for Mortgage Bankers, the Audit Program for Mortgages serviced for Freddie Mac
51
<PAGE> 111
or such other program used by the Servicer, the servicing by or on behalf of the
Servicer of mortgage loans under agreements substantially similar to each other
(including the related Agreement) was conducted in compliance with the terms of
such agreements or such program except for any significant exceptions or errors
in records that, in the opinion of the firm, either the Audit Program for
Mortgages serviced for Freddie Mac, or paragraph 4 of the Uniform Single
Attestation Program for Mortgage Bankers, or such other program, requires it to
report.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Servicer to the effect that the Servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or other
specified twelve-month period.
Copies of such annual accountants' statement and such statements of
officers will be obtainable by Securityholders without charge upon written
request to the Servicer or other entity specified in the related Prospectus
Supplement at the address set forth in the related Prospectus Supplement.
Certain Matters Regarding Servicers, the Master Servicer and the Depositor
The Servicers and Master Servicer under each Agreement will be named in the
related Prospectus Supplement. The entities serving as Servicer or Master
Servicer may be affiliates of the Depositor and may have other normal business
relationships with the Depositor or the Depositor's affiliates. Reference herein
to the Servicer shall be deemed to be to the Master Servicer, if applicable.
The related Agreement will provide that the Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Servicer so causing such a conflict being
of a type and nature carried on by the Servicer at the date of the Agreement. No
such resignation will become effective until the Trustee or a successor servicer
has assumed the Servicer's obligations and duties under the Agreement.
Each Agreement will further provide that neither any Servicer, the
Depositor nor any director, officer, employee, or agent of a Servicer or the
Depositor will be under any liability to the related Trust Fund or
Securityholders for any action taken, or for refraining from the taking of any
action, in good faith pursuant to the Agreement; provided, however, that neither
a Servicer, the Depositor nor any such person will be protected against any
breach of a representation, warranty or covenant made in such Agreement, or
against any liability specifically imposed thereby, or against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of obligations or duties thereunder or by
reason of reckless disregard of obligations and duties thereunder. Each
Agreement will further provide that any Servicer, the Depositor and any
director, officer, employee or agent of a Servicer or the Depositor will be
entitled to indemnification by the related Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Agreement or the Securities; provided, however, that such
indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Servicer, the prosecution of an enforcement action in respect of any specific
Mortgage Loan or Mortgage Loans or Contract or Contracts (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to such
Agreement); (ii) incurred in connection with any breach of a representation,
warranty or covenant made in such Agreement; (iii) incurred by reason of
misfeasance, bad faith or gross negligence in the performance of obligations or
duties thereunder, or by reason of reckless disregard of such obligations or
duties; (iv) incurred in connection with any violation of any state or federal
securities law; or (v) imposed by any taxing authority if such loss, liability
or expense is not specifically reimbursable pursuant to the terms of the related
Agreement. In addition, each Agreement will provide that neither any Servicer
nor the Depositor will be under any obligation to appear in, prosecute or defend
any legal action which is not incidental to its respective responsibilities
under the Agreement and which in its opinion may involve it in any expense or
liability. Any such Servicer or the Depositor may, however, in its discretion
undertake any such action which it may deem necessary or desirable with respect
to the Agreement and the rights and duties of
52
<PAGE> 112
the parties thereto and the interests of the Securityholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Securityholders, and
the Servicer or the Depositor, as the case may be, will be entitled to be
reimbursed therefor and to charge the Collection Account.
Any person into which the Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
the Servicer or the Depositor is a party, or any person succeeding to the
business of the Servicer or the Depositor, will be the successor of the Servicer
or the Depositor, as the case may be, under the related Agreement.
Special Servicers
If and to the extent specified in the related Prospectus Supplement, a
special servicer (a "Special Servicer") may be a party to the related Agreement
or may be appointed by the Servicer or another specified party to perform
certain specified duties in respect of servicing the related Mortgage Loans that
would otherwise be performed by the Servicer (for example, the workout and/or
foreclosure of defaulted Mortgage Loans). The rights and obligations of any
Special Servicer will be specified in the related Prospectus Supplement, and the
Servicer will be liable for the performance of a Special Servicer only if, and
to the extent, set forth in such Prospectus Supplement.
Events of Default under the Agreement
Events of default under the related Agreement will generally include (i)
any failure by the Servicer to distribute or cause to be distributed to
Securityholders, or to remit to the Trustee for distribution to Securityholders,
any required payment that continues after a grace period, if any; (ii) any
failure by the Servicer duly to observe or perform in any material respect any
of its other covenants or obligations under the Agreement which continues
unremedied for 30 days after written notice of such failure has been given to
the Servicer by the Trustee or the Depositor, or to the Servicer, the Depositor
and the Trustee by Securityholders evidencing not less than 25% of the Voting
Rights; (iii) any breach of a representation or warranty made by the Servicer
under the Agreement which materially and adversely affects the interests of
Securityholders and which continues unremedied for 30 days after written notice
of such breach has been given to the Servicer by the Trustee or the Depositor,
or to the Servicer, the Depositor and the Trustee by the holders of Securities
evidencing not less than 25% of the Voting Rights; and (iv) certain events of
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings and certain actions by or on behalf of the Servicer
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing events of default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. The Trustee will, not later than the later of 60 days or
such other period specified in the related Prospectus Supplement after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an event of default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by mail
to the Depositor and all Securityholders of the applicable series notice of such
occurrence, unless such default shall have been cured or waived.
The manner of determining the "Voting Rights" of a Security or class or
classes of Securities will be specified in the related Prospectus Supplement.
Rights Upon Event of Default under the Agreements
So long as an event of default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Securities
evidencing not less than 51% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights, the Trustee shall terminate all of
the rights and obligations of the Servicer under the Agreement and in and to the
Mortgage Loans (other than as a Securityholder or as the owner of any Retained
Interest), whereupon the Trustee will succeed to all of the responsibilities,
duties and liabilities of the Servicer under the Agreement (except that if the
Trustee is prohibited by law from obligating itself to make advances regarding
delinquent Assets, or if the related Prospectus Supplement so specifies, then
the Trustee will not be obligated to make such advances) and will be
53
<PAGE> 113
entitled to similar compensation arrangements. In the event that the Trustee is
unwilling or unable so to act, it may or, at the written request of the holders
of Securities entitled to at least 51% (or such other percentage specified in
the related Prospectus Supplement) of the Voting Rights, it shall appoint, or
petition a court of competent jurisdiction for the appointment of, a loan
servicing institution acceptable to the Rating Agency with a net worth at the
time of such appointment of at least $15,000,000 (or such other amount specified
in the related Prospectus Supplement) to act as successor to the Servicer under
the Agreement. Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and any such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the Servicer under the Agreement.
The holders of Securities representing at least 66 2/3% (or such other
percentage specified in the related Prospectus Supplement) of the Voting Rights
allocated to the respective classes of Securities affected by any event of
default will be entitled to waive such event of default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
Securityholders described in clause (i) under "Events of Default under the
Agreements" may be waived only by all of the Securityholders. Upon any such
waiver of an event of default, such event of default shall cease to exist and
shall be deemed to have been remedied for every purpose under the Agreement.
No Securityholders will have the right under any Agreement to institute any
proceeding with respect thereto unless such holder previously has given to the
Trustee written notice of default and unless the holders of Securities
evidencing not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights have made written request upon the
Trustee to institute such proceeding in its own name as Trustee thereunder and
have offered to the Trustee reasonable indemnity, and the Trustee for 60 days
(or such other number of days specified in the related Prospectus Supplement)
has neglected or refused to institute any such proceeding. The Trustee, however,
is under no obligation to exercise any of the trusts or powers vested in it by
any Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the Securityholders covered by such
Agreement, unless such Securityholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
Amendment
Each Agreement may be amended by the parties thereto, without the consent
of any Securityholders covered by the Agreement, (i) to cure any ambiguity or
mistake, (ii) to correct, modify or supplement any provision therein which may
be inconsistent with any other provision therein or with the related Prospectus
Supplement, (iii) to make any other provisions with respect to matters or
questions arising under the Agreement which are not materially inconsistent with
the provisions thereof, or (iv) to comply with any requirements imposed by the
Code; provided that, in the case of clause (iii), such amendment will not
adversely affect in any material respect the interests of any Securityholders
covered by the Agreement as evidenced either by an opinion of counsel to such
effect or the delivery to the Trustee of written notification from each Rating
Agency that provides, at the request of the Depositor, a rating for the Offered
Securities of the related series to the effect that such amendment or supplement
will not cause such Rating Agency to lower or withdraw the then current rating
assigned to such Securities. Each Agreement may also be amended by the
Depositor, the Servicer, if any, and the Trustee, with the consent of the
Securityholders affected thereby evidencing not less than 51% (or such other
percentage specified in the related Prospectus Supplement) of the Voting Rights,
for any purpose; provided, however, no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received or advanced on
Assets which are required to be distributed on any Security without the consent
of the Securityholder or (ii) reduce the consent percentages described in this
paragraph without the consent of all the Securityholders covered by such
Agreement then outstanding. However, with respect to any series of Securities as
to which a REMIC election or a FASIT election is to be made, the Trustee will
not consent to any amendment of the Agreement unless it shall first have
received an opinion of counsel to the effect that such amendment will not result
in the imposition of a tax
54
<PAGE> 114
on the related Trust Fund or cause the related Trust Fund to fail to qualify as
a REMIC or a FASIT, as the case may be, at any time that the related Securities
are outstanding.
The Trustee
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates, with any Servicer and its affiliates and
with any Master Servicer and its affiliates.
Duties of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Securities or any Asset or related document and is not
accountable for the use or application by or on behalf of any Servicer of any
funds paid to the Master Servicer or its designee in respect of the Securities
or the Assets, or deposited into or withdrawn from the Collection Account or any
other account by or on behalf of the Servicer. If no Event of Default has
occurred and is continuing, the Trustee is required to perform only those duties
specifically required under the related Agreement, as applicable. However, upon
receipt of the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreement.
Certain Matters Regarding the Trustee
The Trustee and any director, officer, employee or agent of the Trustee
shall be entitled to indemnification out of the Collection Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, of the Securityholders during the continuance of
an Event of Default, (ii) defending or prosecuting any legal action in respect
of the related Agreement or series of Securities (iii) being the mortgagee of
record with respect to the Mortgage Loans in a Trust Fund and the owner of
record with respect to any Mortgaged Property acquired in respect thereof for
the benefit of Securityholders, or (iv) acting or refraining from acting in good
faith at the direction of the holders of the related series of Securities
entitled to not less than 25% (or such other percentage as is specified in the
related Agreement with respect to any particular matter) of the Voting Rights
for such series; provided, however, that such indemnification will not extend to
any loss, liability or expense that constitutes a specific liability of the
Trustee pursuant to the related Agreement, or to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence on the part
of the Trustee in the performance of its obligations and duties thereunder, or
by reason of its reckless disregard of such obligations or duties, or as may
arise from a breach of any representation, warranty or covenant of the Trustee
made therein.
Resignation and Removal of the Trustee
The Trustee may at any time resign from its obligations and duties under an
Agreement by giving written notice thereof to the Depositor, the Servicer, if
any, and all Securityholders. Upon receiving such notice of resignation, the
Depositor is required promptly to appoint a successor trustee acceptable to the
Servicer, if any. If no successor trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged 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 if a change in
the financial condition of the Trustee has adversely affected or will adversely
affect the rating on any class of the Securities, then the Depositor may remove
the Trustee and appoint a successor trustee acceptable
55
<PAGE> 115
to the Master Servicer, if any. Securityholders of any series entitled to at
least 51% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such series may at any time remove the
Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
MATERIAL TERMS OF THE INDENTURE
General
The following summary describes the material provisions that may appear in
each Indenture. The Prospectus Supplement for a series of Notes will describe
any provision of the Indenture relating to such series that materially differs
from the description thereof contained in this Prospectus. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Indenture for a series of Notes. A
form of an Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The Depositor will provide a copy of the
Indenture (without exhibits) relating to any series of Notes without charge upon
written request of a Securityholder of such series addressed to NationsBanc
Asset Securities, Inc., NationsBank Corporate Center, Charlotte, North Carolina
28255, Attention: Vice President.
Events of Default
Events of default under the Indenture for each series of Notes will
generally include: (i) a default for thirty (30) days (or such other number of
days specified in such Prospectus Supplement) or more in the payment of any
principal of or interest on any Note of such series; (ii) failure to perform any
other covenant of the Depositor or the Trust Fund in the Indenture which
continues for a period of sixty (60) days (or such other number of days
specified in such Prospectus Supplement) after notice thereof is given in
accordance with the procedures described in the related Prospectus Supplement;
(iii) any representation or warranty made by the Depositor or the Trust Fund in
the Indenture or in any certificate or other writing delivered pursuant thereto
or in connection therewith with respect to or affecting such series having been
incorrect in a material respect as of the time made, and such breach is not
cured within sixty (60) days (or such other number of days specified in such
Prospectus Supplement) after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iv) certain events
of bankruptcy, insolvency, receivership or liquidation of the Depositor or the
Trust Fund; or (v) any other event of default provided with respect to Notes of
that series.
If an event of default with respect to the Notes of any series at the time
outstanding occurs and is continuing, either the Indenture Trustee or the
Securityholders of a majority of the then aggregate outstanding amount of the
Notes of such series may declare the principal amount (or, if the Notes of that
series are Accrual Securities, such portion of the principal amount as may be
specified in the terms of that series, as provided in the related Prospectus
Supplement) of all the Notes of such series to be due and payable immediately.
Such declaration may, under certain circumstances, be rescinded and annulled by
the Securityholders of a majority in aggregate outstanding amount of the Notes
of such series.
If, following an event of default with respect to any series of Notes, the
Notes of such series have been declared to be due and payable, the Indenture
Trustee may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such series and to
continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes of such series
as they would have become due if there had not been such a declaration. In
addition, the Indenture Trustee may not sell or otherwise liquidate the
collateral securing the Notes of a series following an event of default, other
than a default in the payment of any principal or interest on any Note of such
series for thirty (30) days or more, unless (a) the Securityholders of 100% (or
such other percentage specified in the related Prospectus Supplement) of the
then aggregate outstanding amount of the Notes of such series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest,
56
<PAGE> 116
due and unpaid, on the outstanding Notes of such series at the date of such sale
or (c) the Indenture Trustee determines that such collateral would not be
sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Securityholders of
66 2/3% (or such other percentage specified in the related Prospectus
Supplement) of the then aggregate outstanding amount of the Notes of such
series.
In the event that the Indenture Trustee liquidates the collateral in
connection with an event of default involving a default for thirty (30) days (or
such other number of days specified in the related Prospectus Supplement) or
more in the payment of principal of or interest on the Notes of a series, the
Indenture provides that the Indenture Trustee will have a prior lien on the
proceeds of any such liquidation for unpaid fees and expenses. As a result, upon
the occurrence of such an event of default, the amount available for
distribution to the Securityholders would be less than would otherwise be the
case. However, the Indenture Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Securityholders
after the occurrence of such an event of default.
To the extent provided in the related Prospectus Supplement, in the event
the principal of the Notes of a series is declared due and payable, as described
above, the Securityholders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an event of default shall occur and be continuing
with respect to a series of Notes, the Indenture Trustee shall be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Securityholders of such series, unless such
holders offered to the Indenture Trustee security or indemnity satisfactory to
it against the costs, expenses and liabilities which might be incurred by it in
complying with such request or direction. Subject to such provisions for
indemnification and certain limitations contained in the Indenture, the
Securityholders of a majority of the then aggregate outstanding amount of the
Notes of such series shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Indenture Trustee
or exercising any trust or power conferred on the Indenture Trustee with respect
to the Notes of such series, and the Securityholders of a majority of the then
aggregate outstanding amount of the Notes of such series may, in certain cases,
waive any default with respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all the
Securityholders of the outstanding Notes of such series affected thereby.
Discharge Indenture
The Indenture will be discharged with respect to a series of Notes (except
with respect to certain continuing rights specified in the Indenture) upon the
delivery to the Indenture Trustee for cancellation of all the Notes of such
series or, with certain limitations, upon deposit with the Indenture Trustee of
funds sufficient for the payment in full of all of the Notes of such series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such series, to replace stolen, lost or mutilated Notes of such series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Indenture Trustee, in trust, of money and/or direct obligations
of or obligations guaranteed by the United States of America which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such series on the maturity date
for such Notes and any installment of interest on such Notes in accordance with
the terms of the Indenture and the Notes of such series. In the event of any
such defeasance and discharge of Notes of such series, holders of Notes of such
series would be able to look only to
57
<PAGE> 117
such money and/or direct obligations for payment of principal and interest, if
any, on their Notes until maturity.
Indenture Trustee's Annual Report
The Indenture Trustee for each series of Notes will be required to mail
each year to all related Securityholders a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the related
Indenture, any amounts advanced by it under the Indenture, the amount, interest
rate and maturity date of certain indebtedness owing by such Trust to the
applicable Indenture Trustee in its individual capacity, the property and funds
physically held by such Indenture Trustee as such and any action taken by it
that materially affects such Notes and that has not been previously reported.
The Indenture Trustee
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may resign
at any time, in which event the Depositor will be obligated to appoint a
successor trustee for such series. The Depositor may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue as
such under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances the Depositor will be obligated to appoint a successor
trustee for the applicable series of Notes. Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee for any series of Notes
does not become effective until acceptance of the appointment by the successor
trustee for such series.
The bank or trust company serving as Indenture Trustee may have a banking
relationship with the Depositor or any of its affiliates , a Servicer or any of
its affiliates or the Master Servicer or any of its affiliates.
58
<PAGE> 118
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Securities, Credit Support may be provided with respect
to one or more classes thereof or the related Assets. Credit Support may be in
the form of the subordination of one or more classes of Securities, letters of
credit, insurance policies, guarantees, the establishment of one or more reserve
funds or another method of Credit Support described in the related Prospectus
Supplement, or any combination of the foregoing. If so provided in the related
Prospectus Supplement, any form of Credit Support may be structured so as to be
drawn upon by more than one series to the extent described therein.
The coverage provided by any Credit Support will be described in the
related Prospectus Supplement. Generally, such coverage will not provide
protection against all risks of loss and will not guarantee repayment of the
entire Security Balance of the Securities and interest thereon. If losses or
shortfalls occur that exceed the amount covered by Credit Support or that are
not covered by Credit Support, Securityholders will bear their allocable share
of deficiencies. Moreover, if a form of Credit Support covers more than one
series of Securities (each, a "Covered Trust"), Securityholders evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Securities of a series, or the related Assets, the related Prospectus Supplement
will include a description of (a) the nature and amount of coverage under such
Credit Support, (b) any conditions to payment thereunder not otherwise described
herein, (c) the conditions (if any) under which the amount of coverage under
such Credit Support may be reduced and under which such Credit Support may be
terminated or replaced and (d) the material provisions relating to such Credit
Support. Additionally, the related Prospectus Supplement will set forth certain
information with respect to the obligor under any instrument of Credit Support,
including (i) a brief description of its principal business activities, (ii) its
principal place of business, place of incorporation and the jurisdiction under
which it is chartered or licensed to do business, (iii) if applicable, the
identity of regulatory agencies that exercise primary jurisdiction over the
conduct of its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. See "Risk Factors -- Credit Support Limitations."
SUBORDINATE SECURITIES
If so specified in the related Prospectus Supplement, one or more classes
of Securities of a series may be Subordinate Securities. To the extent specified
in the related Prospectus Supplement, the rights of the holders of Subordinate
Securities to receive distributions of principal and interest from the
Collection Account on any Distribution Date will be subordinated to such rights
of the holders of Senior Securities. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of (or may
be limited to) certain types of losses or shortfalls. The related Prospectus
Supplement will set forth information concerning the amount of subordination of
a class or classes of Subordinate Securities in a series, the circumstances in
which such subordination will be applicable and the manner, if any, in which the
amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Securities of a series, Credit Support
may be provided by cross-support provisions requiring that distributions be made
on Senior Securities evidencing interests in one group of Mortgage Assets prior
to distributions on Subordinate Securities evidencing interests in a different
group of Mortgage Assets within the Trust Fund. The Prospectus Supplement for a
series that includes a cross-support provision will describe the manner and
conditions for applying such provisions.
59
<PAGE> 119
LIMITED GUARANTEE
If so specified in the related Prospectus Supplement with respect to a
series of Securities, credit enhancement may be provided in the form of a
limited guarantee issued by a guarantor named therein.
FINANCIAL GUARANTY INSURANCE POLICY OR SURETY BOND
If so specified in the related Prospectus Supplement with respect to a
series of Securities, credit enhancement may be provided in the form of a
financial guaranty insurance policy or a surety bond issued by an insurer named
therein.
LETTER OF CREDIT
Alternative credit support with respect to a series of Securities may be
provided by the issuance of a letter of credit by the bank or financial
institution specified in the related Prospectus Supplement. The coverage, amount
and frequency of any reduction in coverage provided by a letter of credit issued
with respect to a series of Securities will be set forth in the Prospectus
Supplement relating to such series.
POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement relating to a series
of Securities, a pool insurance policy for the Mortgage Loans in the related
Trust Fund will be obtained. The pool insurance policy will cover any loss
(subject to the limitations described in the related Prospectus Supplement) by
reason of default to the extent a related Mortgage Loan is not covered by any
primary mortgage insurance policy. The amount and principal terms of any such
coverage will be set forth in the Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a special hazard
insurance policy may also be obtained for the related Trust Fund in the amount
set forth in such Prospectus Supplement. The special hazard insurance policy
will, subject to the limitations described in the related Prospectus Supplement,
protect against loss by reason of damage to Mortgaged Properties caused by
certain hazards not insured against under the standard form of hazard insurance
policy for the respective states, in which the Mortgaged Properties are located.
The amount and principal terms of any such coverage will be set forth in the
Prospectus Supplement.
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, losses resulting from
a bankruptcy proceeding relating to a mortgagor affecting the Mortgage Loans in
a Trust Fund with respect to a series of Securities will be covered under a
mortgagor bankruptcy bond (or any other instrument that will not result in a
downgrading of the rating of the Securities of a series by the Rating Agency or
Rating Agencies that rate such series). Any mortgagor bankruptcy bond or such
other instrument will provide for coverage in an amount meeting the criteria of
the Rating Agency or Rating Agencies rating the Securities of the related
series, which amount will be set forth in the related Prospectus Supplement. The
amount and principal terms of any such coverage will be set forth in the
Prospectus Supplement.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain classes
thereof will be covered by one or more reserve funds in which cash, a letter of
credit, Permitted Investments, a demand note or a combination thereof will be
deposited, in the amounts so specified in such Prospectus Supplement. The
reserve funds for a series may also be funded over time by depositing therein a
specified amount of the distributions received on the related Assets as
specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus
60
<PAGE> 120
Supplement. A reserve fund may be provided to increase the likelihood of timely
distributions of principal of and interest on the Securities. If so specified in
the related Prospectus Supplement, reserve funds may be established to provide
limited protection against only certain types of losses and shortfalls.
Following each Distribution Date amounts in a reserve fund in excess of any
amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement and will not be available for further application to the Securities.
Moneys deposited in any reserve funds will be invested in Permitted
Investments, to the extent specified in the related Prospectus Supplement. To
the extent specified in the related Prospectus Supplement, any reinvestment
income or other gain from such investments will be credited to the related
reserve fund for such series, and any loss resulting from such investments will
be charged to such reserve fund. However, such income may be payable to any
related Servicer or another service provider as additional compensation. To the
extent specified in the related Prospectus Supplement, the reserve fund, if any,
for a series will not be a part of the Trust Fund.
Additional information concerning any reserve fund will be set forth in the
related Prospectus Supplement, including the initial balance of such reserve
fund, the balance required to be maintained in the reserve fund, the manner in
which such required balance will decrease over time, the manner of funding such
reserve fund, the purposes for which funds in the reserve fund may be applied to
make distributions to Securityholders and use of investment earnings from the
reserve fund, if any.
OVERCOLLATERALIZATION
If specified in the related Prospectus Supplement, subordination provisions
of a Trust Fund may be used to accelerate to a limited extent the amortization
of one or more classes of Securities relative to the amortization of the related
Assets. The accelerated amortization is achieved by the application of certain
excess interest to the payment of principal of one or more classes of
Securities. This acceleration feature creates, with respect to the Assets or
groups thereof, overcollateralization which results from the excess of the
aggregate principal balance of the related Assets, or a group thereof, over the
principal balance of the related class or classes of Securities. Such
acceleration may continue for the life of the related Security, or may be
limited. In the case of limited acceleration, once the required level of
overcollateralization is reached, and subject to certain provisions specified in
the related Prospectus Supplement, such limited acceleration feature may cease,
unless necessary to maintain the required level of overcollateralization.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal aspects of loans secured by single-family or multi-family
residential properties. Because such legal aspects are governed primarily by
applicable state law(which laws may differ substantially), the summaries do not
purport to be complete nor to reflect the laws of any particular state, nor to
encompass the laws of all states in which the security for the Mortgage Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Mortgage Loans. See "Description
of the Trust Funds -- Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and secured
by instruments granting a security interest in real property which may be
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the instrument
in the appropriate public recording office. However, recording does not
generally establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
61
<PAGE> 121
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -- a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a deed
of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes the
trustor under a deed of trust and a grantor under a security deed or a deed to
secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by the
related mortgage note. In case the mortgagor under a mortgage is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the mortgagor.
At origination of a mortgage loan involving a land trust, the mortgagor executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a deed to secure debt are governed by the express
provisions of the mortgage, the law of the state in which the real property is
located, certain federal laws (including, without limitation, the Soldiers' and
Sailors' Civil Relief Act of 1940) and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
The Mortgages that encumber Multifamily Properties may contain an
assignment of rents and leases, pursuant to which the Mortgagor assigns to the
lender the Mortgagor's right, title and interest as landlord under each lease
and the income derived therefrom, while retaining a revocable license to collect
the rents for so long as there is no default. If the Mortgagor defaults, the
license terminates and the lender is entitled to collect the rents. Local law
may require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The Depositor, the Asset Seller or other entity specified
in the related Prospectus Supplement will make certain representations and
warranties in the Agreement or certain representations and warranties will be
assigned to the Trustee with respect to any Mortgage Loans that are secured by
an interest in a leasehold estate. Such representation and warranties, if
applicable, will be set forth in the Prospectus Supplement.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a series of Offered
Securities, the Mortgage Loans may also consist of cooperative apartment loans
("Cooperative Loans") secured by security interests in shares issued by a
cooperative housing corporation (a "Cooperative") and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. The security agreement will
create a lien upon, or grant a title interest in, the property which it covers,
the priority of which will depend on the terms of the particular security
agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each Cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The Cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes, other governmental impositions and
hazard and
62
<PAGE> 122
liability insurance. If there is a blanket mortgage or mortgages on the
cooperative apartment building or underlying land, as is generally the case, or
an underlying lease of the land, as is the case in some instances, the
Cooperative, as property mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the Cooperative's apartment building or obtaining of
capital by the Cooperative. The interest of the occupant under proprietary
leases or occupancy agreements as to which that Cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and to
the interest of the holder of a land lease. If the Cooperative is unable to meet
the payment obligations (i) arising under a blanket mortgage, the mortgagee
holding a blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (ii) arising under
its land lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements.
Also, a blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the Cooperative to
refinance a mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee. Similarly, a land lease has an
expiration date and the inability of the Cooperative to extend its term or, in
the alternative, to purchase the land could lead to termination of the
Cooperative's interest in the property and termination of all proprietary leases
and occupancy agreement. In either event, a foreclosure by the holder of a
blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the lender that
financed the purchase by an individual tenant stockholder of cooperative shares
or, in the case of the Mortgage Loans, the collateral securing the Cooperative
Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a Cooperative must make a monthly payment to the
Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights are financed through
a Cooperative Loan evidenced by a promissory note and secured by an assignment
of and a security interest in the occupancy agreement or proprietary lease and a
security interest in the related Cooperative shares. The lender generally takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement and a financing statement covering the proprietary lease
or occupancy agreement and the cooperative shares is filed in the appropriate
state and local offices to perfect the lender's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares. See "Foreclosure -- Cooperative
Loans" below.
LAND SALE CONTRACTS
Under an installment land sale contract for the sale of real estate (a
"land sale contract") the contract seller (hereinafter referred to as the
"Contract Lender") retains legal title to the property and enters into an
agreement with the contract purchaser (hereinafter referred to as the "contract
borrower") for the payment of the purchase price, plus interest, over the term
of the land sale contract. Only after full performance by the borrower of the
contract is the contract lender obligated to convey title to the real estate to
the purchaser. As with mortgage or deed of trust financing, during the effective
period of the land sale contract, the contract borrower is responsible for
maintaining the property in good condition and for paying real estate taxes,
assessments and hazard insurance premiums associated with the property.
The method of enforcing the rights of the contract lender under an
installment contract varies on a state-by-state basis depending upon the extent
to which state courts are willing, or able pursuant to state statute, to enforce
the contract strictly according to its terms. The terms of land sale contracts
generally provide that upon default by the contract borrower, the borrower loses
his or her right to occupy the property, the entire
63
<PAGE> 123
indebtedness is accelerated, and the buyer's equitable interest in the property
is forfeited. The contract lender in such a situation does not have to foreclose
in order to obtain title to the property, although in some cases a quiet title
action is in order if the contract borrower has filed the land sale contract in
local land records and an ejectment action may be necessary to recover
possession. In a few states, particularly in cases of contract borrower default
during the early years of a land sale contract, the courts will permit ejectment
of the buyer and a forfeiture of his or her interest in the property. However,
most state legislatures have enacted provisions by analogy to mortgage law
protecting borrowers under land sale contracts from the harsh consequences of
forfeiture. Under such statues, a judicial contract may be reinstated upon full
payment of the default amount and the borrower may have a post-foreclosure
statutory redemption right. In other states, courts in equity may permit a
contract borrower with significant investment in the property under a land sale
contract for the sale of real estate to share the proceeds of sale of the
property after the indebtedness is repaid or may otherwise refuse to enforce the
forfeiture clause. Nevertheless, generally speaking, the contract lender's
procedures for obtaining possession and clear title under a land sale contract
for the sale of real estate in a given state are simpler and less time consuming
and costly than are the procedures for foreclosing and obtaining clear title to
a mortgaged property.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having an interest of record in
the real property. Delays in completion of the foreclosure may occasionally
result from difficulties in locating defendants. When the lender's right to
foreclose is contested, the legal proceedings can be time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property, the proceeds of which are used
to satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the mortgagor's default and the likelihood that the mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage
64
<PAGE> 124
on the mortgaged property. The exercise by the court of its equity powers will
depend on the individual circumstances of each case presented to it. Finally,
some courts have been faced with the issue of whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that a mortgagor receive notice in addition to statutorily-prescribed
minimum notice. For the most part, these cases have upheld the reasonableness of
the notice provisions or have found that a public sale under a mortgage
providing for a power of sale does not involve sufficient state action to afford
constitutional protections to the mortgagor.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at the
time of sale, due to, among other things, redemption rights which may exist and
the possibility of physical deterioration of the property during the foreclosure
proceedings. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to or less than the underlying debt and
accrued and unpaid interest plus the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender will
become the owner of the property and have both the benefits and burdens of
ownership of the mortgaged property. For example, the lender will become
obligated to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the property. Moreover, a lender commonly
incurs substantial legal fees and court costs in acquiring a mortgaged property
through contested foreclosure and/or bankruptcy proceedings. Generally, state
law controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may
65
<PAGE> 125
be required to pay the full amount of the senior mortgage to avoid its
foreclosure. Accordingly, with respect to those Mortgage Loans, if any, that are
junior mortgage loans, if the lender purchases the property the lender's title
will be subject to all senior mortgages, prior liens and certain governmental
liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which exists
prior to completion of the foreclosure, is not waivable by the mortgagor, must
be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. With respect to
a series of Securities for which an election is made to qualify the Trust Fund
or a part thereof as a REMIC, the Agreement will permit foreclosed property to
be held for more than two years if the Internal Revenue Service grants an
extension of time within which to sell such property or independent counsel
renders an opinion to the effect that holding such property for such additional
period is permissible under the REMIC Provisions. The applicability of these
limitations if a FASIT election is made with respect to all or a part of the
Trust Fund will be described in the applicable Prospectus Supplement.
Cooperative Loans
The Cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's certificate of incorporation and by-laws, as well as
the proprietary lease or occupancy agreement, and may be canceled by the
Cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permit the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the
66
<PAGE> 126
rights and obligations of both parties in the event of a default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a foreclosure sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperatives to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in a building so converted.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds of
trust, which are subordinate to first or other senior mortgages or deeds of
trust held by other lenders. The rights of the Trust Fund as the holder of a
junior deed of trust or a junior mortgage are subordinate in lien and in payment
to those of the holder of the senior mortgage or deed of trust, including the
prior rights of the senior mortgagee or beneficiary to receive and apply hazard
insurance and condemnation proceeds and, upon default of the mortgagor, to cause
a foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the deed of trust, the
junior mortgagee's or junior beneficiary's lien will be extinguished unless the
junior lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "-- Foreclosure" herein.
Furthermore, because the terms of the junior mortgage or deed of trust are
subordinate to the terms of the first mortgage or deed of trust, in the event of
a conflict between the terms of the first mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the first mortgage or deed of
trust will generally govern. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the
67
<PAGE> 127
obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a first mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Statutes in some states limit the right of a beneficiary under a deed of
trust or a mortgagee under a mortgage to obtain a deficiency judgment against
the mortgagor following foreclosure or sale under a deed of trust. A deficiency
judgment would be a personal judgment against the former mortgagor equal to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. Some states require the lender to
exhaust the security afforded under a mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the mortgagor.
In certain other states, the lender has the option of bringing a personal action
against the mortgagor on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. In some cases, a lender
will be precluded from exercising any additional rights under the note or
mortgage if it has taken any prior enforcement action. Consequently, the
practical effect of the election requirement, in those states permitting such
election, is that lenders will usually proceed against the security first rather
than bringing a personal action against the mortgagor. Finally, other statutory
provisions limit any deficiency judgment against the former mortgagor following
a judicial sale to the excess of the outstanding debt over the fair market value
of the property at the time of the public sale. The purpose of these statutes is
generally to prevent a lender from obtaining a large deficiency judgment against
the former mortgagor as a result of low or no bids at the judicial sale.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of a secured mortgage lender to realize upon its security. For example,
numerous statutory provisions under the United States Bankruptcy Code, 11 U.S.C.
Sections 101 et seq., (the "Bankruptcy Code") may interfere with or affect the
ability of the secured mortgage lender to obtain payment of a Mortgage Loan, to
realize upon collateral and/or enforce a deficiency judgment. For example, under
federal bankruptcy law, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of a
bankruptcy petition, and often no interest or principal payments are made during
the course of the bankruptcy proceeding. In a case under the Bankruptcy Code,
the secured party is precluded from foreclosing without authorization from the
bankruptcy court. In addition, a court with federal bankruptcy jurisdiction may
permit a debtor through his or her Chapter 11 or Chapter 13 plan to cure a
monetary default in respect of a Mortgage Loan by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no foreclosure sale had
yet occurred) prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the case, that effected the curing of a mortgage loan default by paying
arrearages over a number of years.
If a Mortgage Loan is secured by property not consisting solely of the
debtor's principal residence, the Bankruptcy Code also permits such Mortgage
Loan to be modified. Such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
and reducing the lender's security interest to the value of the property, thus
leaving the lender in the position of a general unsecured creditor for the
difference between the value of the property and the outstanding balance of the
Mortgage Loan. Some courts have permitted such modifications when the Mortgage
Loan is secured both by the debtor's principal residence and by personal
property.
In the case of income-producing Multifamily Properties, federal bankruptcy
law may also have the effect of interfering with or affecting the ability of the
secured lender to enforce the borrower's assignment of rents and leases related
to the mortgaged property. Under Section 362 of the Bankruptcy Code, the lender
will be stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue could be time-consuming, with resulting delays in
the lender's receipt of the rents.
68
<PAGE> 128
Certain tax liens arising under the Code may in certain circumstances
provide priority over the lien of a mortgage or deed of trust. In addition,
substantive requirements are imposed upon mortgage lenders in connection with
the origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act and related statutes. These
federal laws impose specific statutory liabilities upon lenders who originate
mortgage loans and who fail to comply with the provisions of the law. In some
cases this liability may affect assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
ENVIRONMENTAL CONSIDERATIONS
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property. Property subject to such a
security interest may be subject to federal, state, and local laws and
regulations relating to environmental protection. Such laws may regulate, among
other things: emissions of air pollutants; discharges of wastewater or storm
water; generation, transport, storage or disposal of hazardous waste or
hazardous substances; operation, closure and removal of underground storage
tanks; removal and disposal of asbestos-containing materials; management of
electrical or other equipment containing polychlorinated biphenyls ("PCBs").
Failure to comply with such laws and regulations may result in significant
penalties, including civil and criminal fines. Under the laws of certain states,
environmental contamination on a property may give rise to a lien on the
property to ensure the availability and/or reimbursement of cleanup costs.
Generally all subsequent liens on such property are subordinated to such a lien
and, in some states, even prior recorded liens are subordinated to such liens
("Superliens"). In the latter states, the security interest of the Trustee in a
property that is subject to such Superlien could be adversely affected.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, operates a mortgaged property or undertakes
certain types of activities that may constitute management of the mortgaged
property may become liable in certain circumstances for the costs of remedial
action ("Cleanup Costs") if hazardous wastes or hazardous substances have been
released or disposed of on the property. Such Cleanup Costs may be substantial.
CERCLA imposes strict, as well as joint and several liability for environmental
remediation and/or damage costs on several classes of "potentially responsible
parties," including current "owners and/or operators" of property, irrespective
of whether those owners or operators caused or contributed to the contamination
on the property. In addition, owners and operators of properties that generate
hazardous substances that are disposed of at other "off-site" locations may be
held strictly, jointly and severally liable for environmental remediation and/or
damages at those off-site locations. Many states also have laws that are similar
to CERCLA. Liability under CERCLA or under similar state law could exceed the
value of the property itself as well as the aggregate assets of the property
owner.
The law is unclear as to whether and under what precise circumstances
cleanup costs, or the obligation to take remedial actions, could be imposed on a
secured lender such as the Trust Fund. Under the laws of some states and under
CERCLA, a lender may be liable as an "owner or operator" for costs of addressing
releases or threatened releases of hazardous substances on a mortgaged property
if such lender or its agents or employees have "participated in the management"
of the operations of the borrower, even though the environmental damage or
threat was caused by a prior owner or current owner or operator or other third
party. Excluded from CERCLA's definition of "owner or operator" is a person "who
without participating in the management of . . . [the] facility, holds indicia
of ownership primarily to protect his security interest" (the "secured-creditor
exemption"). This exemption for holders of a security interest such as a secured
lender
69
<PAGE> 129
applies only to the extent that a lender seeks to protect its security interest
in the contaminated facility or property. Thus, if a lender's activities begin
to encroach on the actual management of such facility or property, the lender
faces potential liability as an "owner or operator" under CERCLA. Similarly,
when a lender forecloses and takes title to a contaminated facility or property,
the lender may incur potential CERCLA liability in various circumstances,
including among others, when it holds the facility or property as an investment
(including leasing the facility or property to a third party), fails to market
the property in a timely fashion or fails to properly address environmental
conditions at the property or facility.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggested that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under CERCLA;
rather, liability could attach to a lender if its involvement with the
management of the facility were broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decisions
could be inferred from the extent of its involvement in the facility's financial
management. A subsequent decision by the United States Court of Appeals for the
Ninth Circuit in In re Bergsoe Metal Corp., apparently disagreeing with, but not
expressly contradicting, the Fleet Factors court, held that a secured lender had
no liability absent "some actual management of the facility" on the part of the
lender.
On April 29, 1992, the United States Environmental Protection Agency (the
"EPA") issued a final rule interpreting and delineating CERCLA's
secured-creditor exemption and the range of permissible actions that may be
undertaken by a holder of a contaminated facility without exceeding the bounds
of the secured-creditor exemption. However, on February 4, 1994, the United
States Court of Appeals for the District of Columbia Circuit in Kelley v. EPA
invalidated the EPA rule. As a result of the Kelley case, the state of the law
with respect to the secured creditor exemption was, until recently, very
unclear.
On September 28, 1996, Congress enacted, and on September 30, 1996 the
President signed into law the Asset Conservation Lender Liability and Deposit
Insurance Protection Act of 1996 (the "Asset Conservation Act"). The Asset
Conservation Act was intended to clarify the scope of the secured creditor
exemption. This legislation more clearly defines the kinds of activities that
would constitute "participation in management" and that therefore would trigger
liability for secured parties under CERCLA. It also identified certain
activities that ordinarily would not trigger liability, provided, however, that
such activities did not otherwise rise to the level of "participation in
management." The Asset Conservation Act specifically reverses the Fleet Factors
"capacity to influence" standard. The Asset Conservation Act also provides
additional protection against liability in the event of foreclosure. However,
since the courts have not yet had the opportunity to interpret the new statutory
provisions, the scope of the additional protections offered by the Asset
Conservation Act is not fully defined. It also is important to note that the
Asset Conservation Act does not offer complete protection to lenders and that
the risk of liability remains.
If a secured lender does become liable, it may be entitled to bring an
action for contribution against the owner or operator who created the
environmental contamination or against some other liable party, but that person
or entity may be bankrupt or otherwise judgment-proof. It is therefore possible
that cleanup or other environmental liability costs could become a liability of
the Trust Fund and occasion a loss to the Trust Fund and to Securityholders in
certain circumstances. The new secured creditor amendments to CERCLA, also,
would not necessarily affect the potential for liability in actions by either a
state or a private party under other federal or state laws which may impose
liability on "owners or operators" but do not incorporate the secured-creditor
exemption.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances are present with
respect to any mortgaged property prior to the origination of the mortgage loan
or prior to foreclosure or accepting a deed-in-lieu of foreclosure. Neither the
Depositor nor any Servicer makes any representations or warranties or assumes
any liability with respect to: environmental conditions of such Mortgaged
Property; the absence, presence or effect of hazardous wastes or hazardous
substances on, near or emanating from such Mortgaged Property; the impact on
Securityholders of any
70
<PAGE> 130
environmental condition or presence of any substance on or near such Mortgaged
Property; or the compliance of any Mortgaged Property with any environmental
laws. In addition, no agent, person or entity otherwise affiliated with the
Depositor is authorized or able to make any such representation, warranty or
assumption of liability relative to any such Mortgaged Property.
DUE-ON-SALE CLAUSES
Unless the related Prospectus Supplement indicates otherwise, the Mortgage
Loans will contain due-on-sale clauses. These clauses generally provide that the
lender may accelerate the maturity of the loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property. The enforceability of due-on-sale
clauses has been the subject of legislation or litigation in many states and, in
some cases, the enforceability of these clauses was limited or denied. However,
with respect to certain loans the Garn-St. Germain Depository Institutions Act
of 1982 preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions.
Due-on-sale clauses contained in mortgage loans originated by federal savings
and loan associations of federal savings banks are fully enforceable pursuant to
regulations of the United States Federal Home Loan Bank Board, as succeeded by
the Office of Thrift Supervision, which preempt state law restrictions on the
enforcement of such clauses. Similarly, "due-on-sale" clauses in mortgage loans
made by national banks and federal credit unions are now fully enforceable
pursuant to preemptive regulations of the Comptroller of the Currency and the
National Credit Union Administration, respectively.
The Garn-St. Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the act (including federal savings and loan
associations and federal savings banks) may not exercise a "due-on-sale" clause,
notwithstanding the fact that a transfer of the property may have occurred.
These include intra-family transfers, certain transfers by operation of law,
leases of fewer than three years and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St. Germain Act also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause. The inability to enforce a "due-on-sale" clause may result
in a mortgage that bears an interest rate below the current market rate being
assumed by a new home buyer rather than being paid off, which may affect the
average life of the Mortgage Loans and the number of Mortgage Loans which may
extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans secured by
liens encumbering owner-occupied residential properties, if such loans are paid
prior to maturity. With respect to Mortgaged Properties that are owner-occupied,
it is anticipated that prepayment charges may not be imposed with respect to
many of the Mortgage Loans. The absence of such a restraint on prepayment,
particularly with respect to fixed rate Mortgage Loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirement of
such loans.
SUBORDINATE FINANCING
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
71
<PAGE> 131
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The Office of Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor believes that a court interpreting Title V would hold that
residential first mortgage loans that are originated on or after January 1, 1980
are subject to federal preemption. Therefore, in a state that has not taken the
requisite action to reject application of Title V or to adopt a provision
limiting discount points or other charges prior to origination of such mortgage
loans, any such limitation under such state's usury law would not apply to such
mortgage loans.
In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no mortgage
loan originated after the date of such state action will be eligible for
inclusion in a Trust Fund unless (i) such mortgage loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such mortgage loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the mortgagor's counsel
has rendered an opinion that such choice of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the mortgagor may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the mortgagor to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans
and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subject to a variety of restrictions. Such
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title VIII of the
Garn-St. Germain Act ("Title VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative mortgage
instruments by national banks; state-chartered credit unions may originate
alternative mortgage instruments in accordance with regulations promulgated by
the National Credit Union Administration with respect to origination of
alternative mortgage instruments by federal credit unions; and all other
non-federally chartered housing creditors, including state-chartered savings and
loan associations, state-chartered savings banks and mutual savings banks and
mortgage banking companies, may originate alternative mortgage instruments in
accordance with the regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
72
<PAGE> 132
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Securities, and would not
be covered by advances. Such shortfalls will be covered by the Credit Support
provided in connection with such Securities only to the extent provided in the
related Prospectus Supplement. In addition, the Relief Act imposes limitations
that would impair the ability of the Servicer to foreclose on an affected
Mortgage Loan during the mortgagor's period of active duty status, and, under
certain circumstances, during an additional three month period thereafter. Thus,
in the event that such a Mortgage Loan goes into default, there may be delays
and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Contracts. Because such legal aspects
are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Contracts is situated. The summaries are qualified in their
entirety by reference to the appropriate laws of the states in which Contracts
may be originated.
GENERAL
As a result of the assignment of the Contracts to the Trustee, the Trustee
will succeed collectively to all of the rights (including the right to receive
payment on the Contracts) of the obligee under the Contracts. Each Contract
evidences both (a) the obligation of the obligor to repay the loan evidenced
thereby, and (b) the grant of a security interest in the Manufactured Home to
secure repayment of such loan. Certain aspects of both features of the Contracts
are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the
73
<PAGE> 133
sale of chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Under the Agreement, the Servicer will transfer
physical possession of the Contracts to the Trustee or its custodian or may
retain possession of the Contracts as custodian for the Trustee. In addition,
the Servicer will make an appropriate filing of a UCC-1 financing statement in
the appropriate states to give notice of the Trustee's ownership of the
Contracts. The Contracts will be stamped or marked otherwise to reflect their
assignment from the Company to the Trustee only if provided in the related
Prospectus Supplement. Therefore, if, through negligence, fraud or otherwise, a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the Trustee's interest in Contracts could be
defeated.
SECURITY INTERESTS IN THE MANUFACTURED HOMES
The Manufactured Homes securing the Contracts may be located in all 50
states. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some nontitle states, perfection pursuant
to the provisions of the UCC is required. The Asset Seller may effect such
notation or delivery of the required documents and fees, and obtain possession
of the certificate of title, as appropriate under the laws of the state in which
any manufactured home securing a manufactured housing conditional sales contract
is registered. In the event the Asset Seller fails, due to clerical error, to
effect such notation or delivery, or files the security interest under the wrong
law (for example, under a motor vehicle title statute rather than under the UCC,
in a few states), the Asset Seller may not have a first priority security
interest in the Manufactured Home securing a Contract. As manufactured homes
have become larger and often have been attached to their sites without any
apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the holder of the security interest must file either a "fixture filing"
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the home is located. These filings must be made in the
real estate records office of the county where the home is located.
Substantially all of the Contracts contain provisions prohibiting the borrower
from permanently attaching the Manufactured Home to its site. So long as the
borrower does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the security interest in the Manufactured Home. If, however, a Manufactured
Home is permanently attached to its site, other parties could obtain an interest
in the Manufactured Home which is prior to the security interest originally
retained by the Asset Seller and transferred to the Depositor. With respect to a
series of Securities and if so described in the related Prospectus Supplement,
the Servicer may be required to perfect a security interest in the Manufactured
Home under applicable real estate laws. The Warranting Party will represent that
as of the date of the sale to the Depositor it has obtained a perfected first
priority security interest by proper notation or delivery of the required
documents and fees with respect to substantially all of the Manufactured Homes
securing the Contracts.
The Depositor will cause the security interests in the Manufactured Homes
to be assigned to the Trustee on behalf of the Securityholders. The Depositor or
the Trustee will amend the certificates of title (or file UCC-3 statements) to
identify the Trustee as the new secured party, and will deliver the certificates
of title to the Trustee or note thereon the interest of the Trustee only if
specified in the related Prospectus Supplement. Accordingly, the Asset Seller
(or other originator of the Contracts) will continue to be named as the secured
party on the certificates of title relating to the Manufactured Homes. In some
states, such assignment is an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title and the
new secured party succeeds to Servicer's rights as the secured party. However,
in some states, in the absence of an amendment to the certificate of title (or
the filing of a UCC-3 statement), such assignment of the security interest in
the Manufactured Home may not be held effective or such security interests may
not be perfected and in the absence of such notation or delivery to the Trustee,
the assignment of the security
74
<PAGE> 134
interest in the Manufactured Home may not be effective against creditors of the
Asset Seller (or such other originator of the Contracts) or a trustee in
bankruptcy of the Asset Seller (or such other originator).
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Asset Seller
(or other originator of the Contracts) on the certificate of title or delivery
of the required documents and fees will be sufficient to protect the
Securityholders against the rights of subsequent purchasers of a Manufactured
Home or subsequent lenders who take a security interest in the Manufactured
Home. If there are any Manufactured Homes as to which the security interest
assigned to the Trustee is not perfected, such security interest would be
subordinate to, among others, subsequent purchasers for value of Manufactured
Homes and holders of perfected security interests. There also exists a risk in
not identifying the Trustee as the new secured party on the certificate of title
that, through fraud or negligence, the security interest of the Trustee could be
released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps are not
taken to re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Servicer must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien, the
Asset Seller (or other originator) would receive notice of surrender if the
security interest in the Manufactured Home is noted on the certificate of title.
Accordingly, the Trustee would have the opportunity to re-perfect its security
interest in the Manufactured Home in the state of relocation. In states which do
not require a certificate of title for registration of a manufactured home,
re-registration could defeat perfection. In the ordinary course of servicing the
manufactured housing contracts, the Servicer takes steps to effect such
re-perfection upon receipt of notice of re-registration or information from the
obligor as to relocation. Similarly, when an obligor under a manufactured
housing contract sells a manufactured home, the Servicer must surrender
possession of the certificate of title or, if it is noted as lienholder on the
certificate of title, will receive notice as a result of its lien noted thereon
and accordingly will have an opportunity to require satisfaction of the related
manufactured housing conditional sales contract before release of the lien.
Under the Agreement, the Servicer is obligated to take such steps, at the
Servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority even over
a perfected security interest. The Warranting Party will represent in the
Agreement that it has no knowledge of any such liens with respect to any
Manufactured Home securing payment on any Contract. However, such liens could
arise at any time during the term of a Contract. No notice will be given to the
Trustee or Securityholders in the event such a lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
The Servicer on behalf of the Trustee, to the extent required by the
related Agreement, may take action to enforce the Trustee's security interest
with respect to Contracts in default by repossession and resale of the
Manufactured Homes securing such defaulted Contracts. So long as the
Manufactured Home has not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a Contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit so that the debtor may
redeem at or before such resale. In the event of such
75
<PAGE> 135
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the manufactured home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
The terms of the Relief Act apply to an obligor on a Contract as described
for a mortgagor on a Mortgage Loan under "Certain Legal Aspects of Mortgage
Loans -- Soldiers' and Sailors' Civil Relief Act of 1940."
CONSUMER PROTECTION LAWS
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
by the Trustee against such obligor. Numerous other federal and state consumer
protection laws impose requirements applicable to the origination and lending
pursuant to the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the related
Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to. Generally, it is expected that the
Servicer will permit most transfers of Manufactured Homes and not accelerate the
maturity of the related Contracts. In certain cases, the transfer may be made by
a delinquent obligor in order to avoid a repossession proceeding with respect to
a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St. Germain Depositary Institutions Act of 1982
preempts, subject to certain exceptions and conditions, state laws prohibiting
enforcement of "due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges
76
<PAGE> 136
and deferral fees and requiring a 30-day notice period prior to instituting any
action leading to repossession of or foreclosure with respect to the related
unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
The related Asset Seller will represent that all of the Contracts comply with
applicable usury law.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Securities offered hereunder. This discussion is directed solely to
Securityholders that hold the Securities as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as banks,
insurance companies and foreign investors) may be subject to special rules.
Further, the authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing interpretations, which could
apply retroactively. In addition to the federal income tax consequences
described herein, potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition of the
Securities. See "State and Other Tax Consequences." Securityholders are advised
to consult their own tax advisors concerning the federal, state, local or other
tax consequences to them of the purchase, ownership and disposition of the
Securities offered hereunder.
The following discussion addresses securities of four general types: (i)
securities ("REMIC Securities") representing interests in a Trust Fund, or a
portion thereof, that the Trustee will elect to have treated as a real estate
mortgage investment conduit ("REMIC") under Sections 860A through 860G (the
"REMIC Provisions") of the Code, (ii) securities ("Grantor Trust Securities")
representing interests in a Trust Fund ("Grantor Trust Fund") as to which no
such election will be made, (iii) securities ("Partnership Securities")
representing interests in a Trust Fund ("Partnership Trust Fund") which is
treated as a partnership for federal income tax purposes, and (iv) securities
("Debt Securities") representing indebtedness of a Partnership Trust Fund for
federal income tax purposes. The Prospectus Supplement for each series of
Securities will indicate which of the foregoing treatments will apply to such
series and, if a REMIC election (or elections) will be made for the related
Trust Fund, will identify all "regular interests" and "residual interests" in
the REMIC. For purposes of this tax discussion, (i) references to a
"Securityholder" or a "holder" are to the beneficial owner of a Security, (ii)
references to "REMIC Pool" are to an entity or portion thereof as to which a
REMIC election will be made and (iii) unless indicated otherwise in the
applicable Prospectus Supplement, references to "Mortgage Loans" include
Contracts and Government Securities. Except as set forth in the applicable
Prospectus Supplement, no REMIC election will be made with respect to Unsecured
Home Improvement Loans. The discussion below assumes that no election will be
made to treat the Trust Fund, or any portion thereof, as a financial asset
securitization investment trust (a "FASIT") under Sections 860H through 860L of
the Code. If a FASIT election is made for a particular series, the Prospectus
Supplement for that series will address the material federal income tax
consequences of such election.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271-1273 and 1275 of the Code and
in the Treasury regulations issued thereunder (the "OID Regulations"), and in
part upon the REMIC Provisions and the Treasury regulations issued thereunder
(the "REMIC Regulations"). The OID Regulations do not adequately address certain
issues relevant to, and in some instances provide that they are not applicable
to, securities such as the Securities.
77
<PAGE> 137
Taxable Mortgage Pools
Corporate income tax can be imposed on the net income of certain entities
issuing non-REMIC debt obligations secured by real estate mortgages ("Taxable
Mortgage Pools"). Any entity other than a REMIC, a FASIT or a REIT will be
considered a Taxable Mortgage Pool if (i) substantially all of the assets of the
entity consist of debt obligations and more than 50% of such obligations consist
of "real estate mortgages," (ii) such entity is the obligor under debt
obligations with two or more maturities, and (iii) under the terms of the debt
obligations on which the entity is the obligor, payments on such obligations
bear a relationship to payments on the obligations held by the entity.
Furthermore, a group of assets held by an entity can be treated as a separate
Taxable Mortgage Pool if the assets are expected to produce significant cash
flow that will support one or more of the entity's issues of debt obligations.
The Depositor generally will structure offerings of non-REMIC Securities to
avoid the application of the Taxable Mortgage Pool rules.
REMICS
Classification of REMICS
Upon the issuance of each series of REMIC Securities, Cadwalader,
Wickersham & Taft or Hunton & Williams, as special counsel to the Depositor,
will deliver its opinion to the Depositor generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the related Trust Fund (or each applicable portion thereof) will qualify as a
REMIC and the REMIC Securities offered with respect thereto will be considered
to evidence ownership of "regular interests" ("Regular Securities") or "residual
interests" ("Residual Securities") in that REMIC within the meaning of the REMIC
Provisions.
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a de minimis portion of the assets of the REMIC Pool, as of the close of
the third calendar month beginning after the "Startup Day" (which for purposes
of this discussion is the date of issuance of the REMIC Securities) and at all
times thereafter, may consist of assets other than "qualified mortgages" and
"permitted investments." The REMIC Regulations provide a safe harbor pursuant to
which the de minimis requirement will be met if at all times the aggregate
adjusted basis of the nonqualified assets is less than 1% of the aggregate
adjusted basis of all the REMIC Pool's assets. An entity that fails to meet the
safe harbor may nevertheless demonstrate that it holds no more than a de minimis
amount of nonqualified assets. A REMIC Pool also must provide "reasonable
arrangements" to prevent its residual interests from being held by "disqualified
organizations" or agents thereof and must furnish applicable tax information to
transferors or agents that violate this requirement. The Pooling and Servicing
Agreement with respect to each Series of REMIC Securities will contain
provisions meeting these requirements. See "Taxation of Owners of Residual
Securities -- Tax-Related Restrictions on Transfer of Residual
Securities -- Disqualified Organizations."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower-tier
regular interests in a tiered REMIC. The REMIC Regulations specify that loans
secured by timeshare interests, shares held by a tenant stockholder in a
cooperative housing corporation, and manufactured housing that qualifies as a
"single family residence" under Code section 25(e)(10) can be qualified
mortgages. A qualified mortgage includes a qualified replacement mortgage, which
is any property that would have been treated as a qualified mortgage if it were
transferred to the REMIC Pool on the Startup Day and that is received either (i)
in exchange for any qualified mortgage within a three-month period thereafter or
(ii) in exchange for a "defective obligation" within a two-year period
thereafter. A "defective obligation" includes (i) a mortgage in default or as to
which default is reasonably foreseeable, (ii) a mortgage as to which a customary
representation or warranty made at the time of transfer to the REMIC Pool has
been breached, (iii) a mortgage that was fraudulently procured by the mortgagor,
and (iv) a mortgage that was not in fact
78
<PAGE> 138
principally secured by real property (but only if such mortgage is disposed of
within 90 days of discovery). A Mortgage Loan that is "defective" as described
in clause (iv) that is not sold or, if within two years of the Startup Day,
exchanged, within 90 days of discovery, ceases to be a qualified mortgage after
such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or
residual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment
interest shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in such fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the Mortgage Loans
are received. Foreclosure property is real property acquired by the REMIC Pool
in connection with the default or imminent default of a qualified mortgage and
generally may not be held for more than two years unless extensions are granted
by the Secretary of the Treasury.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests or
(ii) a single class of residual interests on which distributions, if any, are
made pro rata. A regular interest is an interest in a REMIC Pool that is issued
on the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed rate
or a qualified variable rate, or consist of a specified, nonvarying portion of
the interest payments on qualified mortgages. Such a specified portion may
consist of a fixed number of basis points, a fixed percentage of the total
interest, or a qualified variable rate, inverse variable rate or difference
between two fixed or qualified variable rates on some or all of the qualified
mortgages. The specified principal amount of a regular interest that provides
for interest payments consisting of a specified, nonvarying portion of interest
payments on qualified mortgages may be zero. A residual interest is an interest
in a REMIC Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest. An interest in a REMIC Pool may
be treated as a regular interest even if payments of principal with respect to
such interest are subordinated to payments on other regular interests or the
residual interest in the REMIC Pool, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
thanreasonably expected returns on permitted investments, unanticipated expenses
incurred by the REMIC Pool or prepayment interest shortfalls. Accordingly, the
Regular Securities of a Series will constitute one or more classes of regular
interests, and the Residual Securities with respect to that Series will
constitute a single class of residual interests with respect to each REMIC Pool.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Securities may not be accorded
the status or given the tax treatment described below. Although the Code
authorizes the Treasury Department to issue regulations providing relief in the
event of an inadvertent termination of REMIC status, no such regulations have
been issued. Any such relief, moreover, may be accompanied by sanctions, such as
the imposition of a corporate tax on all or a portion of the Trust Fund's income
for the period in which the requirements for such status are not satisfied. The
Pooling and Servicing Agreement with respect to each REMIC Pool will include
provisions designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be terminated.
79
<PAGE> 139
Characterization of Investments in REMIC Securities
In general, the REMIC Securities will be treated as "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code and assets described in
Section 7701(a)(19)(C) of the Code in the same proportion that the assets of the
REMIC Pool underlying such Securities would be so treated. Moreover, if 95% or
more of the assets of the REMIC Pool qualify for either of the foregoing
treatments at all times during a calendar year, the REMIC Securities will
qualify for the corresponding status in their entirety for that calendar year.
If the assets of the REMIC Pool include Buydown Mortgage Loans, it is possible
that the percentage of such assets constituting "loans . . . secured by an
interest in real property which is . . . residential real property" for purposes
of Code Section 7701(a)(19)(C)(v) may be required to be reduced by the amount of
the related funds paid thereon (the "Buydown Funds"). Interest (including
original issue discount) on the Regular Securities and income allocated to the
class of Residual Securities will be interest described in Section 856(c)(3)(B)
of the Code to the extent that such Securities are treated as "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code. In addition, the
Regular Securities generally will be "qualified mortgages" within the meaning of
Section 860G(a)(3) of the Code if transferred to another REMIC on its Startup
Day in exchange for regular or residual interests therein. Effective September
1, 1997, Regular Securities held by a FASIT will qualify for treatment as
"permitted assets" within the meaning of Section 860L(c)(1)(G) of the Code. The
determination as to the percentage of the REMIC Pool's assets that constitute
assets described in the foregoing sections of the Code will be made with respect
to each calendar quarter based on the average adjusted basis of each category of
the assets held by the REMIC Pool during such calendar quarter. The REMIC will
report those determinations to Securityholders in the manner and at the times
required by applicable Treasury regulations. The Small Business Job Protection
Act of 1996 (the "SBJPA of 1996") repealed the reserve method of bad debts of
domestic building and loan associations and mutual savings banks, and thus has
eliminated the asset category of "qualifying real property loans" in former Code
Section 593(d) for taxable years beginning after December 31, 1995. The
requirements in the SBJPA of 1996 that such institutions must "recapture" a
portion of their existing bad debt reserves is suspended if a certain portion of
their assets are maintained in "residential loans" under Code Section
7701(a)(19)(C)(v), but only if such loans were made to acquire, construct or
improve the related real property and not for the purpose of refinancing.
However, no effort will be made to identify the portion of the Mortgage Loans of
any Series meeting this requirement, and no representation is made in this
regard.
The assets of the REMIC Pool will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Securities and
property acquired by foreclosure held pending sale, and may include amounts in
reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale and amounts in reserve accounts would be considered to be part of
the Mortgage Loans, or whether such assets (to the extent not invested in assets
described in the foregoing sections) otherwise would receive the same treatment
as the Mortgage Loans for purposes of all of the foregoing sections. The REMIC
Regulations do provide, however, that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for purposes of Section
856(c)(5)(A) of the Code. Furthermore, foreclosure property generally will
qualify as "real estate assets" under Section 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Securities, two or more separate elections may
be made to treat designated portions of the related Trust Fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
series of REMIC Securities, Cadwalader, Wickersham & Taft or Hunton & Williams
will deliver its opinion generally to the effect that, assuming compliance with
all provisions of the related Pooling and Servicing Agreement, the Tiered REMICs
will each qualify as a REMIC and the REMIC Securities issued by the Tiered
REMICs, respectively, will be considered to evidence ownership of Regular
Securities or Residual Securities in the related REMIC within the meaning of the
REMIC Provisions.
Solely for purposes of determining whether the REMIC Securities will be
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Securities is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
80
<PAGE> 140
Taxation of Owners of Regular Securities
General
In general, interest, original issue discount, and market discount on a
Regular Security will be treated as ordinary income to a holder of the Regular
Security (the "Regular Securityholder"), and principal payments on a Regular
Security will be treated as a return of capital to the extent of the Regular
Securityholder's basis in the Regular Security allocable thereto. Regular
Securityholders must use the accrual method of accounting with regard to Regular
Securities, regardless of the method of accounting otherwise used by such
Regular Securityholder.
Original Issue Discount
Accrual Securities will be, and other classes of Regular Securities may be,
issued with "original issue discount" within the meaning of Code Section
1273(a). Holders of any Class or Subclass of Regular Securities having original
issue discount generally must include original issue discount in ordinary income
for federal income tax purposes as it accrues, in accordance with a constant
yield method that takes into account the compounding of interest, in advance of
the receipt of the cash attributable to such income. The following discussion is
based in part on temporary and final Treasury regulations issued on February 2,
1994, as amended on June 14, 1996, (the "OID Regulations") under Code Section
1271 through 1273 and 1275 and in part on the provisions of the 1986 Act.
Regular Securityholders should be aware, however, that the OID Regulations do
not adequately address certain issues relevant to prepayable securities, such as
the Regular Securities. To the extent such issues are not addressed in such
regulations, the Seller intends to apply the methodology described in the
Conference Committee Report to the 1986 Act. No assurance can be provided that
the Internal Revenue Service will not take a different position as to those
matters not currently addressed by the OID Regulations. Moreover, the OID
Regulations include an anti-abuse rule allowing the Internal Revenue Service to
apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory provisions.
A tax result will not be considered unreasonable under the anti-abuse rule in
the absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion therein and the appropriate method for reporting interest and
original issue discount with respect to the Regular Securities.
Each Regular Security (except to the extent described below with respect to
a Regular Security on which principal is distributed in a single installment or
by lots of specified principal amounts upon the request of a Securityholder or
by random lot (a "Non-Pro Rata Security")) will be treated as a single
installment obligation for purposes of determining the original issue discount
includible in a Regular Securityholder's income. The total amount of original
issue discount on a Regular Security is the excess of the "stated redemption
price at maturity" of the Regular Security over its "issue price." The issue
price of a Class of Regular Securities offered pursuant to this Prospectus
generally is the first price at which a substantial amount of such Class is sold
to the public (excluding bond houses, brokers and underwriters). Although
unclear under the OID Regulations, it is anticipated that the Trustee will treat
the issue price of a Class as to which there is no substantial sale as of the
issue date or that is retained by the Depositor as the fair market value of the
Class as of the issue date. The issue price of a Regular Security also includes
any amount paid by an initial Regular Securityholder for accrued interest that
relates to a period prior to the issue date of the Regular Security, unless the
Regular Securityholder elects on its federal income tax return to exclude such
amount from the issue price and to recover it on the first Distribution Date.
The stated redemption price at maturity of a Regular Security always includes
the original principal amount of the Regular Security, but generally will not
include distributions of interest if such distributions constitute "qualified
stated interest." Under the OID Regulations, qualified stated interest generally
means interest payable at a single fixed rate or a qualified variable rate (as
described below), provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Regular
Security. Because there is no penalty or default remedy in the case of
nonpayment of interest with respect to a Regular Security, it is possible that
no interest on any Class of Regular Securities will be treated as qualified
stated interest. However, except as provided in the following three sentences or
in the applicable Prospectus Supplement, because the underlying Mortgage Loans
provide for remedies in the event of default, it is anticipated that the Trustee
will treat
81
<PAGE> 141
interest with respect to the Regular Securities as qualified stated interest.
Distributions of interest on an Accrual Security, or on other Regular Securities
with respect to which deferred interest will accrue, will not constitute
qualified stated interest, in which case the stated redemption price at maturity
of such Regular Securities includes all distributions of interest as well as
principal thereon. Likewise, it is anticipated that the Trustee will treat an
interest-only Class or a Class on which interest is substantially
disproportionate to its principal amount (a so-called "super-premium" Class) as
having no qualified stated interest. Where the interval between the issue date
and the first Distribution Date on a Regular Security is shorter than the
interval between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Security will
be considered to be zero if such original issue discount is less than 0.25% of
the stated redemption price at maturity of the Regular Security multiplied by
the weighted average maturity of the Regular Security. For this purpose, the
weighted average maturity of the Regular Security is computed as the sum of the
amounts determined by multiplying the number of full years (i.e., rounding down
partial years) from the issue date until each distribution in reduction of
stated redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Regular Security and the denominator of
which is the stated redemption price at maturity of the Regular Security. The
Conference Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans (the "Prepayment Assumption") and the
anticipated reinvestment rate, if any, relating to the Regular Securities. The
Prepayment Assumption with respect to a Series of Regular Securities will be set
forth in the applicable Prospectus Supplement. Holders generally must report de
minimis original issue discount pro rata as principal payments are received, and
such income will be capital gain if the Regular Security is held as a capital
asset. Under the OID Regulations, however, Regular Securityholders may elect to
accrue all de minimis original issue discount as well as market discount and
market premium, under the constant yield method. See "Election to Treat All
Interest Under the Constant Yield Method."
A Regular Securityholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Security accrued during an accrual period for each
day on which it holds the Regular Security, including the date of purchase but
excluding the date of disposition. The Trustee will treat the monthly period
ending on the day before each Distribution Date as the accrual period. With
respect to each Regular Security, a calculation will be made of the original
issue discount that accrues during each successive full accrual period (or
shorter period from the date of original issue) that ends on the day before the
related Distribution Date on the Regular Security. The Conference Committee
Report to the 1986 Act states that the rate of accrual of original issue
discount is intended to be based on the Prepayment Assumption. The original
issue discount accruing in a full accrual period would be the excess, if any, of
(i) the sum of (a) the present value of all of the remaining distributions to be
made on the Regular Security as of the end of that accrual period, and (b) the
distributions made on the Regular Security during the accrual period that are
included in the Regular Security's stated redemption price at maturity, over
(ii) the adjusted issue price of the Regular Security at the beginning of the
accrual period. The present value of the remaining distributions referred to in
the preceding sentence is calculated based on (i) the yield to maturity of the
Regular Security at the issue date, (ii) events (including actual prepayments)
that have occurred prior to the end of the accrual period, and (iii) the
Prepayment Assumption. For these purposes, the adjusted issue price of a Regular
Security at the beginning of any accrual period equals the issue price of the
Regular Security, increased by the aggregate amount of original issue discount
with respect to the Regular Security that accrued in all prior accrual periods
and reduced by the amount of distributions included in the Regular Security's
stated redemption price at maturity that were made on the Regular Security in
such prior periods. The original issue discount accruing during any accrual
period (as determined in this paragraph) will then be divided by the number of
days in the period to determine the daily portion of original issue discount for
each day in the period. With respect to an initial accrual period shorter than a
full accrual period, the daily portions of original issue discount must be
determined according to an appropriate allocation under any reasonable method.
82
<PAGE> 142
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Securityholder generally
will increase to take into account prepayments on the Regular Securities as a
result of prepayments on the Mortgage Loans that exceed the Prepayment
Assumption, and generally will decrease (but not below zero for any period) if
the prepayments are slower than the Prepayment Assumption. An increase in
prepayments on the Mortgage Loans with respect to a Series of Regular Securities
can result in both a change in the priority of principal payments with respect
to certain Classes of Regular Securities and either an increase or decrease in
the daily portions of original issue discount with respect to such Regular
Securities.
In the case of a Non-Pro Rata Security, it is anticipated that the Trustee
will determine the yield to maturity of such Security based upon the anticipated
payment characteristics of the Class as a whole under the Prepayment Assumption.
In general, the original issue discount accruing on each Non-Pro Rata Security
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of the
entire unpaid principal balance of any Non-Pro Rata Security (or portion of such
unpaid principal balance), (a) the remaining unaccrued original issue discount
allocable to such Security (or to such portion) will accrue at the time of such
distribution, and (b) the accrual of original issue discount allocable to each
remaining Security of such Class will be adjusted by reducing the present value
of the remaining payments on such Class and the adjusted issue price of such
Class to the extent attributable to the portion of the unpaid principal balance
thereof that was distributed. The Depositor believes that the foregoing
treatment is consistent with the "pro rata prepayment" rules of the OID
Regulations, but with the rate of accrual of original issue discount determined
based on the Prepayment Assumption for the Class as a whole. Investors are
advised to consult their tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Security having original issue discount at a price
greater than its adjusted issue price but less than its stated redemption price
at maturity will be required to include in gross income the daily portions of
the original issue discount on the Regular Security reduced pro rata by a
fraction, the numerator of which is the excess of its purchase price over such
adjusted issue price and the denominator of which is the excess of the remaining
stated redemption price at maturity over the adjusted issue price.
Alternatively, such a subsequent purchaser may elect to treat all such
acquisition premium under the constant yield method, as described below under
the heading "Election to Treat All Interest Under the Constant Yield Method."
Variable Rate Regular Securities
Regular Securities may provide for interest based on a variable rate. Under
the OID Regulations, interest is treated as payable at a variable rate if,
generally, (i) the issue price does not exceed the original principal balance by
more than a specified amount and (ii) the interest compounds or is payable at
least annually at current values of (a) one or more "qualified floating rates,"
(b) a single fixed rate and one or more qualified floating rates, (c) a single
"objective rate," or (d) a single fixed rate and a single objective rate that is
a "qualified inverse floating rate." A floating rate is a qualified floating
rate if variations can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds. A multiple of a qualified
floating rate is considered a qualified floating rate only if the rate is equal
to either (a) the product of a qualified floating rate and a fixed multiple that
is greater than 0.65 but not more than 1.35 or (b) the product of a qualified
floating rate and a fixed multiple that is greater that 0.65 but not more than
1.35, increased or decreased by a fixed rate. Such rate may also be subject to a
fixed cap or floor, or a cap or floor that is not reasonably expected as of the
issue date to affect the yield of the instrument significantly. An objective
rate is any rate (other than a qualified floating rate) that is determined using
a single fixed formula and that is based on objective financial or economic
information, provided that such information is not (i) within the control of the
issuer or a related party or (ii) unique to the circumstances of the issuer or a
related party. A qualified inverse floating rate is a rate equal to a fixed rate
minus a qualified floating rate that inversely reflects contemporaneous
variations in the cost of newly borrowed funds; an inverse floating rate that is
not a qualified inverse floating rate may nevertheless be an objective rate. A
Class of Regular Securities may be issued under
83
<PAGE> 143
this Prospectus that does not have a variable rate under the foregoing rules,
for example, a Class that bears different rates at different times during the
period it is outstanding such that it is considered significantly "front-loaded"
or "back-loaded" within the meaning of the OID Regulations. It is possible that
such a Class may be considered to bear "contingent interest" within the meaning
of the OID Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to Regular Securities.
However, if final regulations dealing with contingent interest with respect to
Regular Securities apply the same principles as the OID Regulations, such
regulations may lead to different timing of income inclusion that would be the
case under the OID Regulations. Furthermore, application of such principles
could lead to the characterization of gain on the sale of contingent interest
Regular Securities as ordinary income. Investors should consult their tax
advisors regarding the appropriate treatment of any Regular Security that does
not pay interest at a fixed rate or variable rate as described in this
paragraph.
Under the REMIC Regulations, a Regular Security (i) bearing interest at a
rate that qualifies as a variable rate under the OID Regulations that is tied to
current values of a variable rate (or the highest, lowest or average of two or
more variable rates, including a rate based on the average cost of funds of one
or more financial institutions), or a positive or negative multiple of such a
rate (plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such a
rate that is subject to one or more caps or floors, or (ii) bearing one or more
such variable rates for one or more periods, or one or more fixed rates for one
or more periods, and a different variable rate or fixed rate for other periods,
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable Prospectus Supplement, it is anticipated that the
Trustee will treat Regular Securities that qualify as regular interests under
this rule in the same manner as obligations bearing a variable rate for original
issue discount reporting purposes.
The amount of original issue discount with respect to a Regular Security
bearing a variable rate of interest will accrue in the manner described above
under "Original Issue Discount," with the yield to maturity and future payments
on such Regular Security generally to be determined by assuming that interest
will be payable for the life of the Regular Security based on the initial rate
(or, if different, the value of the applicable variable rate as of the pricing
date) for the relevant Class. Unless required otherwise by applicable final
regulations, it is anticipated that the Trustee will treat such variable
interest as qualified stated interest, other than variable interest on an
interest-only or super-premium Class or a Class bearing interest at a rate equal
to the weighted average of the net rates on the Mortgage Loans, which will be
treated as non-qualified stated interest includible in the stated redemption
price at maturity. Ordinary income reportable for any period will be adjusted
based on subsequent changes in the applicable interest rate index.
Market Discount
A subsequent purchaser of a Regular Security also may be subject to the
market discount rules of Code Sections 1276 through 1278. Under these sections
and the principles applied by the OID Regulations in the context of original
issue discount, "market discount" is the amount by which the purchaser's
original basis in the Regular Security (i) is exceeded by the remaining
outstanding principal payments and interest payments other than qualified stated
interest payments due on a Regular Security, or (ii) in the case of a Regular
Security having original issue discount, is exceeded by the adjusted issue price
of such Regular Security at the time of purchase. Such purchaser generally will
be required to recognize ordinary income to the extent of accrued market
discount on such Regular Security as distributions includible in the stated
redemption price at maturity thereof are received, in an amount not exceeding
any such distribution. Such market discount would accrue in a manner to be
provided in Treasury regulations and should take into account the Prepayment
Assumption. The Conference Committee Report to the 1986 Act provides that until
such regulations are issued, such market discount would accrue either (i) on the
basis of a constant interest rate, or (ii) in the ratio of stated interest
allocable to the relevant period to the sum of the interest for such period plus
the remaining interest as of the end of such period, or in the case of a Regular
Security issued with original issue discount, in the ratio of original issue
discount accrued for the relevant period to the sum of the original issue
discount accrued for such period plus the remaining original issue discount as
of the end of such period. Such purchaser also generally will be required to
treat a portion of any gain on a sale or exchange of the Regular Security as
84
<PAGE> 144
ordinary income to the extent of the market discount accrued to the date of
disposition under one of the foregoing methods, less any accrued market discount
previously reported as ordinary income as partial distributions in reduction of
the stated redemption price at maturity were received. Such purchaser will be
required to defer deduction of a portion of the excess of the interest paid or
accrued on indebtedness incurred to purchase or carry a Regular Security over
the interest distributable thereon. The deferred portion of such interest
expense in any taxable year generally will not exceed the accrued market
discount on the Regular Security for such year. Any such deferred interest
expense is, in general, allowed as a deduction not later than the year in which
the related market discount income is recognized or the Regular Security is
disposed of. As an alternative to the inclusion of market discount in income on
the foregoing basis, the Regular Securityholder may elect to include market
discount in income currently as it accrues on all market discount instruments
acquired by such Regular Securityholder in that taxable year or thereafter, in
which case the interest deferral rule will not apply. See "Election to Treat All
Interest Under the Constant Yield Method" below regarding an alternative manner
in which such election may be deemed to be made. A person who purchases a
Regular Security at a price lower than the remaining amounts includible in the
stated redemption price at maturity of the security, but higher than its
adjusted issue price, does not acquire the Regular Security with market
discount, but will be required to report original issue discount, appropriately
adjusted to reflect the excess of the price paid over the adjusted issue price.
Market discount with respect to a Regular Security will be considered to be
zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Security (or, in the case of a
Regular Security having original issue discount, the adjusted issue price of
such Regular Security) multiplied by the weighted average maturity of the
Regular Security (determined as described above in the third paragraph under
"Original Issue Discount") remaining after the date of purchase. It appears that
de minimis market discount would be reported in a manner similar to de minimis
original issue discount. See "Original Issue Discount" above.
Under provisions of the OID Regulations relating to contingent payment
obligations, a secondary purchaser of a Regular Security that has "contingent
interest" at a discount generally would continue to accrue interest and
determine adjustments on the Regular Security based on the original projected
payment schedule devised by the issuer of the Security. The holder of such a
Regular Security would be required, however, to allocate the difference between
the adjusted issue price of the Regular Security and its basis in the Regular
Security as positive adjustments to the accruals or projected payments on the
Regular Security over the remaining term of the Regular Security in a manner
that is reasonable (e.g., based on a constant yield to maturity).
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those rules.
Due to the substantial lack of regulatory guidance with respect to the market
discount rules, it is unclear how those rules will affect any secondary market
that develops for a given Class of Regular Securities. Prospective investors in
Regular Securities should consult their own tax advisors regarding the
application of the market discount rules to the Regular Securities. Investors
should also consult Revenue Procedure 92-67 concerning the elections to include
market discount in income currently and to accrue market discount on the basis
of the constant yield method.
Amortizable Premium
A Regular Security purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Securityholder holds such Regular Security as a "capital
asset" within the meaning of Code Section 1221, the Regular Securityholder may
elect under Code Section 171 to amortize such premium under a constant yield
method that reflects compounding based on the interval between payments on the
Regular Security. Such election will apply to all taxable debt obligations
(including REMIC regular interests) acquired by the Regular Securityholder at a
premium held in that taxable year or thereafter, unless revoked with the
permission of the Internal Revenue Service. The Conference Committee Report to
the 1986 Act indicates a Congressional intent that the same rules that apply to
the accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations such
as the Regular Securities, although it is unclear whether the
85
<PAGE> 145
alternatives to the constant interest method described above under "Market
Discount" are available. Amortizable bond premium generally will be treated as
an offset to interest income on a Regular Security, rather than as a separate
deductible item. See "Election to Treat All Interest Under the Constant Yield
Method" below regarding an alternative manner in which the Code Section 171
election may be deemed to be made.
Amortizable premium on a Regular Security that is subject to redemption at
the option of the issuer generally must be amortized as if the optional
redemption price and date were the Security's principal amount and maturity date
if doing so would result in a smaller amount of premium amortization during the
period ending with the optional redemption date. Thus, a holder of a Regular
Security would not be able to amortize any premium on a Regular Security that is
subject to optional redemption at a price equal to or greater than the
Securityholder's acquisition price unless and until the redemption option
expires. A Regular Security subject to redemption at the option of the issuer
described in the preceding sentence will be treated as having matured on the
redemption date for the redemption price and then as having been reissued on
that date for that price. Any premium remaining on the Regular Security at the
time of the deemed reissuance will be amortized on the basis of (i) the original
principal amount and maturity date or (ii) the price and date of any succeeding
optional redemption, under the principles described above.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Security may elect to treat
all interest that accrues on the instrument using the constant yield method,
with none of the interest being treated as qualified stated interest. For
purposes of applying the constant yield method to a debt instrument subject to
such an election, (i) "interest" includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial Prepayment Assumption would continue to apply or if a new prepayment
assumption as of the date of the holder's acquisition would apply. A holder
generally may make such an election on an instrument by instrument basis or for
a class or group of debt instruments. However, if the holder makes such an
election with respect to a debt instrument with amortizable bond premium or with
market discount, the holder is deemed to have made elections to amortize bond
premium or to report market discount income currently as it accrues under the
constant yield method, respectively, for all premium bonds held or market
discount bonds acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the
approval of the Internal Revenue Service. Investors should consult their own tax
advisors regarding the advisability of making such an election.
Treatment of Losses
Regular Securityholders will be required to report income with respect to
Regular Securities on the accrual method of accounting, without giving effect to
delays or reductions in distributions attributable to defaults or delinquencies
on the Mortgage Loans, except to the extent it can be established that such
losses are uncollectible. Accordingly, the holder of a Regular Security,
particularly a Subordinate Security, may have income, or may incur a diminution
in cash flow as a result of a default or delinquency, but may not be able to
take a deduction (subject to the discussion below) for the corresponding loss
until a subsequent taxable year. In this regard, investors are cautioned that
while they may generally cease to accrue interest income if it reasonably
appears that the interest will be uncollectible, the Internal Revenue Service
may take the position that original issue discount must continue to be accrued
in spite of its uncollectibility until the debt instrument is disposed of in a
taxable transaction or becomes worthless in accordance with the rules of Code
Section 166. To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that Regular Securityholders that are corporations or
that otherwise hold the Regular Securities in connection with a trade or
business should in general be allowed to deduct as an ordinary loss such loss
with respect to principal sustained during the taxable year on account of any
such Regular Securities becoming wholly or partially
86
<PAGE> 146
worthless, and that, in general, Regular Securityholders that are not
corporations and do not hold the Regular Securities in connection with a trade
or business should be allowed to deduct as a short-term capital loss any loss
sustained during the taxable year on account of a portion of any such Regular
Securities becoming wholly worthless. Although the matter is not free from
doubt, such non-corporate Regular Securityholders should be allowed a bad debt
deduction at such time as the principal balance of such Regular Securities is
reduced to reflect losses resulting from any liquidated Mortgage Loans. The
Internal Revenue Service, however, could take the position that non-corporate
holders will be allowed a bad debt deduction to reflect such losses only after
all the Mortgage Loans remaining in the Trust Estate have been liquidated or the
applicable Class of Regular Securities has been otherwise retired. The Internal
Revenue Service could also assert that losses on the Regular Securities are
deductible based on some other method that may defer such deductions for all
holders, such as reducing future cashflow for purposes of computing original
issue discount. This may have the effect of creating "negative" original issue
discount which would be deductible only against future positive original issue
discount or otherwise upon termination of the Class. Regular Securityholders are
urged to consult their own tax advisors regarding the appropriate timing, amount
and character of any loss sustained with respect to such Regular Securities.
While losses attributable to interest previously reported as income should be
deductible as ordinary losses by both corporate and non-corporate holders, the
Internal Revenue Service may take the position that losses attributable to
accrued original issue discount may only be deducted as capital losses in the
case of non-corporate holders who do not hold the Regular Securities in
connection with a trade or business. Special loss rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts. Such
taxpayers are advised to consult their tax advisors regarding the treatment of
losses on Regular Securities.
Sale or Exchange of Regular Securities
If a Regular Securityholder sells or exchanges a Regular Security, the
Regular Securityholder will recognize gain or loss equal to the difference, if
any, between the amount received and its adjusted basis in the Regular Security.
The adjusted basis of a Regular Security generally will equal the original cost
of the Regular Security to the seller, increased by any original issue discount
or market discount previously included in the seller's gross income with respect
to the Regular Security and reduced by amounts included in the stated redemption
price at maturity of the Regular Security that were previously received by the
seller, by any amortized premium, and by any recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Security realized by an investor who holds the Regular Security as a
capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Security has been held for the long-term
capital gain holding period (currently, more than one year). Such gain will be
treated as ordinary income (i) if a Regular Security is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount of
interest that would have accrued on the Regular Securityholder's net investment
in the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates, or (iii) to the extent that such gain does not exceed the
excess, if any, of (a) the amount that would have been includible in the gross
income of the holder if its yield on such Regular Security were 110% of the
applicable Federal rate as of the date of purchase, over (b) the amount of
income actually includible in the gross income of such holder with respect to
such Regular Security. In addition, gain or loss recognized from the sale of a
Regular Security by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). Capital gains of
certain noncorporate taxpayers are subject to a lower maximum tax rate than
ordinary income of such taxpayers. Currently, the maximum tax rate for
corporations is the same with respect to both ordinary income and capital gains.
87
<PAGE> 147
Taxation of Owners of Residual Securities
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable income
of holders of Residual Securities ("Residual Holders"), and will not be taxed
separately to the REMIC Pool. The daily portions of REMIC taxable income or net
loss of a Residual Holder are determined by allocating the REMIC Pool's taxable
income or net loss for each calendar quarterratably to each day in such quarter
and by allocating such daily portion among the Residual Holders in proportion to
their respective holdings of Residual Securities in the REMIC Pool on such day.
REMIC taxable income is generally determined in the same manner as the taxable
income of an individual using the accrual method of accounting, except that (i)
the limitations on deductibility of investment interest expense and expenses for
the production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC Pool's gross
income includes interest, original issue discount income and market discount
income, if any, on the Mortgage Loans, reduced by amortization of any premium on
the Mortgage Loans, plus income from amortization of issue premium, if any, on
the Regular Securities, plus income on reinvestment of cash flows and reserve
assets, plus any cancellation of indebtedness income upon allocation of realized
losses to the Regular Securities. The REMIC Pool's deductions include interest
and original issue discount expense on the Regular Securities, servicing fees on
the Mortgage Loans, other administrative expenses of the REMIC Pool and realized
losses on the Mortgage Loans. The requirement that Residual Holders report their
pro rata share of taxable income or net loss of the REMIC Pool will continue
until there are no Securities of any class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest, original issue discount or market discount income or
amortization of premium with respect to the Mortgage Loans, on the one hand, and
the timing of deductions for interest (including original issue discount) or
income from amortization of issue premium on the Regular Securities, on the
other hand. In the event that an interest in the Mortgage Loans is acquired by
the REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the prepayment may be used in whole or in part to make distributions in
reduction of principal on the Regular Securities, and (ii) the discount on the
Mortgage Loans which is includible in income may exceed the deduction allowed
upon such distributions on those Regular Securities on account of any unaccrued
original issue discount relating to those Regular Securities. When there is more
than one Class of Regular Securities that distribute principal sequentially,
this mismatching of income and deductions is particularly likely to occur in the
early years following issuance of the Regular Securities when distributions in
reduction of principal are being made in respect of earlier Classes of Regular
Securities to the extent that such Classes are not issued with substantial
discount or are issued at a premium. If taxable income attributable to such a
mismatching is realized, in general, losses would be allowed in later years as
distributions on the later maturing Classes of Regular Securities are made.
Taxable income may also be greater in earlier years than in later years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of such a Series of Regular Securities, may
increase over time as distributions in reduction of principal are made on the
lower yielding Classes of Regular Securities, whereas, to the extent the REMIC
Pool consists of fixed rate Mortgage Loans, interest income with respect to any
given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual Holders must
have sufficient other sources of cash to pay any federal, state, or local income
taxes due as a result of such mismatching or unrelated deductions against which
to offset such income, subject to the discussion of "excess inclusions" below
under "-- Limitations on Offset or Exemption of REMIC Income." The timing of
such mismatching of income and deductions described in this paragraph, if
present with respect to a Series of Securities, may have a significant adverse
effect upon a Residual Holder's after-tax rate of return.
A portion of the income of a Residual Securityholder may be treated
unfavorably in three contexts: (i) it may not be offset by current or net
operating loss deductions; (ii) it will be considered unrelated business taxable
income to tax-exempt entities; and (iii) it is ineligible for any statutory or
treaty reduction in the 30% withholding tax otherwise available to a foreign
Residual Securityholder. See "--Limitations on Offset or
88
<PAGE> 148
Exemption of REMIC Income" below. In addition, a Residual Holder's taxable
income during certain periods may exceed the income reflected by such Residual
Holders for such periods in accordance with generally accepted accounting
principles. Investors should consult their own accountants concerning the
accounting treatment of their investment in Residual Securities.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual Security
as of the close of the quarter (or time of disposition of the Residual Security
if earlier), determined without taking into account the net loss for the
quarter. The initial adjusted basis of a purchaser of a Residual Security is the
amount paid for such Residual Security. Such adjusted basis will be increased by
the amount of taxable income of the REMIC Pool reportable by the Residual Holder
and will be decreased (but not below zero), first, by a cash distribution from
the REMIC Pool and, second, by the amount of loss of the REMIC Pool reportable
by the Residual Holder. Any loss that is disallowed on account of this
limitation may be carried over indefinitely with respect to the Residual Holder
as to whom such loss was disallowed and may be used by such Residual Holder only
to offset any income generated by the same REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of
its Residual Security as an offset to its share of the taxable income of the
related REMIC Pool. However, the taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. Although the law is unclear in certain respects, such recovery of basis
by the REMIC Pool will have the effect of amortization of the issue price of the
Residual Securities over their life. However, in view of the possible
acceleration of the income of Residual Holders described above under "Taxation
of REMIC Income," the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Securities.
A Residual Security may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash flows.
The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Internal Revenue Service may provide future guidance on the
proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and Residual Holders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Security is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless future Treasury regulations provide for periodic
adjustments to the REMIC income otherwise reportable by such holder. The REMIC
Regulations currently in effect do not so provide. See "--Treatment of Certain
Items of REMIC Income and Expense--Market Discount" below regarding the basis of
Mortgage Loans to the REMIC Pool and "Sale or Exchange of a Residual Security"
below regarding possible treatment of a loss upon termination of the REMIC Pool
as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although it is anticipated that the Trustee will compute REMIC income and
expense in accordance with the Code and applicable regulations, the authorities
regarding the determination of specific items of income and expense are subject
to differing interpretations. The Depositor makes no representation as to the
specific method that will be used for reporting income with respect to the
Mortgage Loans and expenses with respect to the Regular Securities, and
different methods could result in different timing or reporting of taxable
income or net loss to Residual Holders or differences in capital gain versus
ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of premium
will be determined in the same manner as original issue discount income on
Regular Securities as described above under "Taxation of Owners of Regular
Securi-
89
<PAGE> 149
ties -- Original Issue Discount" and "-- Variable Rate Regular Securities,"
without regard to the de minimis rule described therein, and "-- Premium."
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool in such
Mortgage Loans is exceeded by their unpaid principal balances. The REMIC Pool's
basis in such Mortgage Loans is generally the fair market value of the Mortgage
Loans immediately after the transfer thereof to the REMIC Pool. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. The accrued
portion of such market discount would be recognized currently as an item of
ordinary income in a manner similar to original issue discount. Market discount
income generally should accrue in the manner described above under "Taxation of
Owners of Regular Securities -- Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be considered
to have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Owners of Regular Securities -- Premium," a person that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect under
Code Section 171 to amortize premium on Mortgage Loans originated after
September 27, 1985 under the constant yield method. Amortizable bond premium
will be treated as an offset to interest income on the Mortgage Loans, rather
than as a separate deduction item. Because substantially all of the mortgagors
on the Mortgage Loans are expected to be individuals, Code Section 171 will not
be available for premium on Mortgage Loans originated on or prior to September
27, 1985. Premium with respect to such Mortgage Loans may be deductible in
accordance with a reasonable method regularly employed by the holder thereof.
The allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Internal Revenue Service may argue
that such premium should be allocated in a different manner, such as allocating
such premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in determining
the federal income tax liability of a Residual Holder will be subject to special
treatment. That portion, referred to as the "excess inclusion," is equal to the
excess of REMIC taxable income for the calendar quarter allocable to a Residual
Security over the daily accruals for such quarterly period of (i) 120% of the
long-term applicable Federal rate that would have applied to the Residual
Security (if it were a debt instrument) on the Startup Day under Code Section
1274(d), multiplied by (ii) the adjusted issue price of such Residual Security
at the beginning of such quarterly period. For this purpose, the adjusted issue
price of a Residual Security at the beginning of a quarter is the issue price of
the Residual Security, plus the amount of such daily accruals of REMIC income
described in this paragraph for all prior quarters, decreased by any
distributions made with respect to such Residual Security prior to the beginning
of such quarterly period. Accordingly, the portion of the REMIC Pool's taxable
income that will be treated as excess inclusions will be a larger portion of
such income as the adjusted issue price of the Residual Securities diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions, including net
operating loss carryforwards, on such Residual Holder's return. However, net
operating loss carryovers are determined without regard to excess inclusion
income. Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual Holder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Holder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who are
not U.S. Persons (as defined below under "Tax-Related Restrictions on Transfer
of Residual Securities -- Foreign Investors"), and the portion thereof
attributable to excess inclusions is not eligible for any reduction in the rate
of withholding tax (by treaty or otherwise). See "Taxation of Certain Foreign
Investors -- Residual Securities" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Security, a portion
(allocated
90
<PAGE> 150
under Treasury regulations yet to be issued) of dividends paid by the real
estate investment trust or regulated investment company could not be offset by
net operating losses of its shareholders, would constitute unrelated business
taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The SBJPA
of 1996 has eliminated the special rule permitting Section 593 institutions
("thrift institutions") to use net operating losses and other allowable
deductions to offset their excess inclusion income from Residual Securities that
have "significant value" within the meaning of the REMIC Regulations, effective
for taxable years beginning after December 31, 1995, except with respect to
Residual Securities continuously held by a thrift institution since November 1,
1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual Holder
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Holder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Securities
Disqualified Organizations. If any legal or beneficial interest in a
Residual Security is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Security for periods after the transfer and (ii) the highest marginal
federal income tax rate applicable to corporations. The REMIC Regulations
provide that the anticipated excess inclusions are based on actual prepayment
experience to the date of the transfer and projected payments based on the
Prepayment Assumption. The present value rate equals the applicable Federal rate
under Code Section 1274(d) as of the date of the transfer for a term ending with
the last calendar quarter in which excess inclusions are expected to accrue.
Such rate is applied to the anticipated excess inclusions from the end of the
remaining calendar quarters in which they arise to the date of the transfer.
Such a tax generally would be imposed on the transferor of the Residual
Security, except that where such transfer is through an agent (including a
broker, nominee, or other middleman) for a Disqualified Organization, the tax
would instead be imposed on such agent. However, a transferor of a Residual
Security would in no event be liable for such tax with respect to a transfer if
the transferee furnished to the transferor an affidavit stating that the
transferee is not a Disqualified Organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. The tax also may be waived by the Internal Revenue Service if the
Disqualified Organization promptly disposes of the Residual Security and the
transferor pays income tax at the highest corporate rate on the excess inclusion
for the period the Residual Security is actually held by the Disqualified
Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Security during a taxable year and a
Disqualified Organization is the record holder of an equity interest in such
entity, then a tax is imposed on such entity equal to the product of (i) the
amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that it is not
a Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the record holder of the Residual
Security, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors in
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service or persons in rural
areas as
91
<PAGE> 151
described in Code Section 1381(a)(2)(C), and any organization (other than a
farmers' cooperative described in Code Section 531) that is exempt from taxation
under the Code unless such organization is subject to the tax on unrelated
business income imposed by Code Section 511, and (ii) "Pass-Through Entity"
means any regulated investment company, real estate investment trust, common
trust fund, partnership, trust or estate and certain corporations operating on a
cooperative basis. Except as may be provided in Treasury regulations, any person
holding an interest in a Pass-Through Entity as a nominee for another will, with
respect to such interest, be treated as a Pass-Through Entity.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Security may be transferred
or registered unless (i) the proposed transferee furnished to the transferor and
the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual Security
and is not a Disqualified Organization and is not purchasing such Residual
Security on behalf of a Disqualified Organization (i.e., as a broker, nominee or
middleman thereof) and (ii) the transferor provides a statement in writing to
the Trustee that it has no actual knowledge that such affidavit is false.
Moreover, the Pooling and Servicing Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Each Residual Security
with respect to a Series will bear a legend referring to such restrictions on
transfer, and each Residual Holder will be deemed to have agreed, as a condition
of ownership thereof, to any amendments to the related Pooling and Servicing
Agreement required under the Code or applicable Treasury regulations to
effectuate the foregoing restrictions. Information necessary to compute an
applicable excise tax must be furnished to the Internal Revenue Service and to
the requesting party within 60 days of the request, and the Seller or the
Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Securities, in which case the transferor would
continue to be treated as the owner of the Residual Securities and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Holder (other than a Residual Holder
who is not a U.S. Person as defined below under "Foreign Investors") is
disregarded to all federal income tax purposes if a significant purpose of the
transfer is to impede the assessment or collection of tax. A residual interest
in a REMIC (including a residual interest with a positive value at issuance) is
a "noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes on each excess inclusion. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "Disqualified Organizations." The REMIC Regulations explain
that a significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts as
they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the non-economic residual
interest, the transferee may incur liabilities in excess of any cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pooling
and Servicing Agreement with respect to each Series of Certificates will require
the transferee of a Residual Security to certify to the matters in the preceding
sentence as part of the affidavit described above under the heading
"Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Security that has "tax avoidance potential" to a "foreign person" will
be disregarded for all federal tax purposes. This rule appears intended to apply
to a transferee who is not a "U.S. Person" (as defined below), unless such
92
<PAGE> 152
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Security is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Security back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The Prospectus Supplement relating to the Certificates of a Series may
provide that a Residual Security may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizens 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, an estate that is subject to
U.S. federal income tax regardless of the source of its income, or a trust if
(A) for taxable years beginning after December 31, 1996 (or for taxable years
ending after August 20, 1996, if the trustee has made an applicable election), a
court within the United States is able to exercise primary supervision over the
administration of such trust, and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust, or (B) for all
other taxable years, such trust is subject to U.S. federal income tax regardless
of the source of its income.
Sale or Exchange of a Residual Security
Upon the sale or exchange of a Residual Security, the Residual Holder will
recognize gain or loss equal to the excess, if any, of the amount realized over
the adjusted basis (as described above under "Taxation of Owners of Residual
Securities -- Basis and Losses") of such Residual Holder in such Residual
Security at the time of the sale or exchange. In addition to reporting the
taxable income of the REMIC Pool, a Residual Holder will have taxable income to
the extent that any cash distribution to it from the REMIC Pool exceeds such
adjusted basis on that Distribution Date. Such income will be treated as gain
from the sale or exchange of the Residual Holder's Residual Security, in which
case, if the Residual Holder has an adjusted basis in its Residual Security
remaining when its interest in the REMIC Pool terminates, and if it holds such
Residual Security as a capital asset under Code Section 1221, then it will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
Any gain on the sale of a Residual Security will be treated as ordinary
income (i) if a Residual Security is held as part of a "conversion transaction"
as defined in Code Section 1258(c), up to the amount of interest that would have
accrued on the Residual Holder's net investment in the conversion transaction at
120% of the appropriate applicable Federal rate in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as a part of such transaction or (ii) in the case of a non-corporate taxpayer,
to the extent such taxpayer has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary income rates. In
addition, gain or loss recognized from the sale of a Residual Security by
certain banks or thrift institutions will be treated as ordinary income or loss
pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Securities where the seller
of the Residual Security, during the period beginning six months before the sale
or disposition of the Residual Security and ending six months after such sale or
disposition, acquires (or enters into any other transaction that results in the
application of Code Section 1091) any residual interest in any REMIC or any
interest in a "taxable mortgage pool" (such as a non-REMIC owner trust) that is
economically comparable to a Residual Security.
93
<PAGE> 153
Mark to Market Regulations
On December 24, 1996, the Internal Revenue Service issued final regulations
(the "Mark to Market Regulations") under Code Section 475 relating to the
requirement that a securities dealer mark to market securities held for sale to
customers. This mark-to-market requirement applies to all securities of a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Mark to Market Regulations provide that,
for purposes of this mark to market requirement, a Residual Security is not
treated as a security and thus may not be marked to market. The Mark to Market
Regulations apply to all Residual Securities acquired on or after January 4,
1995.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions
Income from certain transaction by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC Pool at a 100% rate. Prohibited transactions generally
include (i) the disposition of a qualified mortgages other than for (a)
substitution within two years of the Startup Day for a defective (including a
defaulted) obligation (or repurchase in lieu of substitution of a defective
(including a defaulted) obligation at any time) or for any qualified mortgage
within three months of the Startup Day, (b) foreclosure, default, or imminent
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC Pool,
or (d) a qualified (complete) liquidation, (ii) the receipt of income from
assets that are not the type of mortgages or investments that the REMIC Pool is
permitted to hold, (iii) the receipt of compensation for services, or (iv) the
receipt of gain from disposition of cash flow investments other than pursuant to
a qualified liquidation. Notwithstanding (i) and (iv), it is not a prohibited
transaction to sell a qualified mortgage or cash flow investment held by a REMIC
Pool to prevent a default on Regular Securities as a result of a default on
qualified mortgages or to facilitate a clean-up call (generally, an optional
termination to save administrative costs when no more than a small percentage of
the Securities is outstanding). The REMIC Regulations indicate that the
modification of a Mortgage Loan generally will not be treated as a disposition
if it is occasioned by a default or reasonably foreseeable default, an
assumption of the Mortgage Loan, the waiver of a due-on-sale or
due-on-encumbrance clause, or the conversion of an interest rate by a mortgagor
pursuant to the terms of a convertible adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund by
a Residual Holder, (iii) in the nature of a guarantee, (iv) made to facilitate a
qualified liquidation or clean-up call, and (v) as otherwise permitted in
Treasury regulations yet to be issued. It is not anticipated that there will be
any contributions to the REMIC Pool after the Startup Day.
Net Income from Foreclosure Property
The REMIC Pool will be subject of federal income tax at the highest
corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period of two years, with possible extensions. Net
income from foreclosure property generally means gain from the sale of a
foreclosure property that is inventory property and gross income from
foreclosure property other than qualifying rents and other qualifying income for
a real estate investment trust. It is not anticipated that the REMIC Pool will
have any taxable net income from foreclosure property.
Liquidation of the REMIC Pool
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a
94
<PAGE> 154
date on which such adoption is deemed to occur, and sells all of its assets
(other than cash) within a 90-day period beginning on such date, the REMIC Pool
will not be subject to the prohibited transaction rules on the sale of its
assets, provided that the REMIC Pool credits or distributes in liquidation all
of the sale proceeds plus its cash (other than amounts retained to meet claims)
to holders of Regular Securities and Residual Holders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes in
a manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury regulations
provide that, except where there is a single Residual Holder for an entire
taxable year, the REMIC Pool will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the Internal Revenue Service of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit in a unified
administrative proceeding. The Master Servicer will be obligated to act as "tax
matters person," as defined in applicable Treasury regulations, with respect to
the REMIC Pool as agent of the Residual Holders holding the largest percentage
interest in the Residual Securities. If the Code or applicable Treasury
regulations do not permit the Master Servicer to act as tax matters person in
its capacity as agent of such Residual Holder, such Residual Holder or such
other person specified pursuant to Treasury regulations will be required to act
as tax matters person. The tax matters person generally has responsibility for
overseeing and providing notice to the other Residual Holders of certain
administrative and judicial proceedings regarding the REMIC Pool's tax affairs,
although other holders of the Residual Securities of the same series would be
able to participate in such proceedings in appropriate circumstances.
Limitations on Deduction of Certain Expenses
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser or (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (subject to adjustment for inflation), or
(ii) 80% of the amount of itemized deductions otherwise allowable for such year.
In the case of a REMIC Pool, such deductions may include deductions under Code
Section 212 for the Servicing Fee and all administrative and other expenses
relating to the REMIC Pool, or any similar expenses allocated to the REMIC Pool
with respect to a regular interest it holds in another REMIC. Such investors who
hold REMIC Securities either directly or indirectly through certain pass-through
entities may have their pro rata share of such expenses allocated to them as
additional gross income, but may be subject to such limitation on deductions. In
addition, such expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Temporary Treasury regulations provide
that the additional gross income and corresponding amount of expenses generally
are to be allocated entirely to the holders of Residual Securities in the case
of a REMIC Pool that would not qualify as a fixed investment trust in the
absence of a REMIC election. With respect to a REMIC Pool that would be
classified as an investment trust in the absence of a REMIC election or that is
substantially similar to an investment trust, any holder of a Regular Security
that is an individual, trust, estate, or pass-through entity also will be
allocated its pro rata share of such expenses and a corresponding amount of
income and will be subject to the limitations or deductions imposed by Code
Sections 67 and 68, as described above. Unless indicated otherwise in the
applicable Prospectus Supplement, all such expenses will be allocable to the
Residual Securities. In general, such allocable portion will be determined based
on the ratio that a REMIC Securityholder's income, determined on a daily basis,
bears to the income of all holders of Regular Securities and Residual Securities
with respect to a REMIC Pool. As a result, individuals, estates or trusts
holding REMIC Securities (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC, or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in
95
<PAGE> 155
excess of the interest income at the pass-through rate on Regular Securities
that are issued in a single class or otherwise consistently with fixed
investment trust status or in excess of cash distributions for the related
period on Residual Securities.
Taxation of Certain Foreign Investors
Regular Securities
Interest, including original issue discount, distributable to Regular
Securityholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), generally will be considered "portfolio
interest" and, therefore, generally will not be subject to 30% United States
withholding tax, provided that (i) such interest is not effectively connected
with the conduct of a trade or business in the United States of the
Securityholder, (ii) such Non-U.S. Person is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (iii) such Non-U.S.
Person provides the Trustee, or the person who would otherwise be required to
withhold tax from such distributions under Code Section 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the Regular Security is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless reduced
or eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Security is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning a Regular
Security. The term "Non-U.S. Person" means any person who is not a U.S. Person.
Residual Securities
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons generally should be treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amount distributed to
Residual Holders may qualify as "portfolio interest," subject to the conditions
described in "Regular Securities" above, but only to the extent that (i) the
Mortgage Loans were issued after July 18, 1984 and (ii) the Trust Estate or
segregated pool of assets therein (as to which a separate REMIC election will be
made), to which the Residual Security relates, consists of obligations issued in
"registered form" within the meaning of Code Section 163(f)(1). Generally,
Mortgage Loans will not be, but regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, Residual Holders
will not be entitled to any exemption from the 30% withholding tax (or lower
treaty rate) to the extent of that portion of REMIC taxable income that
constitutes an "excess inclusion." See "Taxation of Owners of Residual
Securities -- Limitations on Offset or Exemption of REMIC Income." If the
amounts paid to Residual Holders who are Non-U.S. Persons are effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Persons, 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such Non-U.S. Persons will be subject to United
States federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts generally will be taken into account for
purposes of withholding only when paid or otherwise distributed (or when the
Residual Security is disposed of) under rules similar to withholding upon
disposition of debt instruments that have original issue discount. See
"Tax-Related Restrictions on Transfer of Residual Securities -- Foreign
Investors" above concerning the disregard of certain transfers having "tax
avoidance potential." Investors who are Non-U.S. Persons should consult their
own tax advisors regarding the specific tax consequences to them of owning
Residual Securities.
Backup Withholding
Distributions made on the Regular Securities, and proceeds from the sale of
the Regular Securities to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable payments"
(including interest distributions, original issue discount, and, under certain
circumstances, principal distributions) unless the Regular Holder complies with
certain reporting and/or certification
96
<PAGE> 156
procedures, including the provision of its taxpayer identification number to the
Trustee, its agent or the broker who effected the sale of the Regular Security,
or such Holder is otherwise an exempt recipient under applicable provisions of
the Code. Any amounts to be withheld from distribution on the Regular Securities
would be refunded by the Internal Revenue Service or allowed as a credit against
the Regular Holder's federal income tax liability.
Reporting Requirements
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to the
Internal Revenue Service and to individuals, estates, non-exempt and
non-charitable trusts, and partnerships who are either holders of record of
Regular Securities or beneficial owners who own Regular Securities through a
broker or middleman as nominee. All brokers, nominees and all other non-exempt
holders of record of Regular Securities (including corporations, non-calendar
year taxpayers, securities or commodities dealers, real estate investment
trusts, investment companies, common trust funds, thrift institutions and
charitable trusts) may request such information for any calendar quarter by
telephone or in writing by contacting the person designated in Internal Revenue
Service Publication 938 with respect to a particular Series of Regular
Securities. Holders through nominees must request such information from the
nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence).Treasury
regulations require that, in addition to the foregoing requirements, information
must be furnished quarterly to Residual Holders, furnished annually, if
applicable, to holders of Regular Securities, and filed annually with the
Internal Revenue Service concerning Code Section 67 expenses (see "Limitations
on Deduction of Certain Expenses" above) allocable to such holders. Furthermore,
under such regulations, information must be furnished quarterly to Residual
Holders, furnished annually to holders of Regular Securities, and filed annually
with the Internal Revenue Service concerning the percentage of the REMIC Pool's
assets meeting the qualified asset tests described above under "Characterization
of Investments in REMIC Securities."
Residual Holders should be aware that their responsibilities as holders of
the residual interest in a REMIC Pool, including the duty to account for their
shares of the REMIC Pool's income or loss on their returns, continue for the
life of the REMIC Pool, even after the principal and interest on their Residual
Securities have been paid in full.
Treasury regulations provide that a Residual Holder is not required to
treat items on its return consistently with their treatment on the REMIC Pool's
return if the Holder owns 100% of the Residual Securities for the entire
calendar year. Otherwise, each Residual Holder is required to treat items on its
returns consistently with their treatment on the REMIC Pool's return, unless the
Holder either files a statement identifying the inconsistency or establishes
that the inconsistency resulted from incorrect information received from the
REMIC Pool. The Internal Revenue Service may assess a deficiency resulting from
a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC Pool level. A REMIC Pool typically will
not register as a tax shelter pursuant to Code section 6111 because it generally
will not have a net loss for any of the first five taxable years of its
existence. Any person that holds a Residual Security as a nominee for another
person may be required to furnish the related REMIC Pool, in a manner to be
provided in Treasury regulations, with the name and address of such person and
other specified information.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds
With respect to each series of Grantor Trust Securities, Cadwalader,
Wickersham & Taft or Hunton & Williams will deliver its opinion to the Depositor
to the effect that, assuming compliance with all provisions of
97
<PAGE> 157
the related Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership, an association taxable as a corporation, or a "taxable mortgage
pool" within the meaning of Code Section 7701(i). Accordingly, each holder of a
Grantor Trust Security generally will be treated as the beneficial owner of an
undivided interest in the Mortgage Loans included in the Grantor Trust Fund.
STANDARD SECURITIES
General
Where there is no Retained Interest or "excess" servicing with respect to
the Mortgage Loans underlying the Securities of a Series, and where such
Securities are not designated as "Stripped Securities," the holder of each such
Security in such Series (referred to herein as "Standard Securities") will be
treated as the owner of a pro rata undivided interest in the ordinary income and
corpus portions of the Grantor Trust Fund represented by its Standard Security
and will be considered the beneficial owner of a pro rata undivided interest in
each of the Mortgage Loans, subject to the discussion below under
"Recharacterization of Servicing Fees." Accordingly, the holder of a Standard
Security of a particular Series will be required to report on its federal income
tax return its pro rata share of the entire income from the Mortgage Loans
represented by its Standard Security, including interest at the coupon rate on
such Mortgage Loans, original issue discount (if any), prepayment fees,
assumption fees, and late payment charges received by the Servicer, in
accordance with such Securityholder's method of accounting. A Securityholder
generally will be able to deduct its share of the Servicing Fee and all
administrative and other expenses of the Trust Estate in accordance with its
method of accounting, provided that such amounts are reasonable compensation for
services rendered to that Grantor Trust Fund. However, investors who are
individuals, estates or trusts who own Securities, either directly or indirectly
through certain pass-through entities, will be subject to limitations with
respect to certain itemized deductions described in Code Section 67, including
deductions under Code Section 212 for the Servicing Fee and all such
administrative and other expenses of the Grantor Trust Fund, to the extent that
such deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the lesser of (i) 3% of the excess, if any, of adjusted gross
income over $100,000 ($50,000 in the case of a married individual filing a
separate return) (in each case, as adjusted for post-1991 inflation), or (ii)
80% of the amount of itemized deductions otherwise allowable for such year. As a
result, such investors holding Standard Securities, directly or indirectly
through a pass-through entity, may have aggregate taxable income in excess of
the aggregate amount of cash received on such Standard Securities with respect
to interest at the pass-through rate or as discount income on such Standard
Securities. In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax, and may cause such investors to be
subject to significant additional tax liability. Moreover, where there is
Retained Interest with respect to the Mortgage Loans underlying a Series of
Securities or where the servicing fees are in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "Stripped Securities" and "Recharacterization of Servicing Fees,"
respectively.
Holders of Standard Securities, particularly any class of a Series which is
a Subordinate Security, may incur losses of interest or principal with respect
to the Mortgage Loans. Such losses would be deductible generally only as
described above under "REMICs -- Taxation of Owners of Regular
Securities -- Treatment of Losses," except that Securityholders on the cash
method of accounting would not be required to report qualified stated interest
as income until actual receipt.
Tax Status
With respect to a series, Cadwalader, Wickersham & Taft or Hunton &
Williams has advised the Depositor that, except with respect to a Trust Fund
consisting of Unsecured Home Improvement Loans:
1. A Standard Security owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans . . . secured by an interest in real
98
<PAGE> 158
property which is . . . residential real property" within the meaning of
Code Section 7701(a)(19)(C)(v), provided that the real property securing
the Mortgage Loans represented by that Standard Security is of the type
described in such section of the Code.
2. A Standard Security owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(5)(A) to the extent that the assets of the related Grantor
Trust Fund consist of qualified assets, and interest income on such assets
will be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Standard Security owned by a REMIC will be considered to
represent an "obligation (including any participation or certificate of
beneficial ownership therein) which is principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Grantor Trust Fund consist of
"qualified mortgages" within the meaning of Code Section 860G(a)(3).
An issue arises as to whether Buydown Mortgage Loans may be characterized
in their entirety under the Code provisions cited in clauses 1 and 2 of the
immediately preceding paragraph or whether the amount qualifying for such
treatment must be reduced by the amount of the Buydown Mortgage Funds. There is
indirect authority supporting treatment of an investment in a Buydown Mortgage
Loan as entirely secured by real property if the fair market value of the real
property securing the loan exceeds the principal amount of the loan at the time
of issuance or acquisition, as the case may be. There is no assurance that the
treatment described above is proper. Accordingly, Securityholders are urged to
consult their own tax advisors concerning the effects of such arrangements on
the characterization of such Securityholder's investment for federal income tax
purposes.
Premium and Discount
Securityholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon initial
acquisition of Standard Securities or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Security will be determined generally as described above under
"REMICs -- Taxation of Owners of Residual Securities -- Premium."
Original Issue Discount. The original issue discount rules of Code Section
1271 through 1275 will be applicable to a Securityholder's interest in those
Mortgage Loans as to which the conditions for the application of those sections
are met. Rules regarding periodic inclusion of original issue discount income
generally are applicable to mortgages originated after March 2, 1984. The rules
allowing for the amortization of premium are available with respect to mortgage
loans originated after September 27, 1985. Under the OID Regulations, original
issue discount could arise by the charging of points by the originator of the
mortgages in an amount greater than the statutory de minimis exception,
including a payment of points that is currently deductible by the borrower under
applicable Code provisions or, under certain circumstances, by the presence of
"teaser" rates on the Mortgage Loans. See "Stripped Securities" below regarding
original issue discount on Stripped Securities.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if such Mortgage Loans acquired by a
Securityholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
99
<PAGE> 159
Market Discount. Securityholders also will be subject to the market
discount rules to the extent that the conditions for application of those
sections are met. Market discount on the Mortgage Loans will be determined and
will be reported as ordinary income generally in the manner described above
under "REMICs -- Taxation of Owners of Regular Securities -- Market Discount,"
except that the ratable accrual methods described therein will not apply.
Rather, the holder will accrue market discount pro rata over the life of the
Mortgage Loans, unless the constant yield method is elected. Unless indicated
otherwise in the applicable Prospectus Supplement, no prepayment assumption will
be assumed for purposes of such accrual.
Recharacterization of Servicing Fees
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither income
nor a deduction to Securityholders. In this regard, there are no authoritative
guidelines for federal income tax purposes as to either the maximum amount of
servicing compensation that may be considered reasonable in the context of this
or similar transactions or whether, in the case of Standard Securities, the
reasonableness of servicing compensation should be determined on a weighted
average or loan-by-loan basis. If a loan-by-loan basis is appropriate, the
likelihood that such amount would exceed reasonable servicing compensation as to
some of the Mortgage Loans would be increased. Internal Revenue Service guidance
indicates that a servicing fee in excess of reasonable compensation ("excess
servicing") will cause the Mortgage Loans to be treated under the "stripped
bond" rules. Such guidance provides safe harbors for servicing deemed to be
reasonable and requires taxpayers to demonstrate that the value of servicing
fees in excess of such amounts is not greater than the value of the services
provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be viewed
as retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds." Subject to the de minimis rule discussed below
under "Stripped Securities," each stripped bond or stripped coupon could be
considered for this purpose as a non-interest bearing obligation issued on the
date of issue of the Standard Securities, and the original issue discount rules
of the Code would apply to the holder thereof. While Securityholders would still
be treated as owners of beneficial interests in a grantor trust for federal
income tax purposes, the corpus of such trust could be viewed as excluding the
portion of the Mortgage Loans the ownership of which is attributed to the
Servicer, or as including such portion as a second class of equitable interest.
Applicable Treasury regulations treat such an arrangement as a fixed investment
trust, since the multiple classes of trust interests should be treated as merely
facilitating direct investments in the trust assets and the existence of
multiple classes of ownership interests is incidental to that purpose. In
general, such a recharacterization should not have any significant effect upon
the timing or amount of income reported by a Securityholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"Stripped Securities" below for a further description of the federal income tax
treatment of stripped bonds and stripped coupons.
Sale or Exchange of Standard Securities
Upon sale or exchange of a Standard Securities, a Securityholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its aggregate adjusted basis in the Mortgage Loans and other assets
represented by the Security. In general, the aggregate adjusted basis will equal
the Securityholder's cost for the Standard Security, exclusive of accrued
interest, increased by the amount of any income previously reported with respect
to the Standard Security and decreased by the amount of any losses previously
reported with respect to the Standard Security and the amount of any
distributions (other than accrued interest) received thereon. Except as provided
above with respect to market discount on any Mortgage Loans, and except for
certain financial institutions subject to the provisions of Code Section 582(c),
any such gain or loss generally would be capital gain or loss if the Standard
Security was held as a capital asset. However, gain on the sale of a Standard
Security will be treated as ordinary income (i) if a Standard
100
<PAGE> 160
Security is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
Securityholder's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate in effect at the time the taxpayer entered
into the transaction minus any amount previously treated as ordinary income with
respect to any prior disposition of property that was held as part of such
transaction or (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary income rates. Capital gains of
certain noncorporate taxpayers are subject to a lower maximum tax rate than
ordinary income of such taxpayers. The maximum tax rate for corporations
currently is the same with respect to both ordinary income and capital gains.
STRIPPED SECURITIES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership of
the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Securities that are subject to those rules will be referred to as "Stripped
Securities." The Securities will be subject to those rules if (i) the Depositor
or any of its affiliates retains (for its own account or for purposes of
resale), in the form of Retained Interest or otherwise, an ownership interest in
a portion of the payments on the Mortgage Loans, (ii) the Depositor or any of
its affiliates is treated as having an ownership interest in the Mortgage Loans
to the extent it is paid (or retains) servicing compensation in an amount
greater than reasonable consideration for servicing the Mortgage Loans (see
"Standard Securities -- Recharacterization of Servicing Fees" above), and (iii)
a Class of Securities are issued in two or more Classes or Subclasses
representing the right to non-pro-rata percentages of the interest and principal
payments on the Mortgage Loans.
In general, a holder of a Stripped Security will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Security's allocable share of the
servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"Standard Securities -- Recharacterization of Servicing Fees." Although not free
from doubt, for purposes of reporting to Stripped Securityholders, the servicing
fees will be allocated to the classes of Stripped Securities in proportion to
the distributions to such Classes for the related period or periods. The holder
of a Stripped Security generally will be entitled to a deduction each year in
respect of the servicing fees, as described above under "Standard
Securities -- General," subject to the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped Securities
for federal income tax purposes is not clear in certain respects, particularly
where such Stripped Securities are issued with respect to a Mortgage Pool
containing variable-rate Mortgage Loans, the Depositor has been advised by
counsel that (i) the Grantor Trust Fund will be treated as a grantor trust under
subpart E, Part I of subchapter J of the Code and not as an association taxable
as a corporation or a "taxable mortgage pool" within the meaning of Code Section
7701(i), and (ii) each Stripped Security should be treated as a single
installment obligation for purposes of calculating original issue discount and
gain or loss on disposition. This treatment is based on the interrelationship of
Code Section 1286, Code Sections 1272 through 1275, and the OID Regulations.
Although it is possible that computations with respect to Stripped Securities
could be made in one of the ways described below under "Possible Alternative
Characterizations," the OID Regulations state, in general, that two or more debt
instruments issued by a single issuer to a single investor in a single
transaction should be treated as a single debt instrument. Accordingly, for
original issue discount purposes, all payments on any Stripped Securities should
be aggregated and treated as though they were made on a single debt instrument.
The Pooling and Servicing Agreement will require that the Trustee make and
report all computations described below using this aggregate approach, unless
substantial legal authority requires otherwise.
101
<PAGE> 161
Furthermore, Treasury regulations provide for treatment of a Stripped
Security as a single debt instrument issued on the date it is purchased for
purposes of calculating any original issue discount. In addition, under such
regulations, a Stripped Security that represents a right to payments of both
interest and principal may be viewed either as issued with original issue
discount or market discount (as described below), at a de minimis original issue
discount, or, presumably, at a premium. This treatment indicates that the
interest component of such a Stripped Security would be treated as qualified
stated interest under the OID Regulations, assuming it is not an interest-only
or super-premium Stripped Security. Further, these regulations provide that the
purchaser of such a Stripped Security will be required to account for any
discount as market discount rather than original issue discount if either (i)
the initial discount with respect to the Stripped Security was treated as zero
under the de minimis rule, or (ii) no more than 100 basis points in excess of
reasonable servicing is stripped off the related Mortgage Loans. Any such market
discount would be reportable as described above under "REMICs -- Taxation of
Owners of Regular Securities -- Market Discount," without regard to the de
minimis rule therein, assuming that a prepayment assumption is employed in such
computation.
The holder of a Stripped Security will be treated as owning an interest in
each of the Mortgage Loans held by the Grantor Trust Fund and will recognize an
appropriate share of the income and expenses associated with the Mortgage Loans.
Accordingly, an individual, trust or estate that holds a Stripped Security
directly or through a pass-through entity will be subject to the limitations on
deductions imposed by Code Sections 67 and 68.
A holder of a Stripped Security, particularly any class of a Series which
is a Subordinate Security, may deduct losses incurred with respect to the
Stripped Security as described above under "Standard Securities -- General."
Status of Stripped Securities
No specific legal authority exists as to whether the character of the
Stripped Securities, for federal income tax purposes, will be the same as that
of the Mortgage Loans. Although the issue is not free from doubt, counsel has
advised the Depositor that, except with respect to a Trust Fund consisting of
Unsecured Home Improvement Loans, Stripped Securities owned by applicable
holders should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(5)(A), "obligation[s] . . . principally secured
by an interest in real property which is . . . residential real estate" within
the meaning of Code Section 860G(a)(3)(A), and "loans . . . secured by an
interest in real property" within the meaning of Code Section 7701(a)(19)(C)(v),
and interest (including original issue discount) income attributable to Stripped
Securities should be considered to represent "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B),
provided that in each case the Mortgage Loans and interest on such Mortgage
Loans qualify for such treatment. The application of such Code provisions to
Buydown Mortgage Loans is uncertain. See "Standard Securities -- Tax Status"
above.
Taxation of Stripped Securities
Original Issue Discount. Except as described above under "General," each
Stripped Security will be considered to have been issued at an original issue
discount for federal income tax purposes. Original issue discount with respect
to a Stripped Security must be included in ordinary income as it accrues, in
accordance with a constant yield method that takes into account the compounding
of interest, which may be prior to the receipt of the cash attributable to such
income. Based in part on the issue discount required to be included in the
income of a holder of a Stripped Security (referred to in this discussion as a
"Stripped Securityholder") in any taxable year likely will be computed generally
as described above under "REMICs -- Taxation of Owner of Regular
Securities -- Original Issue Discount" and "-- Variable Rate Regular
Securities." However, with the apparent exception of a Stripped Security
qualifying as a market discount obligation as described above under "General,"
the issue price of a Stripped Security will be the purchase price paid by each
holder thereof, and the stated redemption price at maturity will include the
aggregate amount of the payments to be made on the Stripped Security to such
Securityholder, presumably under the Prepayment Assumption, other than qualified
stated interest.
102
<PAGE> 162
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Securityholder's recognition of original
issue discount will be either accelerated or decelerated and the amount of such
original issue discount will be either increased or decreased depending on the
relative interests in principal and interest on each Mortgage Loan represented
by such Securityholder's Stripped Security. While the matter is not free from
doubt, the holder of a Stripped Security should be entitled in the year that it
becomes certain (assuming no further prepayments) that the holder will not
recover a portion of its adjusted basis in such Stripped Security to recognize a
loss (which may be a capital loss) equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Securities will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to prepayable securities such as the
Stripped Securities. However, if final regulations dealing with contingent
interest with respect to the Stripped Securities apply the same principles as
the OID Regulations, such regulations may lead to different timing of income
inclusion that would be the case under the OID Regulations. Furthermore,
application of such principles could lead to the characterization of gain on the
sale of contingent interest Stripped Securities as ordinary income. Investors
should consult their tax advisors regarding the appropriate tax treatment of
Stripped Securities.
Sale or Exchange of Stripped Securities. Sale or exchange of a Stripped
Security prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Securityholder's
adjusted basis in such Stripped Security, as described above under
"REMICs -- Taxation of Owners of Regular Securities -- Sale or Exchange of
Regular Securities." Gain or loss from the sale or exchange of a Stripped
Security generally will be capital gain or loss to the Securityholder if the
Stripped Security is held as a "capital asset" within the meaning of Code
section 1221, and will be long-term or short-term depending on whether the
Stripped Security has been held for the long-term capital gain holding period
(currently, more than one year). To the extent that a subsequent purchaser's
purchase price is exceeded by the remaining payments on the Stripped Securities,
such subsequent purchaser will be required for federal income tax purposes to
accrue and report such excess as if it were original issue discount in the
manner described above. It is not clear for this purpose whether the assumed
prepayment rate that is to be used in the case of a Securityholder other than an
original Securityholder should be the Prepayment Assumption or a new rate based
on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Securities. When an investor
purchases more than one Class of Stripped Securities, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Securities
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterization. The characterizations of the
Stripped Securities discussed above are not the only possible interpretations of
the applicable Code provisions. For example, the Securityholder may be treated
as the owner of (i) one installment obligation consisting of such Stripped
Security's pro rata share of the payments attributable to principal on each
Mortgage Loan and a second installment obligation consisting of such Stripped
Security's pro rata share of the payments attributable to interest on each
Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there are
scheduled payments of principal and/or interest on each Mortgage Loan, or (iii)
a separate installment obligation for each Mortgage Loan, representing the
Stripped Security's pro rata share of payments of principal and/or interest to
be made with respect thereto. Alternatively, the holder of one or more Classes
of Stripped Securities may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Security, or Classes of Stripped Securities in the aggregate, represent the same
pro rata portion of principal and interest on each such Mortgage Loan, and a
stripped bond or stripped coupon (as the case may be), treated as an installment
obligation or contingent payment obligation, as to the remainder. Treasury
regulations regarding original issue discount on stripped obligations make the
foregoing interpretations less likely to be applicable. The preamble to such
regulations states that they are premised on the assumption that an aggregation
approach is appropriate for determining whether original issue discount on a
stripped bond or
103
<PAGE> 163
stripped coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Securities
and the resultant differing treatment of income recognition, Securityholders are
urged to consult their own tax advisors regarding the proper treatment of
Stripped Securities for federal income tax purposes.
Reporting Requirements and Backup Withholding
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Securityholder at any time during such year, such
information (prepared on the basis described above) as is necessary to enable
such Securityholder to prepare its federal income tax returns. Such information
will include the amount of original issue discount accrued on Securities held by
persons other than Securityholders exempted from the reporting requirements.
However, the amount required to be reported by the Trustee may not be equal to
the proper amount of original issue discount required to be reported as taxable
income by a Securityholder, other than an original Securityholder that purchased
at the issue price. In particular, in the case of Stripped Securities, unless
provided otherwise in the applicable Prospectus Supplement, such reporting will
be based upon a representative initial offering price of each Class of Stripped
Securities. The Trustee will also file such original issue discount information
with the Internal Revenue Service. If a Securityholder fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a Securityholder has not reported all interest and dividend
income required to be shown on his federal income tax return, 31% backup
withholding may be required in respect of any reportable payments, as described
above under "REMICs -- Backup Withholding."
Taxation of Certain Foreign Investors
To the extent that a Security evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount paid
by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. persons generally
will be subject to 30% United States withholding tax, or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued original issue
discount recognized by the Securityholder on the sale or exchange of such a
Security also will be subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under
"REMICs -- Taxation of Certain Foreign Investors -- Regular Securities."
PARTNERSHIP TRUST FUNDS
Classification of Partnership Trust Funds
With respect to each series of Partnership Securities or Debt Securities,
Cadwalader, Wickersham & Taft or Hunton & Williams will deliver its opinion that
the Trust Fund will not be a taxable mortgage pool or an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
related Agreement and related documents will be complied with, and on counsel's
conclusion that the nature of the income of the Trust Fund will exempt it from
the rule that certain publicly traded partnerships are taxable as corporations.
Characterization of Investments in Partnership Securities and Debt Securities
For federal income tax purposes, (i) Partnership Securities and Debt
Securities held by a thrift institution taxed as a domestic building and loan
association will not constitute "loans . . . secured by an interest in real
property which is . . . residual real property" within the meaning of Code
Section 7701(a)(19)(C)(v) and (ii) interest on Debt Securities held by a real
estate investment trust will not be
104
<PAGE> 164
treated as "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section 856(c)(3)(B), and
Debt Securities held by a real estate investment trust will not constitute "real
estate assets" within the meaning of Code Section 856(c)(5)(A), but Partnership
Securities held by a real estate investment trust will qualify under those
sections based on the real estate investments trust's proportionate interest in
the assets of the Partnership Trust Fund based on capital accounts.
Taxation of Debt Securityholders
Treatment of the Debt Securities as Indebtedness
The Depositor will agree, and the Securityholders will agree by their
purchase of Debt Securities, to treat the Debt Securities as debt for federal
income tax purposes. No regulations, published rulings, or judicial decisions
exist that discuss the characterization for federal income tax purposes of
securities with terms substantially the same as the Debt Securities. However,
with respect to each Series of Debt Securities, Cadwalader, Wickersham & Taft or
Hunton & Williams will deliver its opinion that the Debt Securities will be
classified as indebtedness for federal income tax purposes. The discussion below
assumes this characterization of the Debt Securities is correct.
If, contrary to the opinion of counsel, the IRS successfully asserted that
the Debt Securities were not debt for federal income tax purposes, the Debt
Securities might be treated as equity interests in the Partnership Trust, and
the timing and amount of income allocable to holders of such Debt Securities may
be different than as described in the following paragraph.
Debt Securities generally will be subject to the same rules of taxation as
Regular Securities issued by a REMIC, as described above, except that (i) income
reportable on Debt Securities is not required to be reported under the accrual
method unless the holder otherwise uses the accrual method and (ii) the special
rule treating a portion of the gain on sale or exchange of a Regular Security as
ordinary income is inapplicable to Debt Securities. See "REMICs -- Taxation of
Owners of Regular Securities" and "-- Sale or Exchange of Regular Securities."
Taxation of Owners of Partnership Securities
Treatment of the Partnership Trust Fund as a Partnership
If so specified in the applicable Prospectus Supplement, the Depositor will
agree, and the Securityholders will agree by their purchase of Securities, to
treat the Partnership Trust Fund as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Partnership Trust Fund, the partners of the partnership being the
Securityholders (including the Depositor), and the Debt Securities (if any)
being debt of the partnership. However, the proper characterization of the
arrangement involving the Partnership Trust Fund, the Partnership Securities,
the Debt Securities, and the Depositor is not clear, because there is no
authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because one or more of the classes of Partnership Securities have certain
features characteristic of debt, the Partnership Securities might be considered
debt of the Depositor or the Partnership Trust Fund. Any such characterization
would not result in materially adverse tax consequences to Securityholders as
compared to the consequences from treatment of the Partnership Securities as
equity in a partnership, described below. The following discussion assumes that
the Partnership Securities represent equity interests in a partnership.
Partnership Taxation
As a partnership, the Partnership Trust Fund will not be subject to federal
income tax. Rather, each Securityholder will be required to separately take into
account such holder's allocated share of income, gains, losses, deductions and
credits of the Partnership Trust Fund. It is anticipated that the Partnership
Trust Fund's income will consist primarily of interest earned on the Mortgage
Loans (including appropriate
105
<PAGE> 165
adjustments for market discount, original issue discount and bond premium) as
described above under "-- Grantor Trust Funds -- Standard
Securities -- General", and "-- Premium and Discount") and any gain upon
collection or disposition of Mortgage Loans. The Partnership Trust Fund's
deductions will consist primarily of interest accruing with respect to the Debt
Securities, servicing and other fees, and losses or deductions upon collection
or disposition of Debt Securities.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Agreement and related documents). The Agreement will provide, in general, that
the Securityholders will be allocated taxable income of the Partnership Trust
Fund for each Due Period equal to the sum of (i) the interest that accrues on
the Partnership Securities in accordance with their terms for such Due Period,
including interest accruing at the applicable pass-through rate for such Due
Period and interest on amounts previously due on the Partnership Securities but
not yet distributed; (ii) any Partnership Trust Fund income attributable to
discount on the Mortgage Loans that corresponds to any excess of the principal
amount of the Partnership Securities over their initial issue price; and (iii)
any other amounts of income payable to the Securityholders for such Due Period.
Such allocation will be reduced by any amortization by the Partnership Trust
Fund of premium on Mortgage Loans that corresponds to any excess of the issue
price of Partnership Securities over their principal amount. All remaining
taxable income of the Partnership Trust Fund will be allocated to the Depositor.
Based on the economic arrangement of the parties, this approach for allocating
Partnership Trust Fund income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Securityholders. Moreover, even
under the foregoing method of allocation, Securityholders may be allocated
income equal to the entire pass-through rate plus the other items described
above even though the Trust Fund might not have sufficient cash to make current
cash distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Partnership Securities on the accrual basis
and Securityholders may become liable for taxes on Partnership Trust Fund income
even if they have not received cash from the Partnership Trust Fund to pay such
taxes.
Part or all of the taxable income allocated to a Securityholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
A share of expenses of the Partnership Trust Fund (including fees of the
Master Servicer but not interest expense) allocable to an individual, estate or
trust Securityholder would be miscellaneous itemized deductions subject to the
limitations described above under "-- Grantor Trust Funds -- Standard
Securities -- General". Accordingly, such deductions might be disallowed to the
individual in whole or in part and might result in such holder being taxed on an
amount of income that exceeds the amount of cash actually distributed to such
holder over the life of the Partnership Trust Fund.
Discount income or premium amortization with respect to each Mortgage Loan
would be calculated in a manner similar to the description above under
"-- Grantor Trust Funds -- Standard Securities -- General" and "-- Premium and
Discount." Notwithstanding such description, it is intended that the Partnership
Trust Fund will make all tax calculations relating to income and allocations to
Securityholders on an aggregate basis with respect to all Mortgage Loans held by
the Partnership Trust Fund rather than on a Mortgage Loan-by-Mortgage Loan
basis. If the IRS were to require that such calculations be made separately for
each Mortgage Loan, the Partnership Trust Fund might be required to incur
additional expense, but it is believed that there would not be a material
adverse effect on Securityholders.
Discount and Premium
Unless indicated otherwise in the applicable Prospectus Supplement, it is
not anticipated that the Mortgage Loans will have been issued with original
issue discount and, therefore, the Partnership Trust Fund should not have
original issue discount income. However, the purchase price paid by the
Partnership Trust Fund for the Mortgage Loans may be greater or less than the
remaining principal balance of the Mortgage Loans at the time of purchase. If
so, the Mortgage Loans will have been acquired at a premium or discount, as the
case may be. See "Grantor Trust Funds -- Standard Securities -- Premium and
Discount." (As indicated
106
<PAGE> 166
above, the Partnership Trust Fund will make this calculation on an aggregate
basis, but might be required to recompute it on a Mortgage Loan-by-Mortgage Loan
basis).
If the Partnership Trust Fund acquires the Mortgage Loans at a market
discount or premium, the Partnership Trust Fund will elect to include any such
discount in income currently as it accrues over the life of the Mortgage Loans
or to offset any such premium against interest income on the Mortgage Loans. As
indicated above, a portion of such market discount income or premium deduction
may be allocated to Securityholders.
Section 708 Termination
Under Section 708 of the Code, the Partnership Trust Fund will be deemed to
terminate for federal income tax purposes if 50% or more of the capital and
profits interests in the Partnership Trust Fund are sold or exchanged within a
12-month period. If such a termination occurs, it would cause a deemed
contribution of the assets of a Partnership Trust Fund (the "old partnership")
to a new Partnership Trust Fund (the "new partnership") in exchange for
interests in the new partnership. Such interests would be deemed distributed to
the partners of the old partnership in liquidation thereof, which would not
constitute a sale or exchange. The Partnership Trust Fund will not comply with
certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Partnership Trust Fund may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Partnership Trust Fund might
not be able to comply due to lack of data.
Disposition of Securities
Generally, capital gain or loss will be recognized on a sale of Partnership
Securities in an amount equal to the difference between the amount realized and
the seller's tax basis in the Partnership Securities sold. A Securityholder's
tax basis in an Partnership Security will generally equal the holder's cost
increased by the holder's share of Partnership Trust Fund income (includible in
income) and decreased by any distributions received with respect to such
Partnership Security. In addition, both the tax basis in the Partnership
Securities and the amount realized on a sale of an Partnership Security would
include the holder's share of the Debt Securities and other liabilities of the
Partnership Trust Fund. A holder acquiring Partnership Securities at different
prices may be required to maintain a single aggregate adjusted tax basis in such
Partnership Securities, and, upon sale or other disposition of some of the
Partnership Securities, allocate a portion of such aggregate tax basis to the
Partnership Securities sold (rather than maintaining a separate tax basis in
each Partnership Security for purposes of computing gain or loss on a sale of
that Partnership Security).
Any gain on the sale of an Partnership Security attributable to the
holder's share of unrecognized accrued market discount on the Mortgage Loans
would generally be treated as ordinary income to the holder and would give rise
to special tax reporting requirements. The Partnership Trust Fund does not
expect to have any other assets that would give rise to such special reporting
considerations. Thus, to avoid those special reporting requirements, the
Partnership Trust Fund will elect to include market discount in income as it
accrues.
If a Securityholder is required to recognize an aggregate amount of income
(not including income attributable to disallowed itemized deductions described
above) over the life of the Partnership Securities that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Partnership Securities.
Allocations Between Transferors and Transferees
In general, the Partnership Trust Fund's taxable income and losses will be
determined each Due Period and the tax items for a particular Due Period will be
apportioned among the Securityholders in proportion to the principal amount of
Partnership Securities owned by them as of the close of the last day of such Due
Period. As a result, a holder purchasing Partnership Securities may be allocated
tax items (which will affect its tax liability and tax basis) attributable to
periods before the actual transaction.
107
<PAGE> 167
The use of such a Due Period convention may not be permitted by existing
regulations. If a Due Period convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Partnership Trust Fund might be reallocated among the Securityholders.
The Depositor will be authorized to revise the Partnership Trust Fund's method
of allocation between transferors and transferees to conform to a method
permitted by future regulations.
Section 731 Distributions
In the case of any distribution to a Securityholder, no gain will be
recognized to that Securityholder to the extent that the amount of any money
distributed with respect to such Security exceeds the adjusted basis of such
Securityholder's interest in the Security. To the extent that the amount of
money distributed exceeds such Securityholder's adjusted basis, gain will be
currently recognized. In the case of any distribution to a Securityholder, no
loss will be recognized except upon a distribution in liquidation of a
Securityholder's interest. Any gain or loss recognized by a Securityholder will
be capital gain or loss.
Section 754 Election
In the event that a Securityholder sells its Partnership Securities at a
profit (loss), the purchasing Securityholder will have a higher (lower) basis in
the Partnership Securities than the selling Securityholder had. The tax basis of
the Partnership Trust Fund's assets would not be adjusted to reflect that higher
(or lower) basis unless the Partnership Trust Fund were to file an election
under Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Partnership Trust
Fund will not make such an election. As a result, Securityholder might be
allocated a greater or lesser amount of Partnership Trust Fund income than would
be appropriate based on their own purchase price for Partnership Securities.
Administrative Matters
The Trustee is required to keep or have kept complete and accurate books of
the Partnership Trust Fund. Such books will be maintained for financial
reporting and tax purposes on an accrual basis and the fiscal year of the
Partnership Trust Fund will be the calendar year. The Trustee will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the Partnership Trust Fund and will report each Securityholder's
allocable share of items of Partnership Trust Fund income and expense to holders
and the IRS on Schedule K-1. The Trustee will provide the Schedule K-1
information to nominees that fail to provide the Partnership Trust Fund with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Partnership Securities.
Generally, holders must file tax returns that are consistent with the
information return filed by the Partnership Trust Fund or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership
Securities as a nominee at any time during a calendar year is required to
furnish the Partnership Trust Fund with a statement containing certain
information on the nominee, the beneficial owners and the Partnership Securities
so held. Such information includes (i) the name, address and taxpayer
identification number of the nominee and (ii) as to each beneficial owner (x)
the name, address and identification number of such person, (y) whether such
person is a United States person, a tax-exempt entity or a foreign government,
an international organization, or any wholly-owned agency or instrumentality of
either of the foregoing, and (z) certain information on Partnership Securities
that were held, bought or sold on behalf of such person throughout the year. In
addition, brokers and financial institutions that hold Partnership Securities
through a nominee are required to furnish directly to the Trustee information as
to themselves and their ownership of Partnership Securities. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Partnership Trust Fund. The information
referred to above for any calendar year must be furnished to the Partnership
Trust Fund on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the Partnership Trust Fund with the
information described above may be subject to penalties.
108
<PAGE> 168
The Depositor will be designated as the tax matters partner in the Pooling
and Servicing Agreement and, as such, will be responsible for representing the
Securityholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire until three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Partnership Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the Securityholders,
and, under certain circumstances, a Securityholder may be precluded from
separately litigating a proposed adjustment to the items of the Partnership
Trust Fund. An adjustment could also result in an audit of a Securityholder's
returns and adjustments of items not related to the income and losses of the
Partnership Trust Fund.
Tax Consequences to Foreign Securityholders
It is not clear whether the Partnership Trust Fund would be considered to
be engaged in a trade or business in the United States for purposes of federal
withholding taxes with respect to Non-U.S. Persons, because there is no clear
authority dealing with that issue under facts substantially similar to those
described herein. Although it is not expected that the Partnership Trust Fund
would be engaged in a trade or business in the United States for such purposes,
the Partnership Trust Fund will withhold as if it were so engaged in order to
protect the Partnership Trust Fund from possible adverse consequences of a
failure to withhold. The Partnership Trust Fund expects to withhold on the
portion of its taxable income that is allocable to Securityholders who are
Non-U.S. Persons pursuant to Section 1446 of the Code, as if such income were
effectively connected to a U.S. trade or business, at a rate of 35% for Non-U.S.
Persons that are taxable as corporations and 39.6% for all other foreign
holders. Amounts withheld will be deemed distributed to the Non-U.S. Person
Securityholders. Subsequent adoption of Treasury regulations or the issuance of
other administrative pronouncements may require the Partnership Trust Fund to
change its withholding procedures. In determining a holder's withholding status,
the Partnership Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.
Each Non-U.S. Person holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Partnership Trust Fund's income. Each Non-U.S.
Person holder must obtain a taxpayer identification number from the IRS and
submit that number to the Partnership Trust Fund on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A Non-U.S. Person holder generally
would be entitled to file with the IRS a claim for refund with respect to taxes
withheld by the Partnership Trust Fund, taking the position that no taxes were
due because the Partnership Trust Fund was not engaged in a U.S. trade or
business. However, interest payments made (or accrued) to a Securityholder who
is a Non-U.S. Person generally will be considered guaranteed payments to the
extent such payments are determined without regard to the income of the
Partnership Trust Fund. If these interest payments are properly characterized as
guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, Securityholders who are Non-U.S. Persons will be subject
to United States federal income tax and withholding tax at a rate of 30 percent,
unless reduced or eliminated pursuant to an applicable treaty. In such case, a
Non-U.S. Person holder would only be entitled to claim a refund for that portion
of the taxes in excess of the taxes that should be withheld with respect to the
guaranteed payments.
Backup Withholding
Distributions made on the Partnership Securities and proceeds from the sale
of the Partnership Securities will be subject to a "backup" withholding tax of
31% if, in general, the Securityholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A SECURITYHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF REMIC SECURITIES, GRANTOR
109
<PAGE> 169
TRUST SECURITIES, PARTNERSHIP SECURITIES AND DEBT SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local tax consequences of the acquisition, ownership, and disposition of the
Securities offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Securities offered
hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested, that are
subject to Title I of ERISA and Section 4975 of the Code ("Plans") and on
persons who are fiduciaries with respect to such Plans in connection with the
investment of Plan assets. Certain employee benefit plans, such as governmental
plans (as defined in ERISA Section 3(32)), and, if no election has been made
under Section 410(d) of the Code, church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, assets of such plans
may be invested in Securities without regard to the ERISA considerations
described below, subject to the provisions of other applicable federal, state
and local law. Any such plan which is qualified and exempt from taxation under
Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("Parties in Interest") who
have certain specified relationships to the Plan unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code, unless a statutory or administrative
exemption is available. These prohibited transactions generally are set forth in
Sections 406 and 407 of ERISA and Section 4975 of the Code.
A Plan's investment in Securities may cause the Mortgage Loans, Contracts,
Unsecured Home Improvement Loans, Government Securities and other assets
included in a related Trust Fund to be deemed Plan assets. Section 2510.3-101 of
the regulations of the United States Department of Labor ("DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets include
both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions not applicable here apply, or
unless the equity participation in the entity by "benefit plan investors" (i.e.,
Plans and certain employee benefit plans not subject to ERISA) is not
"significant", both as defined therein. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if 25%
or more of the value of any class of equity interests in the entity is held by
benefit plan investors. To the extent the Securities are treated as equity
interests for purposes of DOL regulations section 2510.3-101, equity
participation in a Trust Fund will be significant on any date if immediately
after the most recent acquisition of any Security, 25% or more of any class of
Securities is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Loans, Contracts, Unsecured Home Improvement Loans,
Government Securities and other assets included in a Trust Fund constitute Plan
assets, then any party exercising
110
<PAGE> 170
management or discretionary control regarding those assets, such as the Servicer
or Master Servicer, may be deemed to be a Plan "fiduciary" and thus subject to
the fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code with respect to the investing Plan. In addition, if the
Mortgage Loans, Contracts, Unsecured Home Improvement Loans, Government
Securities and other assets included in a Trust Fund constitute Plan assets, the
purchase of Securities by a Plan, as well as the operation of the Trust Fund,
may constitute or involve a prohibited transaction under ERISA and the Code.
The DOL issued an individual exemption, Prohibited Transaction Exemption
93-31 (the "Exemption"), on May 14, 1993 to NationsBank Corporation
("NationsBank"), which generally exempts from the application of the prohibited
transaction provisions of Sections 406(a) and 407 of ERISA, and the excise taxes
imposed on such prohibited transactions pursuant to Section 4975(a) and (b) of
the Code, certain transactions, among others, relating to the servicing and
operation of mortgage pools and the purchase, sale and holding of Securities
underwritten by an Underwriter (as hereinafter defined), that (a) represent a
beneficial ownership interest in the assets of a Trust Fund and entitle the
holder the pass-through payments of principal, interest and/or other payments
made with respect to the assets of the Trust Fund or (b) are denominated as a
debt instrument and represent an interest in a REMIC, provided that certain
conditions set forth in the Exemption are satisfied. For purposes of this
Section "ERISA Considerations," the term "Underwriter" shall include (a)
NationsBank, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
NationsBank, including NationsBank, Inc., and (c) any member of the underwriting
syndicate or selling group of which a person described in (a) or (b) is a
manager or co-manager with respect to a class of Securities.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of Securities to be
eligible for exemptive relief thereunder. First, the acquisition of Securities
by a Plan must be on terms that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated party. Second, the
Exemption only applies to Securities evidencing rights and interests not
subordinated to the rights and interests evidenced by the other Securities of
the same series. Third, the Securities at the time of acquisition by the Plan
must be rated in one of the three highest generic rating categories by Standard
& Poor's ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co. ("DCR") or Fitch Investors Service, L.P. ("Fitch"). Fourth,
the Trustee cannot be an affiliate of any member of the "Restricted Group" which
consists of the Underwriter, the Depositor, the Trustee, the Master Servicer,
any Servicer, any insurer and any obligor with respect to Assets constituting
more than 5% of the aggregate unamortized principal balance of the Assets in the
related Trust Fund as of the date of initial issuance of the Securities. Fifth,
the sum of all payments made to and retained by the Underwriter(s) must
represent not more than reasonable compensation for underwriting the Securities;
the sum of all payments made to and retained by the Depositor pursuant to the
assignment of the Assets to the related Trust Fund must represent not more than
the fair market value of such obligations; and the sum of all payments made to
and retained by the Servicer must represent not more than reasonable
compensation for such person's services under the related Agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the investing Plan must be an accredited investor as defined in Rule
501(a)(1) of Regulation D of the Securities and Exchange Commission under the
Securities Act of 1933, as amended. In addition, the Trust Fund must meet the
following requirements: (i) the assets of the Trust Fund must consist solely of
assets of the type that have been included in other investment pools; (ii)
securities evidencing interests in such other investment pools must have been
rated in one of the three highest generic rating categories by S&P, Moody's,
DCR, or Fitch for at least one year prior to the Plan's acquisition of the
securities; and (iii) securities evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of the Securities.
A fiduciary of a Plan contemplating purchasing a Security must make its own
determination that the general conditions set forth above will be satisfied with
respect to such Security. However, to the extent Securities are subordinate, the
Exemption will not apply to an investment by a Plan. In addition, any Securities
representing a beneficial ownership interest in Unsecured Home Improvement Loans
or Revolving Credit Line Loans will not satisfy the general conditions of the
Exemption.
111
<PAGE> 171
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407 of
ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in connection
with the direct or indirect sale, exchange, transfer, holding or the direct or
indirect acquisition or disposition in the secondary market of Securities by
Plans. However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Security on behalf of an "Excluded Plan" by any person who has discretionary
authority or renders investment advice with respect to the assets of such
Excluded Plan. For purposes of the Securities, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
(1) the direct or indirect sale, exchange or transfer of Securities in the
initial issuance of Securities between the Depositor or an Underwriter and a
Plan when the person who has discretionary authority or renders investment
advice with respect to the investment of Plan assets in the Securities is (a) an
obligor with respect to 5% or less of the fair market value of the Assets or (b)
an affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Securities by a Plan and (3) the holding
of Securities by a Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Trust Fund. The
Depositor expects that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to the Securities so that the
Exemption would provide an exemption from the restrictions imposed by Sections
406(a) and (b) of ERISA (as well as the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code) for transactions
in connection with the servicing, management and operation of the Mortgage
Pools, provided that the general conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" (within the meaning of Section 3(14) of
ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of
the Code) with respect to an investing Plan by virtue of providing services to
the Plan (or by virtue of having certain specified relationships to such a
person) solely as a result of the Plan's ownership of Securities.
To the extent the Securities are not treated as equity interests for
purposes of DOL regulations section 2510.3-101, a Plan's investment in such
Securities ("Non-Equity Securities") would not cause the assets included in a
related Trust Fund to be deemed Plan assets. However, the Depositor, the
Servicer, the Trustee, or Underwriter may be the sponsor of or investment
advisor with respect to one or more Plans. Because such parties may receive
certain benefits in connection with the sale of Non-Equity Securities, the
purchase of Non-Equity Securities using Plan assets over which any such parties
has investment authority might be deemed to be a violation of the prohibited
transaction rules of ERISA and the Code for which no exemption may be available.
Accordingly, Non-Equity Securities may not be purchased using the assets of any
Plan if any of the Depositor, the Servicer, the Trustee or Underwriter has
investment authority with respect to such assets.
In addition, certain affiliates of the Depositor might be considered or
might become Parties in Interest with respect to a Plan. Also, any holder of
Securities, because of its activities or the activities of its respective
affiliates, may be deemed to be a Party in Interest with respect to certain
Plans, including but not limited to Plans sponsored by such holder. In either
case, the acquisition or holding of Non-Equity Securities by or on behalf of
such a Plan could be considered to give rise to an indirect prohibited
transaction within the meaning of ERISA and the Code, unless it is subject to
one or more statutory or administrative exemptions such as
112
<PAGE> 172
Prohibited Transaction Class Exemption ("PTCE") 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager", PTCE 90-1, which exempts certain transactions involving insurance
company pooled separate accounts, PTCE-91-38, which exempts certain transactions
involving bank collective investment funds, PTCE 95-60, which exempts certain
transactions involving insurance company general accounts, or PTCE 96-23, which
exempts certain transactions effected on behalf of a Plan by certain "in-house"
asset managers. It should be noted, however, that even if the conditions
specified in one or more of these exemptions are met, the scope of relief
provided by these exemptions may not necessarily cover all acts that might be
construed as prohibited transactions.
Any Plan fiduciary which proposes to cause a Plan to purchase Securities
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment, the availability of the exemptive relief
provided in the Exemption and the potential applicability of any other
prohibited transaction exemption in connection therewith. In particular, a Plan
fiduciary which proposes to cause a Plan to purchase Securities representing a
beneficial ownership interest in a poolof single-family residential first
mortgage loans, a Plan fiduciary should consider the applicability of PTCE 83-1,
which provides exemptive relief for certain transactions involving mortgage pool
investment trusts. The Prospectus Supplement with respect to a series of
Securities may contain additional information regarding the application of the
Exemption, PTCE 83-1 or any other exemption, with respect to the Securities
offered thereby. In addition, any Plan fiduciary that proposes to cause a Plan
to purchase Strip Securities should consider the federal income tax consequences
of such investment.
ANY PLAN FIDUCIARY CONSIDERING WHETHER TO PURCHASE A SECURITY ON BEHALF OF
A PLAN SHOULD CONSULT WITH ITS COUNSEL REGARDING THE APPLICABILITY OF THE
FIDUCIARY RESPONSIBILITY AND PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE
CODE TO SUCH INVESTMENT.
THE SALE OF SECURITIES TO A PLAN IS IN NO RESPECT A REPRESENTATION BY THE
DEPOSITOR OR THE UNDERWRITER THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL
REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY PARTICULAR
PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR ANY
PARTICULAR PLAN.
LEGAL INVESTMENT
Each class of Offered Securities will be rated at the date of issuance in
one of the four highest rating categories by at least one Rating Agency. The
related Prospectus Supplement will specify which classes of the Securities, if
any, will constitute "mortgage related securities" ("SMMEA Securities") for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"). SMMEA Securities will constitute legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including, but not limited to, state chartered savings banks,
commercial banks, savings and loan associations and insurance companies, as well
as trustees and state government employee retirement systems) created pursuant
to or existing under the laws of the United States or of any state (including
the District of Columbia and Puerto Rico) whose authorized investments are
subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida,
Georgia, Illinois, Kansas, Maryland, Michigan, Missouri, Nebraska, New
Hampshire, New York, North Carolina, Ohio, South Dakota, Utah, Virginia and West
Virginia enacted legislation before the October 4, 1991 cut-off for such
enactments, limiting to varying extents, the ability of certain entities (in
particular, insurance companies) to invest in mortgage related securities
secured by liens on residential, or mixed residential and commercial, properties
in most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
sec. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority
113
<PAGE> 173
may prescribe. In this connection, effective December 31, 1996, the Office of
the Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards concerning "safety and soundness" and
retention of credit information in 12 C.F.R. Section 1.5), certain "Type IV
securities," defined in 12 C.F.R. Section 1.2(1) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related
security" means, in relevant part, "mortgage-related security" within the
meaning of SMMEA. Also, in this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities, and NCUA's regulation "Investment and Deposit Activities" (12 C.F.R.
Part 703.5(f)-(k)), which sets forth certain restrictions on investment by
federal credit unions in mortgage related securities.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of Offered Securities. Any
financial institution which is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation ("FDIC"), the Office of Thrift Supervision
("OTS"), the NCUA or other federal or state agencies with similar authority
should review any applicable rules, guidelines and regulations prior to
purchasing any Offered Security. The Federal Financial Institutions Examination
Council, for example, has issued a Supervisory Policy Statement on Securities
Activities effective February 10, 1992, as revised April 15, 1994 (the "Policy
Statement") setting forth guidelines for and significant restrictions on
investments in "high-risk mortgage securities." The Policy Statement has been
adopted by the Comptroller of the Currency, the Federal Reserve Board, the FDIC,
the OTS and the NCUA (with certain modifications), with respect to the
depository institutions that they regulate. The Policy Statement generally
indicates that a mortgage derivative product will be deemed to be high risk if
it exhibits greater price volatility than a standard fixed rate thirty-year
mortgage security. According to the Policy Statement, prior to purchase, a
depository institution will be required to determine whether a mortgage
derivative product that it is considering acquiring is high-risk, and if so that
the proposed acquisition would reduce the institution's overall interest rate
risk. Reliance on analysis and documentation obtained from a securities dealer
or other outside party without internal analysis by the institution would be
unacceptable. There can be no assurance that any classes of Offered Securities
will not be treated as high-risk under the Policy Statement.
In June 1996 the National Association of Insurance Commissioners ("NAIC")
adopted a model investment law (the "Model Law") which sets forth model
investment guidelines for the insurance industry. Although no state has as yet
adopted the Model Law, institutions subject to insurance regulatory authorities
may be subject to restrictions on investment similar to those set forth in the
Model Law and other restrictions.
If specified in the related Prospectus Supplement, other classes of Offered
Securities offered pursuant to this Prospectus will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of this
Offered Security under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase such Offered
Securities, may be subject to significant interpretive uncertainties.
Except as to the status of SMMEA Securities identified in the Prospectus
Supplement for a series as "mortgage related securities" under SMMEA, the
Depositor will make no representations as to the proper characterization of the
Offered Securities for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase any Offered
Securities under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Securities) may adversely affect the liquidity of the Offered Securities.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing the
114
<PAGE> 174
Offered Securities, as certain classes or subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Securities or to
purchase Offered Securities representing more than a specified percentage of the
investor's assets. Accordingly, all investors whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Offered Securities
of any class constitute legal investments for them or are subject to investment,
capital or other restrictions, and, if applicable, whether SMMEA has been
overridden in any jurisdiction relevant to such investor.
Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the Supplements to this Prospectus
will be offered in series. The distribution of the Securities may be effected
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Securities will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by NationsBanc Montgomery Securities,
Inc. ("NCMI") acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Securities agreed to be
purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of the Securities, underwriters may
receive compensation from the Depositor or from purchasers of the Securities in
the form of discounts, concessions or commissions. The Prospectus Supplement
will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that the Securities
will be distributed by NCMI acting as agent or in some cases as principal with
respect to Securities which it has previously purchased or agreed to purchase.
If NCMI acts as agent in the sale of Securities, NCMI will receive a selling
commission with respect to each series of Securities, depending on market
conditions, expressed as a percentage of the aggregate principal balance of the
related Mortgage Loans as of the Cut-off Date. The exact percentage for each
series of Securities will be disclosed in the related Prospectus Supplement. To
the extent that NCMI elects to purchase Securities as principal, NCMI may
realize losses or profits based upon the difference between its purchase price
and the sales price. The Prospectus Supplement with respect to any series
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the
Depositor and purchasers of Securities of such series.
NCMI is an affiliate of the Depositor. This Prospectus may be used by NCMI,
to the extent required, in connection with market making transactions in the
Securities. NCMI may act as principal or agent in such transactions.
The Depositor will indemnify NCMI and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments NCMI and any underwriters may be required to make in
respect thereof.
In the ordinary course of business, NCMI and the Depositor may engage in
various securities and financing transactions,including repurchase agreements to
provide interim financing of the Depositor's mortgage loans pending the sale of
such mortgage loans or interests therein, including the Securities.
115
<PAGE> 175
The Depositor anticipates that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Securities. Securityholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
As to each series of Securities, only those classes rated in one of the
four highest rating categories by any Rating Agency will be offered hereby. Any
unrated class may be initially retained by the Depositor, and may be sold by the
Depositor at any time to one or more institutional investors.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Securityholders of an investment in the Securities of a series, will be passed
upon for the Depositor by Cadwalader, Wickersham & Taft, Charlotte, North
Carolina or Hunton & Williams, Charlotte, North Carolina.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of Securities
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Offered Securities that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by Securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying assets and the
credit quality of the guarantor, if any. Ratings on mortgage pass-through
certificates and other asset backed securities do not represent any assessment
of the likelihood of principal prepayments by borrowers or of the degree by
which such prepayments might differ from those originally anticipated. As a
result, securityholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped interest certificates in extreme cases might fail
to recoup their initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
116
<PAGE> 176
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS FIRST
DEFINED
TERMS IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Accrual Securities........... 6
Accrued Security Interest.... 33
Adjustable Rate Assets....... 19
Agreements................... 6
ARM Contracts................ 23
ARM Loans.................... 20
ARM Unsecured Home
Improvement Loans.......... 22
Asset Conservation Act....... 70
Asset Group.................. 6
Asset Seller................. 19
Assets....................... i
Available Distribution
Amount..................... 32
Balloon Payment Assets....... 13
Bankruptcy Code.............. 68
Bi-weekly Assets............. 19
Book-Entry Securities........ 32
Buydown Assets............... 19
Buydown Funds................ 80
Buydown Mortgage Loans....... 29
Buydown Period............... 29
Capitalized Interest
Account.................... 5
Cash Flow Agreements......... i
Cede......................... iii
CERCLA....................... 69
Certificates................. i, 1
Cleanup Costs................ 69
Code......................... 8
Collection Account........... 44
Commission................... iii
Contract Lender.............. 63
Contract Rate................ 4
Contracts.................... i
Convertible Assets........... 19
Cooperative Loans............ 62
Cooperative.................. 62
Cooperatives................. 20
Covered Trust................ 17
CPR.......................... 28
Credit Support............... i
Crime Control Act............ 73
Cut-off Date................. 7
DCR.......................... 111
Debt Securities.............. 8
Definitive Securities........ 18
Deposit Trust Agreement...... 5
Depositor.................... 1
Determination Date........... 32
</TABLE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS FIRST
DEFINED
TERMS IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Disqualified Organization.... 91
Distribution Date............ 7
DOL.......................... 110
DTC.......................... iii
Due-on-Sale Clauses.......... 76
Due Period................... 32
EPA.......................... 70
ERISA........................ 10
Excess servicing............. 99
Exchange Act................. iii
Excluded Plan................ 112
Exemption.................... 10
Fannie Mae................... 14
FASIT........................ ii
FASIT Securities............. 8
FDIC......................... 44
Fitch........................ 111
Freddie Mac.................. 14
GEM Assets................... 19
Government Securities........ i
GPM Assets................... 19
Grantor Trust Fund........... 77
Grantor Trust Securities..... 8
Home Equity Loans............ 2
Home Improvement Contracts... 2
Home Ownership Act........... 15
Increasing Payment Assets.... 19
Indenture.................... 6
Indenture Servicing
Agreement.................. 40
Indenture Trustee............ 1
Indirect Participants........ 38
Insurance Proceeds........... 32
Interest Accrual Period...... 26
Interest Reduction Assets.... 19
Land Sale Contracts.......... 2
Level Payment Assets......... 19
Liquidation Proceeds......... 32
Loan-to-Value Ratio.......... 20
Lock-out Date................ 21
Lock-out Period.............. 21
Manufactured Home............ 3
Manufactured Housing
Contracts.................. 15
Mark to Market Regulations... 94
Master Servicer.............. 1
Model Law.................... 114
Moody's...................... 111
Mortgage Assets.............. i
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS FIRST
DEFINED
TERMS IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Mortgage Loans............... i
Mortgage Notes............... 20
Mortgage Participations...... i
Mortgage Rate................ 3
Mortgaged Properties......... 2
Mortgages.................... 20
Mortgagor.................... 62
Multifamily Mortgage Loan.... 20
Multifamily Properties....... 2
Multifamily Property......... 20
NAIC......................... 114
National Housing Act......... 15
NationsBank.................. 10
NCMI......................... 10
NCUA......................... 114
Non-Equity Securities........ 112
Non-Pro Rata Security........ 81
Nonrecoverable Advance....... 35
Non-U.S. Person.............. 96
Notes........................ i
OCC.......................... 114
Offered Securities........... i
OID Regulations.............. 77
Originators.................. 15
OTS.......................... 114
Participants................. 38
Parties in Interest.......... 110
Partnership Securities....... 8
Partnership Trust Fund....... 77
Pass-Through Entity.......... 91
Pass-Through Rate............ 6
PCBs......................... 69
Permitted Investments........ 44
Plan......................... 10
Plans........................ 110
Policy Statement............. 114
Pooling and Servicing
Agreement.................. 1
Pooling Servicing
Agreement.................. 40
Portfolio interest........... 115
Pre-Funded Amount............ 5
Pre-Funding Account.......... 5
Pre-Funding Period........... 5
Prepayment................... 27
Prepayment Assumption........ 82
Prepayment Premium........... 21
PTCE......................... 113
Purchase Price............... 41
Rating Agency................ 10
</TABLE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS FIRST
DEFINED
TERMS IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Record Date.................. 32
Refinance Loans.............. 20
Regular Securities........... 8
Regular Securityholder....... 81
Related Proceeds............. 35
Relief Act................... 73
REMIC........................ ii
REMIC Pool................... 77
REMIC Provisions............. 77
REMIC Regulations............ 77
REMIC Securities............. 40
REO Property................. 36
Residual Holders............. 88
Residual Securities.......... 8
Restricted Group............. 111
Retained Interest............ 51
Revolving Credit Line
Loans...................... 21
RICO......................... 73
S&P.......................... 111
SBJPA of 1996................ 80
Secured-creditor exemption... 69
Securities................... i
Security..................... 40
Security Balance............. 6
Security Owners.............. iii
Securityholders.............. iii
Senior Securities............ 6
Servicer..................... 1
Servicing Standard........... 47
Single Family Mortgage
Loan....................... 19
Single Family Properties..... 2
Single Family Property....... 19
SMMEA........................ 9
SMMEA Securities............. 113
SPA.......................... 28
Special Servicer............. 53
Standard Securities.......... 98
Startup Day.................. 78
Step-up Rate Assets.......... 19
Strip Securities............. 6
Stripped Securities.......... 101
Stripped Securityholder...... 102
Subordinate Securities....... 6
Subsequent Assets............ 5
Superliens................... 69
Taxable Mortgage Pools....... 78
Thrift institutions.......... 91
Tiered REMICs................ 80
Title V...................... 72
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS FIRST
DEFINED
TERMS IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Title VIII................... 72
Trust Agreement.............. 5
Trust Assets................. ii
Trust Fund................... i
Trustee...................... 1
U.S. Person.................. 92
UCC.......................... 38
Underlying Mortgage Loans.... 18
</TABLE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS FIRST
DEFINED
TERMS IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Underlying Servicing
Agreement.................. 1
Underwriter.................. 111
Unsecured Home Improvement
Loans...................... i
Value........................ 20
Voting Rights................ 53
Warranting Party............. 43
</TABLE>
<PAGE> 179
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses expected to be incurred in connection with the issuance and
distribution of the Securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ *
--------
Printing and Engraving Fees................................. *
--------
Legal Fees and Expenses..................................... *
--------
Accounting Fees and Expenses................................ *
--------
Trustee Fees and Expenses................................... *
--------
Rating Agency Fees.......................................... *
--------
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons, including officers and
directors, who are made, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the request
of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, for criminal proceedings, had no reasonable cause to believe that
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director actually and reasonably
incurred.
The By-laws of the Depositor provide for indemnification of officers and
directors to the full extent permitted by the Delaware General Corporation Law.
The Pooling and Servicing Agreement or Indenture for each series of
Securities will provide either that the Depositor and the partners, directors,
officers, employees and agents of the Depositor, or that the Servicer or Master
Servicer and the partners, directors, officers, employees and agents of the
Servicer or Master Servicer, will be entitled to indemnification by the Trust
Fund and will be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Agreement or the Securities,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of his or its
duties thereunder or by reason of reckless disregard of his or its obligations
and duties thereunder.
[The directors and officers of the Depositor are covered by a directors'
and officers' liability insurance policy maintained by NationsBank Corporation
for the benefit of all of its subsidiaries.]
II-1
<PAGE> 180
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <S>
1.1 -- Form of Underwriting Agreement.
4.1 -- Form of Pooling and Servicing Agreement.
4.2 -- Form of Indenture.
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
5.2 -- Opinion of Hunton & Williams.
8.1 -- Opinion of Cadwalader, Wickersham & Taft with respect to
certain tax matters.
8.2 -- Opinion of Hunton & Williams with respect to certain tax
matters.
24.1 -- Consent of Cadwalader, Wickersham & Taft (included as part
of Exhibits 5.1 and 8.1).
24.2 -- Consent of Hunton & Williams (included as part of Exhibit
5.2 and 8.2).
25.1 -- Powers of Attorney.*
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
A. Undertaking pursuant to Rule 415
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change of such information in the
Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in the post-effective amendment is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. Undertaking in connection with incorporation by reference of certain
filings under the Securities Exchange Act of 1934
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
II-2
<PAGE> 181
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
II-3
<PAGE> 182
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Charlotte,
State of North Carolina, on the 2nd day of October, 1997.
Nations Asset Securities, Inc.
By: /s/ MICHAEL WARDEN
------------------------------------
Name: Michael Warden
----------------------------------
Title: President
-----------------------------------
II-4
<PAGE> 183
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS PRE-EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ MICHAEL WARDEN President and Chief Executive October 2, 1997
- --------------------------------------------------- Officer
Michael Warden
* Senior Vice President and Chief October 2, 1997
- --------------------------------------------------- Financial Officer
Neil Cotty
* Treasurer and Chief Accounting October 2, 1997
- --------------------------------------------------- Officer
Craig Winterfield
* Director October 2, 1997
- ---------------------------------------------------
F. William Vandiver, Jr.
* Director October 2, 1997
- ---------------------------------------------------
William A. Hodges
* Director October 2, 1997
- ---------------------------------------------------
William L. Maxwell
Director October , 1997
- ---------------------------------------------------
James H. Luther
* By: /s/ ROBERT J. PERRET
-------------------------------------------
Robert J. Perret
Attorney-In-Fact(1)
</TABLE>
(1) Robert J. Perret, by signing his name hereto, does sign the document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange
Commission.
II-5
<PAGE> 184
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER NUMBERED PAGE
- ------- -------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement.
4.1 -- Form of Pooling and Servicing Agreement.
4.2 -- Form of Indenture.
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
5.2 -- Opinion of Hunton & Williams.
8.1 -- Opinion of Cadwalader, Wickersham & Taft with respect to
certain tax matters.
8.2 -- Opinion of Hunton & Williams with respect to tax matters.
24.1 -- Consent of Cadwalader, Wickersham & Taft (included as part
of Exhibits 5.1 and 8.1).
24.2 -- Consent of Hunton & Williams (included as part of Exhibits
5.2 and 8.2).
25.1 -- Powers of Attorney.*
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
NATIONSBANC ASSET SECURITIES, INC.
ASSET BACKED CERTIFICATE
CLASS ____
UNDERWRITING AGREEMENT
_____, 199__
[Name and Address
of
Underwriter]
Re: NationsBanc Asset Securities, Inc., Asset Backed
Certificates, Series 199_-__
Ladies and Gentlemen:
Pursuant to this Underwriting Agreement (this "Agreement"), NationsBanc Asset
Securities, Inc., a Delaware corporation (the "Company"), proposes to sell to
the addressee hereof (the "Underwriter"), the principal amount of the securities
identified in Schedule I hereto (the "Securities"), to be issued under a pooling
and servicing agreement (the "Pooling Agreement") to be dated as of _______ 1,
199__, among the Company, as depositor (the "Depositor"), ____________________,
as servicer (the "Servicer"), and ________________________________, as trustee
(the "Trustee"). Capitalized terms used and not otherwise defined herein have
the respective meanings ascribed to such terms in the Pooling Agreement.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, the Underwriter that:
(a) The Company meets the requirements for 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 on such Form (the file number of
which is set forth in Schedule I hereto), which has become effective,
for the registration under the Act of the Securities. Such registration
statement, as amended to the date of this Agreement, meets the
requirements set forth in Rule 415(a)(1) under the Act and complies in
all other material respects with said Rule. The Company proposes to
file with the Commission pursuant to Rule 424 under the Act a
supplement to the form of prospectus included in such registration
statement relating to the Securities and the plan of distribution
thereof and has previously advised the Underwriter of all further
information with respect to the Company and the Securities to be set
forth therein. Such registration statement, including the exhibits
thereto, as amended to the date of this Agreement, is hereinafter
called the "Registration Statement"; such prospectus in the form in
which it appears in the
<PAGE> 2
Registration Statement is hereinafter called the "Basic Prospectus";
and such supplemented form of prospectus, in the form in which it shall
be filed with the Commission pursuant to Rule 424 (including the Basic
Prospectus as so supplemented) is hereinafter called the "Final
Prospectus." Any preliminary form of the Final Prospectus which has
heretofore been filed pursuant to Rule 424 hereinafter is called the
"Preliminary Final Prospectus." Any reference herein to the
Registration Statement, the Basic Prospectus, any Preliminary Final
Prospectus or the Final Prospectus shall be deemed to refer to and
include the 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") other than any information
contained in any Current Report (as defined in Section 5(b) below)
filed pursuant to Section 5(b) hereof or pursuant to any other
underwriting agreement entered into by the Company, on or before the
date of this Agreement, or the issue date of the Basic Prospectus, any
Preliminary Final Prospectus 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 Final Prospectus or the Final Prospectus
shall be deemed to refer to and include the filing of any document
under the Exchange Act after the date of this Agreement, or the issue
date of the Basic Prospectus, any Preliminary Final Prospectus or the
Final Prospectus, as the case may be, and deemed to be incorporated
therein by reference other than any information contained in any
Current Report filed pursuant to Section 5(b) hereof or pursuant to any
other underwriting agreement entered into by the Company.
(b) As of the date hereof, when the Final Prospectus
is first filed pursuant to Rule 424 under the Act, when, prior to the
Closing Date (as hereinafter defined), any amendment to the
Registration Statement becomes effective (including the filing of any
document incorporated by reference in the Registration Statement), when
any supplement to the Final Prospectus is filed with the Commission and
at the Closing Date (as hereinafter defined), (i) the Registration
Statement, as amended as of any such time, and the Final Prospectus, as
amended or supplemented as of any such time, will comply in all
material respects with the applicable requirements of the Act and the
Exchange Act and the respective rules thereunder, (ii) the Registration
Statement, as amended as of any such time, 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 (iii) the Final Prospectus, as
amended or supplemented as of any such time, 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, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to (A) the information contained in or
omitted from the Registration Statement or the Final Prospectus or any
amendment thereof or supplement thereto in reliance upon and in
conformity with information furnished in writing to the Company by or
on behalf of the Underwriter specifically for use in connection with
the preparation of the Registration Statement and the Final Prospectus
or (B) any Current Report filed pursuant to Section 5(b) hereof.
-2-
<PAGE> 3
(c) The Company has been duly incorporated and is
validly existing as a corporation under the laws of the State of
Delaware and has corporate and other power and authority to own its
properties and conduct its business, as now conducted by it, and to
enter into and perform its obligations under this Agreement and the
Pooling Agreement.
(d) The Company is not aware of (i) any request by
the Commission for any further amendment of the Registration Statement
or the Basic Prospectus or for any additional information or (ii) the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement.
(e) This Agreement has been duly authorized, executed
and delivered by the Company, and the Pooling Agreement, when delivered
by the Company, will have been duly authorized, executed and delivered
by the Company, and will constitute a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, subject, as to the enforcement of remedies, to
applicable bankruptcy, insolvency, reorganization, moratorium,
receivership and similar laws affecting creditors' rights generally and
to general principles of equity (regardless of whether the enforcement
of such remedies is considered in a proceeding in equity or at law).
2. Purchase and Sale. Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to the Underwriter, and the Underwriter agrees to
purchase from the Company, at the purchase price set forth on Schedule I hereto,
the principal amount of each class of the Securities set forth on Schedule I
hereto.
3. Delivery and Payment. Delivery of and payment for the
Securities shall be made at the office, on the date and at the time specified on
Schedule I hereto, which date and time may be postponed by agreement between the
Underwriter and the Company (such date and time of delivery and payment for the
Securities being herein referred to as the "Closing Date"). Delivery of the
Securities shall be made to the Underwriter against payment by the Underwriter
of the purchase price thereof in the manner set forth on Schedule I hereto. If
Schedule I indicates that the Securities are to be issued in book-entry form,
delivery of the Securities shall be made through the facilities of the
depository or depositories set forth on Schedule I. Alternatively, physical
certificates for the Securities shall be registered in such names and in such
denominations as the Underwriter may request not less than three full business
days in advance of the Closing Date.
The Company agrees to have the Securities available for
inspection, checking and, in the case of physical certificates, packaging by the
Underwriter in New York, New York, not later than 1:00 p.m., New York City time,
on the business day prior to the Closing Date.
4. Representations, Warranties and Agreements of the
Underwriter. The Underwriter represents and warrants to, and agrees with, the
Company that it proposes to
-3-
<PAGE> 4
offer the Securities for sale to the public as set forth in the Final
Prospectus, and all offers and sales of the Securities made by it shall be so
made in compliance with all applicable laws and regulations.
5. Agreements of the Company. The Company agrees with
the Underwriter that:
(a) Prior to the termination of the offering of the
Securities, the Company will not file any amendment of the Registration
Statement or supplement (including the Final Prospectus) to the Basic
Prospectus unless the Company has furnished the Underwriter a copy for
its review prior to filing and will not file any such proposed
amendment or supplement to which the Underwriter reasonably objects.
Subject to the foregoing sentence, the Company will cause the Final
Prospectus to be mailed to the Commission for filing pursuant to Rule
424 by first class certified or registered mail or by overnight courier
and will cause the Final Prospectus to be filed with the Commission
pursuant to said Rule. The Company will advise the Underwriter promptly
(i) when the Final Prospectus shall have been mailed to the Commission
for filing pursuant to Rule 424, (ii) when any amendment to the
Registration Statement relating to the Securities shall have become
effective, (iii) of any request by the Commission for any amendment of
the Registration Statement or amendment of or supplement to the Final
Prospectus or for any additional information relating to the
Securities, (iv) 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 (v)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order described in clause (iv) of the
preceding sentence and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) The Company will cause or, if appropriate, will
have caused any Computational Materials, Collateral Term Sheets and ABS
Term Sheets (each as defined in Section 10 below) with respect to the
Securities which are delivered by the Underwriter to the Company
pursuant to or as contemplated by Section 10 to be filed with the
Commission on a Current Report on Form 8-K (the "Current Report")
pursuant to Rule 13a-11 under the Exchange Act not later than, in each
such case, the business day immediately following the day on which such
Computational Materials, Collateral Term Sheets or ABS Term Sheets are
delivered to counsel for the Company by the Underwriter as provided in
Section 10, and will promptly advise the Underwriter when each such
Current Report has been so filed. Notwithstanding the preceding
sentences, the Company shall have no obligation to file materials
provided by the Underwriter pursuant to or as contemplated by Section
10 which, in the reasonable determination of the Company after making
reasonable efforts to consult with the Underwriter, are not required to
be filed pursuant to the No-Action Letters (as defined in Section 10
below), or which contain erroneous information or contain any
-4-
<PAGE> 5
untrue statement of a material fact or, which, when read in conjunction
with the Final Prospectus, omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; it being understood, however, that the Company shall have
no obligation to review or pass upon the accuracy or adequacy of, or to
correct, any Computational Materials, Collateral Term Sheets or ABS
Term Sheets provided by the Underwriter to the Company pursuant to
Section 10 hereof.
(c) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Final Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if it shall be necessary to amend or supplement the
Final Prospectus to comply with the Act or the Exchange Act or the
respective rules thereunder, the Company promptly will prepare and file
with the Commission, subject to the first sentence of paragraph (a) of
this Section 5, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance
and will use its best efforts to cause any required post-effective
amendment to the Registration Statement containing such amendment to be
made effective as soon as possible.
(d) The Company will furnish to the Underwriter and
counsel for the Underwriter, without charge, executed copies of the
Registration Statement (including exhibits thereto) and each amendment
thereto which shall become effective on or prior to the Closing Date
and, so long as delivery of a prospectus relating to the Securities by
the Underwriter or dealer may be required by the Act, as many copies of
any Preliminary Final Prospectus and the Final Prospectus and any
amendments thereof and supplements thereto as the Underwriter may
reasonably request. The Company will pay the expenses of printing all
documents relating to the initial offering of the Securities, provided
that any additional expenses incurred in connection with the
requirement of delivery of a market-making prospectus will be borne by
the Underwriter.
(e) The Company will arrange for the qualification of
the Securities for sale under the laws of such jurisdictions as the
Underwriter may reasonably designate, will maintain such qualifications
in effect so long as required for the distribution of the Securities
and will arrange for the determination of the legality of the
Securities for purchase by institutional investors; provided, however,
that the Company 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.
6. Conditions to the Obligations of the Underwriter. The
obligation of the Underwriter to purchase the Securities shall be subject to the
accuracy of the representations and warranties on the part of the Company
contained herein as of the date hereof, as of the date of the effectiveness of
any amendment to the Registration Statement filed prior to the
-5-
<PAGE> 6
Closing Date (including the filing of any document incorporated by reference
therein) and as of the Closing Date, to the accuracy of the statements of the
Company made in any certificates delivered pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been instituted
or threatened; and the Final Prospectus shall have been filed or mailed
for filing with the Commission within the time period prescribed by the
Commission.
(b) The Company shall have furnished to the
Underwriter the opinion of [Cadwalader, Wickersham & Taft] [Hunton &
Williams], counsel for the Company and the Underwriter, dated the
Closing Date, to the effect of paragraphs (iii), (vi), (vii), (ix) and
(xiii) below, and the opinion of Robert W. Long, Jr., special counsel
to the Company, dated the Closing Date, to the effect of paragraphs
(i), (ii), (iv), (v), (viii), (x), (xi) and (xii) below:
(i) the Company is a duly incorporated
and validly existing corporation in good standing under the
laws of the State of Delaware, has the corporate power and
authority to own its properties and conduct its business as
described in the Final Prospectus;
(ii) the Company has no subsidiaries and
is not required to be qualified or licensed to do business as
a foreign corporation in any jurisdiction;
[(iii) assuming that the Securities are
rating at the time of transfer to the Underwriter in one of
the two highest rating categories by a nationally recognize
statistical rating organization, each such Security at such
time will be a "mortgage related security" as such term is
defined in Section 3(a)(41) of the Exchange Act;]
(iv) the Pooling Agreement has been duly
authorized, executed and delivered by the Company;
(v) the Securities have been duly
authorized by the Company;
(vi) upon due authorization, execution
and delivery by the parties thereto, the Pooling Agreement
will constitute a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium,
receivership or other laws relating to creditors' rights
generally, and to general principles of equity including
principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a
proceeding at law or in
-6-
<PAGE> 7
equity), and except that the enforcement of rights with
respect to indemnification and contribution obligations may be
limited by applicable law;
(vii) the Securities, when duly executed,
authenticated and delivered in the manner contemplated in the
Pooling Agreement and paid for by the Underwriter pursuant to
this Agreement, will be validly issued and outstanding and
entitled to the benefits of the Pooling Agreement;
(viii) to the best 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 the Company 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 Registration Statement or
Final Prospectus, or to be filed as an exhibit thereto, which
is not described or filed as required;
(ix) the Registration Statement has
become effective under the Act; to the best knowledge of such
counsel (a) no stop order suspending the effectiveness of the
Registration Statement with respect to the Securities has been
issued and no proceedings for that purpose have been
instituted or are pending or are threatened under the Act; and
(b) the Registration Statement, as of its effective date, and
the Final Prospectus, as of the date thereof, and each
revision or amendment thereof or supplement thereto relating
to the Securities, as of its effective date, appeared on their
respective faces to be appropriately responsive in all
material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder applicable to
such documents as of such respective dates; and, as of the
date of the Final Prospectus, the statements set forth in the
Final Prospectus under the headings "ERISA Considerations" and
"Federal Income Tax Consequences" were, to the extent that
they summarize matters of federal law or legal conclusions,
correct in all material respects;
(x) this Agreement has been duly
authorized, executed and delivered by the Company;
(xi) no consent, approval, authorization
or order of 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 and
such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution
of the Securities by the Underwriter and such other approvals
(specified in such opinion) as have been obtained;
(xii) neither the issue and sale of the
Securities, nor the consummation of any other of the
transactions herein contemplated nor the
-7-
<PAGE> 8
fulfillment of the terms hereof will conflict with, result in
a breach of, or constitute a default under the certificate of
incorporation or by-laws of the Company or, to the best
knowledge of such counsel, the terms of any indenture or other
agreement or instrument known to such counsel and to which the
Company is a party or by which it is bound, or any order or
regulation known to such counsel to be applicable to the
Company of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the
Company;
(xiii) the Pooling Agreement is not
required to be qualified under the Trust Indenture Act of
1939, as amended and the Trust Fund is not required to be
registered under the Investment Company Act of 1940, as
amended.
Such opinion may express its reliance as to factual
matters on the representations and warranties made by, and on
certificates or other documents furnished by officer of, the parties to
this Agreement and the Pooling Agreement. Such opinion may be qualified
as an opinion only on the laws of the State of New York, the laws of
each state in which the writer of the opinion is admitted to practice
law and the Federal law of the United States. To the extent that such
firm relies upon the opinion of other counsel in rendering any portion
of its opinion, the opinion of such other counsel shall be attached to
and delivered with the opinion of such firm that is delivered to the
Underwriter.
(c) The Company shall have furnished to the
Underwriter a letter, dated the Closing Date, of [Cadwalader,
Wickersham & Taft] [Hunton & Williams], counsel to the Company, to the
effect that in the course of such counsel's review of the Registration
Statement and the Final Prospectus and discussion of the same with
certain officers of the Company and its auditors, no facts came to the
attention of such counsel that caused such counsel to believe that the
Registration Statement, as of its effective date, or the Final
Prospectus, as of the date, or any revision or amendment thereof or
supplement thereto, as of its effective date, 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, in the light of the circumstances under which they were made,
or misleading, or that the Final Prospectus, or any revision or
amendment thereof or supplement thereto filed prior to the date of such
opinion, as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; it being understood that such
counsel need express no opinion as to any financial statements or other
financial, numerical or statistical data contained in the Registration
Statement or the Final Prospectus or any material incorporated by
reference in the Registration Statement or the Prospectus.
-8-
<PAGE> 9
(d) The Underwriter shall have received copies,
addressed to it or on which it is entitled to rely, of opinions of
counsel furnished to the rating agencies rating the Securities as set
forth on Schedule I hereto (the "Rating Agencies").
(e) The Company shall have furnished to the
Underwriter a certificate of the Company, signed by an authorized
officer thereof, and dated the Closing Date, to the effect that the
signer(s) of such certificate has carefully examined the Registration
Statement, the Final Prospectus and this Agreement and that to the best
of his or her knowledge:
(i) the representations and warranties
of the Company 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 the Company 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;
(ii) no stop order suspending the
effectiveness of the Registration Statement, as amended, has
been issued and no proceedings for that purpose have been
instituted or threatened; and
(iii) since the respective dates as of
which information is given in the Final Prospectus, there has
been no material adverse change in the condition (financial or
other), earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in
the Final Prospectus.
(f) On the date hereof, Price Waterhouse, LLP and/or
any other firm of certified independent public accountants acceptable
to the Underwriter shall have furnished to the Underwriter a letter,
dated the date hereof, in form and substance satisfactory to the
Underwriter, 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 in
effect that using the assumptions and methodology used by the Company,
all of which shall be described in such letter, they have recalculated
such numbers and percentages set forth in the Final Prospectus as the
Underwriter may reasonably request and as are agreed to by such
accountants, compared the results of their calculations to the
corresponding items in the Final Prospectus, and found each such number
and percentage set forth in the Final Prospectus to be in agreement
with the results of such calculations. To the extent historical
financial information with respect to the Company and/or historical
financial, delinquency or related information with respect to one or
more servicers is included in the Final Prospectus, such letter or
letters shall also relate to such information.
(g) The Securities shall have received the rating or
ratings from the Rating Agencies as set forth on Schedule I hereto.
-9-
<PAGE> 10
(h) Prior to the Closing Date, the Company shall have
furnished to the Underwriter such further information, certificates,
opinions and documents as the Underwriter may reasonably request.
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 its counsel, 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 Company in writing, or by telephone or
telegraph and confirmed in writing.
7. Reimbursement of Underwriter's Expenses. If the sale
of the Securities provided for herein is not consummated because any condition
to the obligations of the Underwriter set forth in Section 3 hereof is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by the Underwriter, the Company 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
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution.
(a) The Company agrees 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, liabilities and actions, 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, in equity or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or cost of investigation 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 as originally filed or in any amendment thereof, or in the
Basic Prospectus, any Preliminary Final Prospectus or the Final
Prospectus, or in any amendment thereof or supplement thereto, or arise
out of or are based upon any omission or any 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 for any legal and other fees, costs and
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that (i) the Company will not be liable in any such
case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein
(A) in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriter
specifically for use in connection with the preparation thereof or (B)
in any Current Report or any amendment or supplement thereof, except to
the extent that
-10-
<PAGE> 11
any untrue statement or alleged untrue statement therein results (or is
alleged to have resulted) directly from an error (a "Collateral Error")
in the information concerning the Mortgage Loans furnished by the
Company to the Underwriter in writing or by electronic transmission
that was used in the preparation of any Computational Materials,
Collateral Term Sheets or ABS Term Sheets included in such Current
Report (or amendment or supplement thereof), (ii) such indemnity with
respect to the Basic Prospectus or any Preliminary Final Prospectus
shall not inure to the benefit of the Underwriter (or any person
controlling the Underwriter) if the person asserting any such loss,
claim, damage or liability purchased the Securities from the
Underwriter did not receive a copy of the Final Prospectus (or the
Final Prospectus as amended or supplemented) excluding documents
incorporated therein by reference, at or prior to the confirmation of
the sale of such Securities to 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 Basic Prospectus or any Preliminary
Final Prospectus was corrected in the Final Prospectus (or the Final
Prospectus as amended or supplemented and is found by a court of law or
equity to have caused the loss), and (iii) such indemnity with respect
to any Collateral Error shall not inure to the benefit of the
Underwriter (or any person controlling the Underwriter) if the person
asserting any loss, claim, damage or liability received any
Computational Materials, Collateral Term Sheets or ABS Term Sheets from
the Underwriter that were prepared on the basis of such Collateral
Error, and, prior to the time of confirmation of the sale of the
Securities to the person, the Company notified the Underwriter in
writing of the Collateral Error or provided in written or electronic
form information superseding or correcting such Collateral Error (in
any such case, a "Corrected Collateral Error"), and the Underwriter
failed to notify such person thereof or to deliver such person
corrected Computational Materials, Collateral Term Sheets and/or ABS
Term Sheets, as applicable. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, to
the same extent as the foregoing indemnity from the Company to the
Underwriter, but only with reference to (A) written information
relating to the Underwriter furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation of the
documents referred to in the foregoing indemnity, or (B) any
Computational Materials, Collateral Term Sheets or ABS Term Sheets
furnished to the Company by the Underwriter pursuant to or as
contemplated by Section 10 (except that no such indemnity shall be
available for any losses, claims, damages or liabilities, or actions in
respect thereof resulting from any Collateral Error, other than a
Corrected Collateral Error). This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have. The
Company acknowledges that the statements set forth in the last
paragraph of the cover page and under the heading "Underwriting" or
"Plan of Distribution" in any Preliminary Final Prospectus or the Final
Prospectus constitute the only information furnished in writing by or
on behalf of the Underwriter for inclusion in the documents
-11-
<PAGE> 12
referred to in the foregoing indemnity (other than the Computational
Materials, Collateral Term Sheets and/or ABS Term Sheets furnished to
the Company by the Underwriter).
(c) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action or
investigation, 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; provided, that 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
investigation is commenced by or against an indemnified party or any
such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein, and, to the extent that
it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified
party, to participate in the investigation and/or to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, that if the defendants in any such investigation and/or action
include or are likely to include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded at some point during the investigation and/or action 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 assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to
participate in the investigation and/or to assume the defense of such
action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such 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
connection with the assertion of legal defenses in accordance with the
proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of
more than one separate counsel, approved by the Underwriter in the case
of subparagraph (a) and the Company in the case of subparagraph (b),
representing the indemnified parties under subparagraph (a) or (b), as
the case may be, who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after
notice of commencement of the action or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party; and except that if clause (i) or
(iii) is applicable, such liability shall be only in respect of the
counsel referred to in such clause (i) or (iii).
(d) To provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph
(a) or (b) of this Section 8 is due
-12-
<PAGE> 13
in accordance with its terms but is for any reason held by a court to
be unavailable from the Company or the Underwriter on the grounds of
policy or otherwise, the Company and the Underwriter shall contribute
to the aggregate losses, claims, damages, liabilities and actions
(including legal and other fees, costs and expenses reasonably incurred
in connection with investigating or defending same) to which the
Company and the Underwriter may be subject, as follows:
(i) in the case of any losses, claims, damages
and liabilities (or actions in respect thereof) which do not arise out
of or are not based upon any untrue statement or omission of a material
fact in any Computational Materials, Collateral Term Sheets or ABS Term
Sheets, 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 Securities specified in Schedule I hereto and the Company is
responsible for the balance; provided, however, that in no case shall
the Underwriter be responsible under this subparagraph (i) for any
amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriter hereunder; and
(ii) in the case of any losses, claims, damages
and liabilities (or actions in respect thereof) which arise out of or
are based upon any untrue statement or omission of a material fact in
any Computational Materials, Collateral Term Sheets or ABS Term Sheets,
in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and the Underwriter on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof)
as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact in such
Computational Materials, Collateral Term Sheets or ABS Term Sheets
results from information prepared by the Company on the one hand or the
Underwriter on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
Notwithstanding anything to the contrary in this paragraph (d), 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 either the Act or the Exchange
Act shall have the same rights to contribution as the Underwriter, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the preceding 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
-13-
<PAGE> 14
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).
9. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its 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 or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof and this Section 9 shall survive the termination or
cancellation of this Agreement.
10. Computational Materials and ABS Term Sheets.
(a) Not later than 10:30 a.m., New York City time, on
a date no later than four business days before delivery of the Final
Prospectus to the Underwriter, the Underwriter shall deliver to the
Company five complete copies of all materials provided by the
Underwriter to prospective investors in the Securities which constitute
either (i) "Computational Materials" within the meaning of the
no-action letter dated May 20, 1994 issued by the Division of
Corporation Finance of the Commission to Kidder, Peabody Acceptance
Corporation I, Kidder, Peabody & Co. Incorporated, and Kidder
Structured Asset Corporation and the no-action letter dated May 27,
1994 issued by the Division of Corporation Finance of the Commission to
the Public Securities Association (together, the "Kidder Letters") or
(ii) "ABS Term Sheets" within the meaning of the no-action letter dated
February 17, 1995 issued by the Division of Corporation Finance of the
Commission to the Public Securities Association (the "PSA Letter" and
together with the Kidder Letters, the "No-Action Letters"), if the
filing of such materials with the Commission is a condition of the
relief granted in such letters. In the case of any such materials that
constitute "Collateral Term Sheets" within the meaning of the PSA
Letter, if such Collateral Term Sheets have not previously been
delivered to the Company as contemplated by Section 10(b)(i) below,
five complete copies of such Collateral Term Sheets shall be delivered
by the Underwriter to the Company no later than 10:30 a.m., New York
City time, on the first business day following the date on which such
Collateral Term Sheets were initially provided to a potential investor.
Each delivery of Computational Materials, Collateral Term Sheets and/or
ABS Term Sheets to the Company pursuant to this paragraph (a) shall be
effected by delivering four copies of such materials to counsel for the
Company on behalf of the Company at the address specified in Section 15
hereof and one copy of such materials to the Company.
(b) The Underwriter represents and warrants to and
agrees with the Company, as of the date hereof and as of the Closing
Date, that:
(i) if the Underwriter has provided any
Collateral Term Sheets to potential investors in the
Securities prior to the date hereof and if the
-14-
<PAGE> 15
filing of such materials with the Commission is a condition of
the relief granted in the PSA Letter, then in each such case
the Underwriter delivered four copies of such materials to
counsel for the Company on behalf of the Company at the
address specified in Section 15 hereof and one copy of such
materials to the Company no later than 10:30 a.m., New York
City time, on the first business day following the date on
which such materials were initially provided to a potential
investor;
(ii) the Computational Materials (either
in original, aggregated or consolidated form), Collateral Term
Sheets and ABS Term Sheets furnished to the Company pursuant
to Section 10(a) or as contemplated in Section 10(b)(i)
constitute all of the materials relating to the Securities
furnished by the Underwriter (whether in written, electronic
or other format) to prospective investors in the Securities
which are required to be filed with the Commission in
accordance with the No-Action Letters, and all Computational
Materials, Collateral Term Sheets and ABS Term Sheets provided
to potential investors in the Securities comply with the
requirements of the No-Action Letters;
(iii) on the respective dates any such
Computational Materials and/or ABS Term Sheets with respect to
the Securities referred to in Section 10(b)(ii) were last
furnished to each prospective investor, on the date of
delivery thereof to the Company pursuant to or as contemplated
by this Section 10 and on the Closing Date, such Computational
Materials, Collateral Term Sheets and/or ABS Term Sheets did
not and will not include any untrue statement of a material
fact, or, when read in conjunction with the Final Prospectus,
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(iv) at the time any Computational
Materials, Collateral Term Sheets or ABS Term Sheets with
respect to the Securities were furnished to a prospective
investor and on the date hereof, the Underwriter possessed,
and on the date of delivery of such materials to the Company
pursuant to or as contemplated by this Section 10 and on the
Closing Date, the Underwriter will possess, the capability,
knowledge, expertise, resources and systems of internal
control necessary to ensure that such Computational Materials,
Collateral Term Sheets and/or ABS Term Sheets conform to the
representations and warranties of the Underwriter contained in
subparagraphs (ii) and (iii) above of this paragraph (b);
(v) all Computational Materials,
Collateral Term Sheets and ABS Term Sheets with respect to the
Securities furnished to potential investors contained and will
contain a legend, prominently displayed on the first page
thereof, to the effect that the Company has not prepared,
reviewed or participated in the preparation of such
Computational Materials, Collateral
-15-
<PAGE> 16
Term Sheets or ABS Term Sheets, is not responsible for the
accuracy thereof and has not authorized the dissemination
thereof;
(vi) all Collateral Term Sheets with
respect to the Securities furnished to potential investors
contained and will contain a legend, prominently displayed on
the first page thereof, indicating that the information
contained therein will be superseded by the description of the
Mortgage Loans contained in the Final Prospectus and, except
in the case of the initial Collateral Term Sheet, that such
information supersedes the information in all prior Collateral
Term Sheets; and
(vii) on and after the date hereof, the
Underwriter shall not deliver or authorize the delivery of any
Computational Materials, Collateral Term Sheets, ABS Term
Sheets or other materials relating to the Securities (whether
in written, electronic or other format) to any potential
investor unless such potential investor has received a Final
Prospectus prior to or at the same time as the delivery of
such Computational Materials, Collateral Term Sheets, ABS Term
Sheets or other materials.
Notwithstanding the foregoing, the Underwriter makes no representation or
warranty as to whether any Computational Materials, Collateral Term Sheets or
ABS Term Sheets with respect to the Securities included or will include any
untrue statement resulting directly from any Collateral Error (except any
Corrected Collateral Error, with respect to materials prepared after the receipt
by the Underwriter from the Company of notice of such Corrected Collateral Error
or materials superseding or correcting such Corrected Collateral Error).
(c) The Underwriter acknowledges and agrees that the
Company has not authorized and will not authorize the distribution of
any Computational Materials, Collateral Term Sheets or ABS Term Sheets
with respect to the Securities to any prospective investor, and agrees
that any such Computational Materials, Collateral Term Sheets and/or
ABS Term Sheets furnished to prospective investors shall include a
disclaimer in the form set forth in paragraph (b)(v) above. The
Underwriter agrees that it will not represent to potential investors
that any Computational Materials, Collateral Term Sheets and/or ABS
Term Sheets with respect to the Securities were prepared or
disseminated on behalf of the Company.
(d) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, it shall be
necessary to amend or supplement the Final Prospectus as a result of an
untrue statement of a material fact contained in any Computational
Materials, Collateral Term Sheets or ABS Term Sheets provided by the
Underwriter pursuant to or as contemplated by this Section 10 or the
omission to state therein a material fact required, when considered in
conjunction with the Final Prospectus, to be stated therein or
necessary to make the statements therein, when read in conjunction with
the Final Prospectus, not misleading, or if it shall be necessary to
amend or supplement any Current Report to comply with the Act or the
rules
-16-
<PAGE> 17
thereunder, the Underwriter, at its expense, promptly will prepare and
furnish to the Company for filing with the Commission an amendment or
supplement which will correct such statement or omission or an
amendment which will effect such compliance. The Underwriter represents
and warrants to the Company, as of the date of delivery of such
amendment or supplement to the Company, that such amendment or
supplement will not include any untrue statement of a material fact or,
when read in conjunction with the Final Prospectus, omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Company shall have no obligation
to file such amendment or supplement if the Company determines that (i)
such amendment or supplement contains any untrue statement of a
material fact or, when read in conjunction with the Final Prospectus,
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (it being
understood, however, that the Company shall have no obligation to
review or pass upon the accuracy or adequacy of, or to correct, any
such amendment or supplement provided by the Underwriter to the Company
pursuant to this paragraph (d)) or (ii) such filing is not required
under the Act.
(e) The Underwriter (at its own expense) further
agree to provide to the Company any accountants' letters obtained
relating to the Computational Materials, Collateral Term Sheets and/or
ABS Term Sheets, which accountants' letters shall be addressed to the
Company or shall state that the Company may rely thereon; provided,
however, that the Underwriter shall have no obligation to procure such
letter.
11. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for the Securities, 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 North Carolina authorities or (iii) there shall have
occurred any outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United States is such
as to make it, in the judgment of the Underwriter, impracticable to market the
Securities.
12. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto, each person or entity, if any, who
controls the Company or the Underwriter (within the meaning of either Section 15
of the Act, of Section 20 of the Exchange Act) and their respective successors,
and assigns, and no other person will have any right or obligation hereunder.
13. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
14. Miscellaneous.
-17-
<PAGE> 18
(a) This Agreement supersedes all prior or contemporaneous
agreements and understandings relating to the subject matter hereof.
(b) Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated except by a writing signed by the party against
whom enforcement of such change, waiver, discharge or termination is sought.
(c) This Agreement may be signed in any number of counterparts
each of which shall be deemed an original, which taken together shall constitute
one and the same instrument.
(d) The headings of the Sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
15. Notices. All communications hereunder will be in writing
and effective only upon receipt and, if sent to the Underwriter, will be
delivered to [ ], Attention: [ ], or if sent to
the Company, will be delivered to the Company at NationsBank Corporate Center,
Charlotte, NC 28255, in either case, with a copy to [ ].
-18-
<PAGE> 19
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
between the Company and the Underwriter.
Very truly yours,
NATIONSBANC ASSET SECURITIES, INC.
By:
-----------------------------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date specified on
Schedule I hereto.
[UNDERWRITER]
By:
--------------------------------
Name:
Title:
-19-
<PAGE> 20
SCHEDULE I
Underwriting Agreement dated ______, 199__
Registration Statement No:
Underwriter:
Title, Purchase Price and Description of Securities:
Title: NationsBanc Asset Securities, Inc. Asset Backed Certificates, Series
199__-___
<TABLE>
<CAPTION>
================================================================================
Principal Ratings by Method of
Class Amount and Delivery
----- ------ ---------- --------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
Rating Agencies:
___________________________("_____"); ______________________. ("_____")
Closing Time, Date and Location:
10:00 A.M. on _______, 199__ at the offices of [ ].
Depository:
Purchase Price: The Purchase Price for each Class of Securities will be ____%
of the principal amount thereof.
Payment Method: Immediately available funds.
SCH I-1
<PAGE> 1
EXHIBIT 4.1
====================================================
NATIONSBANC ASSET SECURITIES, INC.
Company,
and
----------------------------
Servicer
and
------------------------------
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of ____________, 199_
Asset-Backed Certificates
Series 199
--
====================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I
<S> <C>
DEFINITIONS......................................................................1
Section 1.01 CERTAIN DEFINED TERMS..........................................1
Accepted Servicing Practices.....................................................1
Account ........................................................................2
Accrual Period...................................................................2
Addition Notice..................................................................2
Affiliate........................................................................2
Agreement........................................................................2
Appraised Value..................................................................2
Assignment Of Mortgage...........................................................2
Authorized Denominations.........................................................2
Available Funds..................................................................2
Available Funds Shortfall........................................................2
Business Day.....................................................................2
Capitalized Interest Account.....................................................2
Capitalized Interest Amount......................................................2
Certificate......................................................................3
Certificate Account..............................................................3
Certificateholder or Holder......................................................3
Certificate Insurance Payments Account...........................................3
Certificate Insurance Policy.....................................................3
Certificate Insurer..............................................................3
Certificate Insurer Default......................................................3
Certificate Register.............................................................3
Class A Carry-Forward Amount.....................................................3
Class A Certificate..............................................................3
Class A Certificateholder........................................................3
Class A Interest Distribution Amount.............................................3
Class A Pass-Through Rate........................................................3
Class A Principal Distribution Amount............................................4
Class A-1 Certificate............................................................4
Class A-2 Certificate............................................................4
Class A-3 Certificate............................................................4
Class A-4 Certificate............................................................4
Class R Certificate..............................................................5
Class R Certificateholder........................................................5
Closing Date.....................................................................5
Code ...........................................................................5
Collection Account...............................................................5
Combined Loan-to-Value Ratio.....................................................5
Commission.......................................................................5
Company ........................................................................5
Compensating Interest............................................................5
Curtailment......................................................................5
Custodian........................................................................5
Cut-off Date.....................................................................5
DCR..............................................................................5
Debt Service Reduction...........................................................5
Deficient Valuation..............................................................5
Deleted Mortgage Loan............................................................5
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Delinquent.......................................................................5
Depository.......................................................................6
Direct Participant...............................................................6
Disqualified Organization........................................................6
Distribution Date................................................................6
Due Date ........................................................................6
Due Period.......................................................................6
Eligible Account.................................................................6
ERISA ...........................................................................6
Event Of Default.................................................................6
Excess Subordinated Amount.......................................................6
FDIC ...........................................................................7
FHLMC ...........................................................................7
FNMA ...........................................................................7
Fitch............................................................................7
Foreclosure Profits..............................................................7
GAAP ...........................................................................7
Indirect Participant.............................................................7
Initial Capitalized Interest Amount..............................................7
Initial Mortgage Loan............................................................7
Initial Specified Subordinated Amount............................................7
Insurance Agreement..............................................................7
Insurance Proceeds...............................................................7
Insured Distribution Amount......................................................7
Insured Payment..................................................................7
Liquidated Loan Loss.............................................................7
Liquidated Mortgage Loan.........................................................8
Liquidation Expenses.............................................................8
Liquidation Proceeds.............................................................8
Loan Repurchase Price............................................................8
Loan-to-Value Ratio or LTV.......................................................8
Majority Certificateholders......................................................8
Monthly Payment..................................................................8
Moody's ........................................................................8
Mortgage ........................................................................8
Mortgage File....................................................................8
Mortgage Impairment Insurance Policy.............................................8
Mortgage Interest Rate...........................................................8
Mortgage Loan....................................................................8
Mortgage Loan Schedule...........................................................8
Mortgage Note....................................................................9
Mortgaged Property...............................................................9
Mortgagor........................................................................9
Net Foreclosure Profits..........................................................10
Net Liquidation Proceeds.........................................................10
Net Monthly Excess Cashflow......................................................10
Net Mortgage Interest Rate.......................................................10
Net REO Proceeds.................................................................10
Nonrecoverable Advances..........................................................10
Non-United States Person.........................................................10
Officer's Certificate............................................................10
Opinion of Counsel...............................................................10
Original Pool Principal Balance..................................................10
Original Pre-Funded Amount.......................................................10
Original Security Balance........................................................10
Outstanding Mortgage Loan........................................................11
Ownership Interest...............................................................11
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Owner-Occupied Mortgaged Property................................................11
Percentage Interest..............................................................11
Periodic Advance.................................................................11
Permitted Investments............................................................11
Permitted Transferee.............................................................12
Person...........................................................................12
Plan ...........................................................................12
Policy Business Day..............................................................12
Pool Principal Amount............................................................12
Preference Amount................................................................12
Preference Claim.................................................................12
Pre-Funded Amount................................................................12
Pre-Funding Account..............................................................12
Pre Funding Period...............................................................12
Premium Amount...................................................................12
Premium Exhibit..................................................................12
Premium Percentage...............................................................12
Prepayment Interest Shortfall....................................................12
Principal Balance................................................................13
Principal Prepayment in Full.....................................................13
Purchase Agreement...............................................................13
Principal Remittance Amount......................................................13
Qualified Mortgage...............................................................13
Qualified Substitute Mortgage Loan...............................................13
Rating Agency....................................................................13
Record Date......................................................................13
Released Mortgaged Property Proceeds.............................................13
REMIC ...........................................................................13
REMIC Provisions.................................................................13
Reimbursement Amount.............................................................14
REO Acquisition..................................................................14
REO Disposition..................................................................14
REO Mortgage Loan................................................................14
REO Proceeds.....................................................................14
REO Property.....................................................................14
Representation Letter............................................................14
Request for Release..............................................................14
Required Subordinated Amount.....................................................14
Residential Dwelling.............................................................14
Responsible Officer..............................................................14
S&P..............................................................................14
Second Mortgage Loan.............................................................14
Security Balance.................................................................14
Seller...........................................................................15
Senior Mortgage Loan.............................................................15
Servicer.........................................................................15
Servicer Remittance Amount.......................................................15
Servicer Remittance Date.........................................................15
Servicing Account................................................................15
Servicing Advances...............................................................15
Servicing Compensation...........................................................15
Servicing Fee....................................................................15
Servicing Officer................................................................16
Startup Day......................................................................16
Subordinated Amount..............................................................16
Subordination Deficiency Amount..................................................16
Subordination Deficit............................................................16
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Subordination Increase Amount....................................................16
Subordination Reduction Amount...................................................16
Subsequent Cut-off Date..........................................................16
Subsequent Mortgage Loan.........................................................16
Subsequent Transfer Date.........................................................16
Subsequent Transfer Instrument...................................................16
Substitution Adjustment..........................................................16
Tax Matters Person...............................................................17
Tax Return.......................................................................17
Transfer ........................................................................17
Transfer Affidavit And Agreement.................................................17
Transferee.......................................................................17
Transferor.......................................................................17
Trustee ........................................................................17
Trustee Fee......................................................................17
Trustee Remittance Report........................................................17
Trust Fund.......................................................................17
UCC..............................................................................17
UCC Financing Statement..........................................................17
Underwriting Guidelines..........................................................17
United States Person.............................................................17
Unpaid REO Amortization..........................................................17
Section 1.02 PROVISIONS OF GENERAL APPLICATION..............................18
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES................................................19
Section 2.01 CONVEYANCE OF MORTGAGE LOANS; SPECIAL DEPOSIT;
PRIORITY AND SUBORDINATION OF OWNERSHIP INTERESTS..............19
Section 2.02 POSSESSION OF MORTGAGE FILES; ACCESS TO MORTGAGE FILES.........20
Section 2.03 DELIVERY OF MORTGAGE LOAN DOCUMENTS AND CERTIFICATE
INSURANCE POLICY...............................................20
Section 2.04 ACCEPTANCE BY TRUSTEE OF THE TRUST FUND; CERTAIN
SUBSTITUTIONS; CERTIFICATION BY TRUSTEE........................21
Section 2.05 EXECUTION OF CERTIFICATES......................................22
Section 2.06 FURTHER ACTION EVIDENCING ASSIGNMENTS..........................23
Section 2.07 [RESERVED].....................................................23
Section 2.08 CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS....................23
ARTICLE III
REPRESENTATIONS AND WARRANTIES...................................................25
Section 3.01 REPRESENTATIONS OF THE SERVICER................................25
Section 3.02 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.......25
Section 3.03 PURCHASE AND SUBSTITUTION......................................26
</TABLE>
iv
<PAGE> 6
ARTICLE IV
<TABLE>
<S> <C>
THE CERTIFICATES.................................................................28
Section 4.01 THE CERTIFICATES...............................................28
Section 4.02 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES..........28
Section 4.03 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES..............32
Section 4.04 PERSONS DEEMED OWNERS..........................................32
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS...............................33
Section 5.01 APPOINTMENT OF THE SERVICER....................................33
Section 5.02 [Reserved].....................................................34
Section 5.03 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS;
COLLECTION ACCOUNT.............................................34
Section 5.04 PERMITTED WITHDRAWALS FROM THE COLLECTION ACCOUNT..............35
Section 5.05 PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES..................36
Section 5.06 MAINTENANCE OF CASUALTY INSURANCE..............................36
Section 5.07 MAINTENANCE OF MORTGAGE IMPAIRMENT INSURANCE POLICY............37
Section 5.08 FIDELITY BOND; ERRORS AND OMISSIONS POLICY.....................37
Section 5.09 COLLECTION OF TAXES, ASSESSMENTS AND OTHER ITEMS;
SERVICING ACCOUNT..............................................37
Section 5.10 PERIODIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION; ADDITIONAL INFORMATION.............................38
Section 5.11 ENFORCEMENT OF DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS......38
Section 5.12 REALIZATION UPON DEFAULTED MORTGAGE LOANS......................39
Section 5.13 TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES................41
Section 5.14 SERVICING FEE; SERVICING COMPENSATION..........................41
Section 5.15 REPORTS TO THE TRUSTEE AND THE COMPANY; COLLECTION
ACCOUNT STATEMENTS.............................................41
Section 5.16 ANNUAL STATEMENT AS TO COMPLIANCE..............................42
Section 5.17 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT........42
Section 5.18 OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS..................42
Section 5.19 REPORTS TO BE PROVIDED BY THE SERVICER.........................42
Section 5.20 ADJUSTMENT OF SERVICING COMPENSATION IN RESPECT OF PREPAID
MORTGAGE LOANS.................................................42
Section 5.21 PERIODIC ADVANCES..............................................43
Section 5.22 THIRD PARTY CLAIMS.............................................43
Section 5.23 MAINTENANCE OF CORPORATE EXISTENCE AND LICENSES; MERGER
OR CONSOLIDATION OF THE SERVICER...............................43
Section 5.24 ASSIGNMENT OF AGREEMENT BY SERVICER; SERVICER NOT TO RESIGN....43
Section 5.25 INFORMATION REPORTS TO BE FILED BY THE SERVICER................43
</TABLE>
v
<PAGE> 7
ARTICLE VI
<TABLE>
<S> <C>
DISTRIBUTIONS AND PAYMENTS.......................................................45
Section 6.01 ESTABLISHMENT OF CERTIFICATE ACCOUNTS; DEPOSITS TO THE
CERTIFICATE ACCOUNTS...........................................45
Section 6.02 PERMITTED WITHDRAWALS FROM THE CERTIFICATE ACCOUNT.............45
Section 6.03 COLLECTION OF MONEY............................................45
Section 6.04 THE CERTIFICATE INSURANCE POLICY...............................46
Section 6.05 DISTRIBUTIONS..................................................47
Section 6.06 INVESTMENT OF ACCOUNTS.........................................47
Section 6.07 REPORTS BY TRUSTEE.............................................48
Section 6.08 ADDITIONAL REPORTS BY TRUSTEE..................................50
Section 6.09 COMPENSATING INTEREST..........................................50
Section 6.10 EFFECT OF PAYMENTS BY THE CERTIFICATE INSURER; SUBROGATION.....50
Section 6.11 ALLOCATION OF LIQUIDATED LOAN LOSSES...........................50
Section 6.12 PRE-FUNDING ACCOUNT............................................50
Section 6.13 CAPITALIZED INTEREST ACCOUNT...................................51
ARTICLE VII
DEFAULT..........................................................................53
Section 7.01 EVENTS OF DEFAULT..............................................53
Section 7.02 TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR.......................54
Section 7.03 WAIVER OF DEFAULTS.............................................55
Section 7.04 MORTGAGE LOANS, TRUST FUND AND ACCOUNTS HELD FOR
BENEFIT OF THE CERTIFICATE INSURER.............................55
ARTICLE VIII
TERMINATION......................................................................56
Section 8.01 TERMINATION....................................................56
Section 8.02 ADDITIONAL TERMINATION REQUIREMENTS............................57
Section 8.03 ACCOUNTING UPON TERMINATION OF SERVICER........................57
ARTICLE IX
CONCERNING THE TRUSTEE...........................................................58
Section 9.01 DUTIES OF TRUSTEE..............................................58
Section 9.02 CERTAIN MATTERS AFFECTING THE TRUSTEE..........................58
Section 9.03 TRUSTEE NOT LIABLE FOR CERTIFICATES OR MORTGAGE LOANS..........59
Section 9.04 TRUSTEE MAY OWN CERTIFICATES...................................60
Section 9.05 PAYMENT OF TRUSTEE'S FEES......................................60
Section 9.06 ELIGIBILITY REQUIREMENTS FOR TRUSTEE...........................60
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C> <C>
Section 9.07 RESIGNATION AND REMOVAL OF THE TRUSTEE.........................60
Section 9.08 SUCCESSOR TRUSTEE..............................................61
Section 9.09 MERGER OR CONSOLIDATION OF TRUSTEE.............................61
Section 9.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE..................61
ARTICLE X
REMIC PROVISIONS.................................................................63
Section 10.01 REMIC ADMINISTRATION...........................................63
Section 10.02 PROHIBITED TRANSACTIONS AND ACTIVITIES.........................65
Section 10.03 SERVICER AND TRUSTEE INDEMNIFICATION...........................65
ARTICLE XI
MISCELLANEOUS PROVISIONS.........................................................66
Section 11.01 LIMITATION ON LIABILITY OF THE COMPANY AND THE
SERVICER.......................................................66
Section 11.02 ACTS OF CERTIFICATEHOLDERS.....................................66
Section 11.03 AMENDMENT......................................................66
Section 11.04 RECORDATION OF AGREEMENT.......................................67
Section 11.05 NOTICES........................................................67
Section 11.06 SEVERABILITY OF PROVISIONS.....................................68
Section 11.07 COUNTERPARTS...................................................68
Section 11.08 SUCCESSORS AND ASSIGNS.........................................68
Section 11.09 HEADINGS.......................................................68
Section 11.10 THE CERTIFICATE INSURER DEFAULT................................68
Section 11.11 THIRD PARTY BENEFICIARY........................................68
Section 11.12 INTENT OF THE PARTIES..........................................68
Section 11.13 NOTICE TO RATING AGENCIES AND CERTIFICATEHOLDER................68
Section 11.14 GOVERNING LAW..................................................69
Exhibit A Certificate Insurance Policy
Exhibit B-1 Form of Class [A-1] [A-2] [A-3] [A-4] Certificate
Exhibit B-2 Form of Class R Certificate
Exhibit C Mortgage File
Exhibit D Mortgage Loan Schedule
Exhibit E Trustee's Acknowledgment of Receipt
Exhibit F Initial Certification of Trustee
Exhibit G Final Certification of the Trustee
Exhibit H Request for Release of Documents
Exhibit I Form of Transfer Affidavit and Agreement
Exhibit J Form of Transferor Certificate
Exhibit K ERISA Letter
Exhibit L [Reserved]
Exhibit M Certificate Re: Prepaid Loans
Exhibit N Subsequent Transfer Instrument
Exhibit O Form of Investor Representation Letter
Exhibit P Form of Transferor Representation Letter
Exhibit Q Form of Rule 144A Investment Representation
Exhibit R Premium Exhibit 68
</TABLE>
vii
<PAGE> 9
POOLING AND SERVICING AGREEMENT, dated as of ____________, 199_, by and
among NATIONSBANC ASSET SECURITIES, INC., a Delaware corporation, in its
capacity as depositor (the "Company"), _____________________________, a
___________ corporation, in its capacity as servicer (the " Servicer"), and
_____________________________________, a ____________________________, in its
capacity as trustee (the "Trustee").
PRELIMINARY STATEMENT:
The Company intends to sell asset backed certificates (collectively,
the "Certificates"), to be issued hereunder in five classes (each, a "Class"),
which in the aggregate will evidence the entire beneficial ownership interest in
the Trust Fund (as defined herein), consisting primarily of the Mortgage Loans,
the Pre-Funding Account and the Capitalized Interest Account (each, as defined
herein). As provided herein, the Trustee will make an election to treat the
Trust Fund (other than the Pre-Funding Account and the Capitalized Interest
Account) as a real estate mortgage investment conduit (a "REMIC") for federal
income tax purposes. The Class A Certificates (as defined herein) will represent
ownership of "regular interests" in the REMIC, and the Class R Certificates will
constitute the sole Class of "residual interest" in the REMIC for purposes of
the REMIC Provisions (as defined herein) under federal income tax law.
The following table sets forth the designation, type, aggregate
Original Security Balance (as defined herein), maturity date, initial ratings
and certain features for each Class of Certificates comprising the interests in
the Trust Fund created hereunder.
<TABLE>
<CAPTION>
AGGREGATE
ORIGINAL
SECURITY
DESIGNATION TYPE BALANCE FEATURES INITIAL RATINGS
- -------------- -------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C>
Class A-1 Senior $ Senior
Class A-2 Senior $ Senior
Class A-3 Senior $ Senior
Class A-4 Senior $ Senior
Class R Subordinate n/a Residual n/a
</TABLE>
The Mortgage Loans (as defined herein) have an aggregate
Principal Balance (as defined herein) as of the Cut-off Date equal to
$________________. The amount deposited by the Company in the Pre-Funding
Account on the Closing Date is $________________.
In consideration of the mutual agreements herein contained,
the Company, the Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. Whenever used herein, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings.
"Accepted Servicing Practices": The Servicer's normal
servicing practices, which in general will conform to the mortgage servicing
practices of prudent mortgage lending institutions which service for their own
account mortgage loans of the same type as the Mortgage Loans in the
jurisdictions in which the related Mortgaged Properties are located.
<PAGE> 10
"Account": Any Eligible Account established pursuant to
Sections 5.03, 5.09, 6.01, 6.04, 6.12 or 6.13 hereof.
"Accrual Period": With respect to any Distribution Date, the
previous calendar month.
"Addition Notice": With respect to the transfer of Subsequent
Mortgage Loans to the Trust Fund pursuant to Section 2.08 of this Agreement, a
notice, substantially in the form of Exhibit N, which shall be given not later
than two Business Days prior to the related Subsequent Transfer Date, of the
Company's designation of Subsequent Mortgage Loans to be sold to the Trust Fund
and the aggregate principal balance as of the Subsequent Cut-off Date of such
Subsequent Mortgage Loans.
"Affiliate": With respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement": This Pooling and Servicing Agreement, including
the Exhibits hereto, and all amendments hereof and supplements hereto.
"Appraised Value": As to any Mortgaged Property, the lesser of
(i) the appraised value of such Mortgaged Property based upon the appraisal made
at the time of the origination of the related Mortgage Loan, and (ii) the sales
price of the Mortgaged Property at such time of origination, except in the case
of a Mortgaged Property securing a refinanced or modified Mortgage Loan as to
which it is the lesser of the appraised value determined above or the appraised
value determined in an appraisal at the time of refinancing or modification, as
the case may be.
"Assignment Of Mortgage": With respect to each Mortgage Loan,
an assignment of the Mortgage, notice of transfer or equivalent instrument, in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect of record the sale of the
Mortgage to the Trustee for the benefit of the Certificateholders.
"Authorized Denominations": With respect to each Class of
Class A Certificates, a minimum denomination of $________ Original Security
Balance and integral multiples of $________ Original Security Balance in excess
thereof. With respect to the Class R Certificates, a minimum Percentage Interest
of ____% and integral multiples of ____% in excess thereof.
"Available Funds": As defined in Section 6.04(a).
"Available Funds Shortfall": With respect to the Mortgage
Loans and any Distribution Date, an amount equal to the sum of (a) the Class A
Interest Distribution Amount minus the Available Funds for such Distribution
Date and (b) the Subordination Deficit.
"Business Day": Any day other than (a) a Saturday or Sunday,
or (b) a day on which banking institutions in the State of ___________, the
State of ___________ or the state where the Trustee's corporate trust office is
located are authorized or obligated by law or executive order to be closed.
"Capitalized Interest Account": The Account established and
maintained pursuant to Section 6.13, which must be an Eligible Account.
"Capitalized Interest Amount": As to any Distribution Date, an
amount equal to the lesser of (A) interest accrued for the related Accrual
Period on an amount equal to (i) the related Original Pre-Funded Amount minus
(ii) the aggregate Principal Balance of any related Subsequent Mortgage Loans
transferred prior to the first day of the month in which such Distribution Date
occurs, calculated at a rate equal to the sum of (a) the Class A Pass-Through
Rate for such Distribution Date, and (b) ____%; and (B) the related Available
Funds Shortfall (calculated without regard to the Capitalized Interest Amount
component of Available Funds).
2
<PAGE> 11
"Certificate": Any Class A Certificate or Class R Certificate
executed by the Trustee on behalf of the Trust Fund and authenticated by the
Trustee.
"Certificate Account": The account established in accordance
with Section 6.01(a) hereof and maintained by the Trustee.
"Certificateholder or Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that, neither a
Disqualified Organization nor a Non-United States Person shall be a Holder of a
Class R Certificate for any purposes hereof and, solely for the purposes of
giving any consent (except any consent required to be obtained pursuant to
Section 11.03), waiver, request or demand pursuant to this Agreement, any
Certificate registered in the name of the Company or the Servicer or any
Affiliate thereof shall be deemed not to be outstanding and the rights to which
it is entitled shall not be taken into account in determining whether the
requisite percentage of rights necessary to effect any such consent has been
obtained, except as otherwise provided in Section 11.03. The Trustee shall be
entitled to rely upon a certification of the Company or the Master Servicer in
determining if any Certificates are registered in the name of a respective
Affiliate. Any Certificates on which payments are made under the Certificate
Insurance Policy shall be deemed to be outstanding and held by the Certificate
Insurer to the extent of such payment.
"Certificate Insurance Payments Account": The Certificate
Insurance Payments Account established in accordance with Section 6.04(c) hereof
and maintained by the Trustee.
"Certificate Insurance Policy": The certificate guaranty
insurance policy No. _____, and all endorsements thereto dated the Closing Date,
issued by the Certificate Insurer for the benefit of the Class A
Certificateholders, a copy of which is attached hereto as Exhibit A-1.
"Certificate Insurer": ______________________, a stock
insurance company organized and created under the laws of the State of
__________, and any successors thereto.
"Certificate Insurer Default": The failure by the Certificate
Insurer to make a payment required under the Certificate Insurance Policy in
accordance with its terms.
"Certificate Register": As described in Section 4.02(a).
"Class A Carry-Forward Amount": As of any Distribution Date,
the sum of (a) the amount, if any, by which (i) the Insured Distribution Amount
as of the immediately preceding Distribution Date exceeded (ii) the amount
actually distributed to the Holders of the Class A Certificates on such
Distribution Date in respect thereof (including, without limitation, any Insured
Payments paid to the Holders of the Class A Certificates by the Certificate
Insurer as described in Sections 6.04 and 6.05 hereof) and (b) interest accrued
for the related Accrual Period on the amount described in clause (a), calculated
at an interest rate equal to the Class A Pass-Through Rate applicable to such
Distribution Date. Any Class A Carry-Forward Amount shall be deemed to be
allocated first to any related Subordination Deficit and second to any related
Class A Interest Distribution Amount.
"Class A Certificate": Any of the Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates or Class A-4 Certificates.
"Class A Certificateholder": A Holder of a Class A
Certificate.
"Class A Interest Distribution Amount": With respect to the
Class A Certificates for any Distribution Date the sum of (i) the aggregate
amount of interest accrued for the related Accrual Period on the aggregate
Security Balance immediately prior to such Distribution Date at the Class A
Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A Carry-Forward Amount which relates to a shortfall in a
distribution of a Class A Interest Distribution Amount as of such Distribution
Date.
"Class A Pass-Through Rate": As of any Distribution Date, the
per annum rate equal to (i) the weighted average of the Mortgage Interest Rates,
minus (ii) the sum of the rates per annum used to determine the Servicing Fee,
the Trustee Fee and the Premium Percentage.
3
<PAGE> 12
"Class A Principal Distribution Amount": For any Distribution
Date, the lesser of:
(a) the excess of (i) the sum, as of such Distribution Date, of
(A) the Available Funds and (B) any related Insured Payment
over (ii) the Class A Interest Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A Carry-Forward Amount which relates
to a shortfall in a distribution of a Subordination Deficit,
(ii) all scheduled installments of principal in respect of the
Mortgage Loans received or advanced during the related Due
Period, together with all unscheduled recoveries of principal
in respect of the Mortgage Loans received by the Servicer
during the prior calendar month,
(iii) the Principal Balance of each Mortgage Loan that was
repurchased by the Seller, by an Affiliate of the Seller or by
the Company,
(iv) any Substitution Adjustments delivered by the Company on the
related Servicer Remittance Date in connection with a
substitution of a Mortgage Loan,
(v) the Net Liquidation Proceeds collected by the Servicer of all
Mortgage Loans during the related Due Period (to the extent
such Net Liquidation Proceeds related to principal),
(vi) the amount of any Subordination Deficit for such Distribution
Date,
(vii) the proceeds received by the Trustee with respect to the
Mortgage Loans from any termination of the Trust Fund (to the
extent such proceeds are related to principal),
(viii) the amount of any Subordination Increase Amount for such
Distribution Date, and
(ix) with respect to the Distribution Date occurring in __________
199_, any amounts in the Pre-Funding Account after giving
effect to any purchase of related Subsequent Mortgage Loans;
minus
(x) the amount of any Subordination Reduction Amount for such
Distribution Date.
"Class A-1 Certificate": Any Certificate designated as a
"Class A-1 Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions.
"Class A-2 Certificate": Any Certificate designated as a
"Class A-2 Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions.
"Class A-3 Certificate": Any Certificate designated as a
"Class A-3 Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions.
"Class A-4 Certificate": Any Certificate designated as a
"Class A-4 Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions.
4
<PAGE> 13
"Class R Certificate": Any one of the Class R Certificates
executed by the Trustee and authenticated by the Certificate Registrar
substantially in the form annexed hereto as Exhibit B-2, subordinate to the
Class A Certificates in right of payment to the extent set forth herein and
evidencing an interest designated as a "residual interest" in the REMIC for
purposes of the REMIC Provisions.
"Class R Certificateholder": A Holder of a Class R
Certificate.
"Closing Date": _________, 199_.
"Code": The Internal Revenue Code of 1986, as amended.
"Collection Account": The Eligible Account established and
maintained by the Servicer pursuant to Section 5.03.
"Combined Loan-to-Value Ratio": With respect to any Mortgage
Loan secured by a second lien on the related Mortgaged Property, as of any date,
the fraction, expressed as a percentage, the numerator of which is the sum of
(i) the original principal balance of such Mortgage Loan and (ii) the original
aggregate principal balance of the related Senior Mortgage Loans (if any) at the
date of determination, and the denominator of which is the Appraised Value of
the related Mortgaged Property.
"Commission": The Securities and Exchange Commission.
"Company": NationsBanc Asset Securities, Inc., a Delaware
corporation, and any successor thereto.
"Compensating Interest": As defined in Section 6.09 hereof.
"Curtailment": With respect to a Mortgage Loan, any payment of
principal received during a Due Period as part of a payment that is in excess of
the amount of the Monthly Payment due for such Due Period and which is not
intended to satisfy the Mortgage Loan in full, nor is intended to cure a
delinquency.
"Custodian": As defined in Section 2.02(c).
"Cut-off Date": _________, 199_.
["DCR": Duff & Phelps Credit Rating Co., or its successor in
interest.]
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan in a proceeding under the United States Bankruptcy Code,
except such a reduction that constitutes a Deficient Valuation or a permanent
forgiveness of principal.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the United
States Bankruptcy Code.
"Deleted Mortgage Loan": A Mortgage Loan replaced by or to be
replaced by a Qualified Substitute Mortgage Loan.
"Delinquent": A Mortgage Loan is "delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31- day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
5
<PAGE> 14
"Depository": The Depository Trust Company, 55 Water Street,
New York, New York 10041 and any successor Depository hereafter named. The
nominee of the initial Depository for purposes of registering those Certificates
that are to be book-entry Certificates is Cede & Co. 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 and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended.
"Direct Participant": Any broker-dealer, bank or other
financial institution for which the Depository holds Class A Certificates from
time to time as a securities depositary.
"Disqualified Non-United States Person": A transferee of a
Class R Certificate other than a person that (i) is not a Non-United States
Person or (ii) is a Non-United States Person that holds a Class R Certificate in
connection with the conduct of a trade or business within the United States and
has furnished the transferor and the Trustee with an effective Internal Revenue
Service Form 4224 or (iii) is a Non-United States Person that has delivered to
both the transferor and the Trustee an opinion of a nationally recognized tax
counsel to the effect that the transfer of a Class R Certificate to it is in
accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer of a Class R Certificate will not be
disregarded for federal income tax purposes.
"Disqualified Organization": Any of (i) the United States, any
State or political subdivision thereof, any possession of the United States, or
any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation if all of its activities are subject to
tax and, except for the FHLMC, a majority of its board of directors is not
selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (unless such organization is subject to the tax imposed by
Section 511 of the Code on unrelated business taxable income), or rural electric
and telephone cooperatives described in Section 1381(a)(2)(C) of the Code and
(iv) any other Person so designated by the Trustee based upon an Opinion of
Counsel provided to the Trustee that the holding of an ownership interest in a
Class R Certificate by such Person may cause the REMIC or any Person having an
ownership interest in any Class of Certificates (other than such Person) to
incur liability for any federal tax imposed under the Code that would not
otherwise be imposed but for the transfer of an ownership interest in the Class
R Certificate to such Person. The terms "United States", "State" and
"international organization" shall have the meanings set forth in Section 7701
of the Code.
"Distribution Date": The 25th day of any month or if such 25th
day is not a Business Day, the first Business Day immediately following,
commencing on ______________, 199_.
"Due Date": The first day of each calendar month.
"Due Period": With respect to each Distribution Date, the
period beginning on the opening of business on the second day of the calendar
month preceding the calendar month in which such Distribution Date occurs, and
ending at the close of business on the first day of the calendar month in which
such Distribution Date occurs.
"Eligible Account": Either (A) an account or accounts
maintained with an institution (which may include the Trustee, provided such
institution otherwise meets these requirements) whose deposits are insured by
the FDIC, the unsecured and uncollateralized debt obligations of which
institution shall be rated AA or better by [S&P], [DCR] and [Fitch] and Aa2 or
better by [Moody's] and in the highest short term rating by the Rating Agencies,
and which is (i) a federal savings and loan association duly organized, validly
existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association
(including the Trustee) duly organized, validly existing and in good standing
under the federal banking laws, (iv) a principal subsidiary of a bank holding
company, or (v) approved in writing by the Certificate Insurer and the Rating
Agencies or (B) a trust account or accounts maintained with the corporate trust
department of a federal or state chartered depository institution acceptable to
each Rating Agency and the Certificate Insurer (the Trustee shall be deemed
acceptable, provided that the Trustee otherwise meets these requirements),
having capital and surplus of not less than $50,000,000, acting in its fiduciary
capacity.
6
<PAGE> 15
"ERISA": As defined in Section 4.02(m) hereof.
"Event Of Default": One or more of the events described in
Section 7.01 hereof.
"Excess Subordinated Amount": With respect to any Distribution
Date, the difference, if any, between (a) the Subordinated Amount that would
exist on such Distribution Date after taking into account all distributions to
be made on such Distribution Date (exclusive of any reductions thereto
attributable to Subordination Reduction Amounts on such Distribution Date) and
(b) the Required Subordinated Amount for such Distribution Date.
"FDIC": The Federal Deposit Insurance Corporation and any
successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation and any
successor thereto.
"FNMA": Fannie Mae and any successor thereto.
["Fitch": Fitch Investors Service, L.P., or its successor in
interest.]
"Foreclosure Profits": As to any Distribution Date, (i) Net
Liquidation Proceeds in respect of each Mortgage Loan that became a Liquidated
Mortgage Loan during the month immediately preceding the month of such
Distribution Date minus (ii) the sum of the unpaid principal balance of each
such Liquidated Mortgage Loan plus accrued and unpaid interest at the applicable
Mortgage Interest Rate on the unpaid principal balance thereof from the Due Date
to which interest was last paid by the Mortgagor (or, in the case of a
Liquidated Mortgage Loan that had been an REO Mortgage Loan, from the Due Date
to which interest was last deemed to have been paid pursuant to Section 5.12) to
the first day of the month following the month in which such Mortgage Loan
became a Liquidated Mortgage Loan.
"GAAP": Generally accepted accounting principles.
"Indirect Participant": Any financial institution for whom any
Direct Participant holds an interest in a Class A Certificate.
"Initial Capitalized Interest Amount": The amount to be paid
by the Company to the Trustee for deposit into the Capitalized Interest Account
pursuant to Section 6.13(a) on the Closing Date, which amount is $
- ----------.
"Initial Mortgage Loan": A Mortgage Loan assigned and
transferred to the Trustee on the Closing Date, as listed on the Mortgage Loan
Schedule attached hereto as Exhibit D.
"Initial Specified Subordinated Amount": An amount equal to
___% of the Original Pool Principal Balance.
"Insurance Agreement": The Insurance Agreement dated as of
______, 199_ among the Certificate Insurer, the Company, the Servicer and the
Trustee, as such agreement may be amended or supplemented in accordance with the
provisions thereof.
"Insurance Proceeds: Proceeds paid by any insurer pursuant to
any insurance policy covering a Mortgage Loan to the extent such proceeds are
not applied to the restoration of the related Mortgaged Property or released to
the related Mortgagor in accordance with Accepted Servicing Practices.
"Insurance Proceeds" do not include "Insured Payments."
"Insured Distribution Amount": With respect to any
Distribution Date, the sum of (a) the Class A Interest Distribution Amount with
respect to such Distribution Date and (b) the Subordination Deficit, if any, as
of such Distribution Date.
"Insured Payment": The sum of (i) with respect to each
Distribution Date, the Available Funds Shortfall and (ii) any unpaid Preference
Amount.
7
<PAGE> 16
"Liquidated Loan Loss": With respect to any Distribution Date,
the aggregate of the amount of losses with respect to each Mortgage Loan which
became a Liquidated Mortgage Loan during the Due Period preceding such
Distribution Date, equal to (i) the unpaid principal balance of each such
Liquidated Mortgage Loan, plus accrued interest thereon in accordance with the
amortization schedule at the time applicable thereto at the applicable Mortgage
Interest Rate from the Due Date as to which interest was last paid with respect
thereto through the last day of the month in which such Mortgage Loan became a
Liquidated Mortgage Loan, minus (ii) Net Liquidation Proceeds with respect to
such Liquidated Mortgage Loan.
"Liquidated Mortgage Loan": A Mortgage Loan with respect to
which the related Mortgaged Property has been acquired, liquidated or foreclosed
and with respect to which the Servicer determines that all Liquidation Proceeds
which it expects to recover have been recovered.
"Liquidation Expenses": Expenses incurred by the Servicer in
connection with the liquidation of any defaulted Mortgage Loan or property
acquired in respect thereof (including, without limitation, legal fees and
expenses, committee or referee fees, and, if applicable, brokerage commissions
and conveyance taxes), any unreimbursed amount expended by the Servicer pursuant
to Sections 5.05, 5.06 and 5.12 respecting the related Mortgage Loan and any
unreimbursed expenditures for real property taxes or for property restoration or
preservation of the related Mortgaged Property. Liquidation Expenses shall not
include any previously incurred expenses in respect of an REO Mortgage Loan
which have been netted against related REO Proceeds.
"Liquidation Proceeds": Amounts received by the Servicer
(including Insurance Proceeds) in connection with the liquidation of defaulted
Mortgage Loans or property acquired in respect thereof, whether through
foreclosure, sale or otherwise, including payments in connection with such
Mortgage Loans received from the Mortgagor, other than amounts required to be
paid to the Mortgagor pursuant to the terms of the applicable Mortgage or to be
applied otherwise pursuant to law.
"Loan Repurchase Price": As defined in Section 2.04(b).
"Loan-to-Value Ratio or LTV": With respect to any Mortgage
Loan, the fraction, expressed as a percentage, the numerator of which is the
principal balance of such Mortgage Loan, as of the date of origination of the
Mortgage Loan, divided by the Appraised Value of the related Mortgaged Property.
"Majority Certificateholders": The Holder or Holders of Class
A Certificates evidencing Percentage Interests in excess of 51% in the
aggregate.
"Monthly Payment": As to any Mortgage Loan (including any REO
Mortgage Loan) and any Due Date, the scheduled payment of principal and interest
due thereon for such Due Date (after adjustment for any Curtailments and
Deficient Valuations occurring prior to such Due Date but before any adjustment
to such amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period).
["Moody's": Moody's Investors Service, Inc., or its successor
in interest.]
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien or second lien on the Mortgaged Property.
"Mortgage File": The mortgage documents listed in Exhibit C
attached hereto pertaining to a particular Mortgage Loan and any additional
documents required to be added to the Mortgage File pursuant to this Agreement;
provided that whenever the term "Mortgage File" is used to refer to documents
actually received by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actually so added.
"Mortgage Impairment Insurance Policy": As defined in Section
5.07.
"Mortgage Interest Rate": The fixed per annum rate at which
interest accrued on the unpaid principal balance thereof, which rate is the
Mortgage Interest Rate for such Mortgage Loan indicated on the related Mortgage
Loan Schedule.
8
<PAGE> 17
"Mortgage Loan": An individual mortgage loan which is assigned
and transferred to the Trustee pursuant to this Agreement and identified on
Exhibit D hereto, together with the rights and obligations of a holder thereof
and payments thereon and proceeds therefrom (other than payments of interest
that accrued on each Mortgage Loan up to and including the Due Date therefor
occurring, with respect to the Mortgage Loans prior to the Cut-off Date), the
Mortgage Loans originally subject to this Agreement being identified on the
Mortgage Loan Schedule. As applicable, Mortgage Loan shall be deemed to refer to
the related REO Property.
"Mortgage Loan Schedule": The lists of the Mortgage Loans
transferred to the Trustee on or before the Closing Date or Subsequent Transfer
Date as part of the Trust Fund and attached hereto as Exhibit D and delivered in
computer readable format, which list shall set forth at a minimum the following
information as to each Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the city, state and zip code of the Mortgaged
Property;
(iii) the type of property;
(iv) the current Monthly Payment as of the Cut-off Date;
(v) the original number of months to maturity;
(vi) the scheduled maturity date;
(vii) the Principal Balance as of the Cut-off Date (with
respect to an Initial Mortgage Loan) or subsequent
Cut-off Date (with respect to a Subsequent Mortgage
Loan);
(viii) the Loan-to-Value Ratio or Combined Loan-to-Value
Ratio at origination;
(ix) the Mortgage Interest Rate as of the Cut-off Date
(with respect to an Initial Mortgage Loan) or
Subsequent Cut-off Date (with respect to a Subsequent
Mortgage Loan);
(x) the Mortgage Interest Rate
(xi) the Appraised Value;
(xii) the stated purpose of the loan at origination;
(xiii) the type of occupancy at origination;
(xiv) the documentation type (as described in the
Underwriting Guidelines);
(xv) the loan classification (as described in the
Underwriting Guidelines);
(xvi) the Servicing Fee with respect to such Mortgage Loan,
expressed as a rate per annum; and
(xvii) whether such Mortgage Loan is secured by a first lien
or second lien.
Such schedule may consist of multiple reports that
collectively set forth all of the information required.
"Mortgage Note": The original, executed note or other evidence
of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage
Loan.
"Mortgaged Property": The underlying property securing a
Mortgage Loan, consisting of a fee simple estate in a single parcel of land
improved by a Residential Dwelling.
9
<PAGE> 18
"Mortgagor": The obligor on a Mortgage Note.
"Net Foreclosure Profits": As to any Distribution Date, an
amount equal to (i) the aggregate Foreclosure Profits with respect to such
Distribution Date minus (ii) Liquidated Loan Losses with respect to such
Distribution Date.
"Net Liquidation Proceeds": As to any Liquidated Mortgage
Loan, Liquidation Proceeds net of Liquidation Expenses and net of any
unreimbursed Periodic Advances and unreimbursed Servicing Advances made by the
Servicer. For all purposes of this Agreement, Net Liquidation Proceeds shall be
allocated first to accrued and unpaid interest on the related Mortgage Loan and
then to the unpaid principal balance thereof.
"Net Monthly Excess Cashflow": As of any Distribution Date, an
amount equal to (x) the Available Funds minus (y) the sum of (i) sum of the
Class A Interest Distribution Amount and the amount described in clause (b) of
the definition of Class A Principal Distribution Amount (calculated for this
purpose without regard to any Subordination Increase Amount, Subordination
Reduction Amount or portion thereof included therein) and (ii) the Reimbursement
Amount, if any, for such Distribution Date.
"Net Mortgage Interest Rate": With respect to each Mortgage
Loan at any time of determination, a rate equal to (i) the Mortgage Interest
Rate on such Mortgage Loan minus (ii) the sum of the per annum rates used to
determine the related Servicing Fee and Trustee Fee and the Premium Percentage.
Any regular monthly computation of interest at such rate shall be based upon
annual interest at such rate on the applicable amount divided by twelve.
"Net REO Proceeds": As to any REO Mortgage Loan, REO Proceeds
net of any related expenses of the Servicer.
"Nonrecoverable Advances": With respect to any Mortgage Loan,
(a) any Periodic Advance or Servicing Advance previously made and not reimbursed
from late collections pursuant to Section 5.04(b), or (b) a Periodic Advance or
Servicing Advance proposed to be made in respect of a Mortgage Loan or REO
Property either of which, in the good faith business judgment of the Servicer,
as evidenced by an Officer's Certificate delivered to the Certificate Insurer
and the Trustee would not be ultimately recoverable pursuant to Sections 5.04
and Section 6.02.
"Non-United States Person": Any Person other than a United
States Person.
"Officer's Certificate": A certificate signed by the Chairman
of the Board, the President or a Vice President and the Treasurer, the Secretary
or one of the Assistant Treasurers or Assistant Secretaries of the Seller and/or
the Servicer, or the Company, as required by this Agreement.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be counsel for the Seller, the Servicer, the Trustee, a
Certificateholder or a Certificateholder's prospective transferee or the
Certificate Insurer (including except as otherwise provided herein, in-house
counsel) reasonably acceptable to each addressee of such opinion and experienced
in matters relating to the subject of such opinion; except that any opinion of
counsel relating to (a) the qualification of the Trust Fund as a REMIC or (b)
compliance with the REMIC Provisions must be an opinion of counsel who (i) is in
fact independent of the Seller, the Servicer and the Trustee, (ii) does not have
any direct financial interest or any material indirect financial interest in the
Seller or the Servicer or the Trustee or in an Affiliate thereof, (iii) is not
connected with the Seller or the Servicer or the Trustee as an officer,
employee, director or person performing similar functions and (iv) is reasonably
acceptable to the Certificate Insurer.
"Original Pool Principal Balance": The Pool Principal Balance
as of the Cut-off Date, which is $-------------.
"Original Pre-Funded Amount": The amount deposited by the
Company in the Pre-Funding Account on the Closing Date, which amount is
$______________.
10
<PAGE> 19
"Original Security Balance": As of the Startup Day and as to
the Class A-1 Certificates, $__________, as to the Class A-2 Certificates,
$__________, as to the Class A-3 Certificates, $__________, and as to the Class
A-4 Certificates, $__________. The Class R Certificates do not have an Original
Security Balance.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage
Loan (including an REO Mortgage Loan) which was not the subject of a Principal
Prepayment in Full prior to such Due Date, which did not become a Liquidated
Mortgage Loan prior to such Due Date, which was not repurchased by the Seller
prior to such Due Date pursuant to Section 2.04 and which was not repurchased by
an Affiliate of the Seller pursuant to Section 5.18.
"Ownership Interest": As to any Certificate, any ownership or
security 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, as owner or as pledgee.
"Owner-Occupied Mortgaged Property": A Residential Dwelling as
to which (a) the related Mortgagor represented an intent to occupy as such
Mortgagor's primary, secondary or vacation residence at the origination of the
Mortgage Loan, and (b) the Seller has no actual knowledge that such Residential
Dwelling is not so occupied.
"Percentage Interest": With respect to a Class A Certificate
and any date of determination, the portion evidenced by such Certificate,
expressed as a percentage rounded to four decimal places, equal to a fraction
the numerator of which is the initial Authorized Denomination represented by
such Certificate and the denominator of which is the Original Security Balance
of such Class of Certificate. With respect to a Class R Certificate and any date
of determination, the portion evidenced thereby as stated on the face of such
Certificate.
"Periodic Advance": The aggregate of the advances with respect
to Mortgage Loans and REO Properties required to be made by the Servicer on any
Servicer Remittance Date pursuant to Section 5.21 hereof, the amount of any such
advances being equal to the sum of: (i) with respect to the Mortgage Loans other
than REO Properties as described in clause (ii) below), all Monthly Payments
(net of the related Servicing Fee) on such Mortgage Loans that were delinquent
as of the close of business on the Business Day preceding the related Servicer
Remittance Date, plus (ii) with respect to each REO Property, which REO Property
was acquired during or prior to the related Due Period and as to which an REO
Disposition did not occur during the related Due Period, an amount equal to the
Monthly Payment (net of the related Servicing Fee) for the most recently ended
Due Period for the related Mortgage Loan minus the net income from such REO
Property transferred to the related Certificate Account for such Distribution
Date, minus (iii) the amount of any advance otherwise required for such
Distribution Date pursuant to clauses (i) and (iii) above which the Servicer has
determined to be a Nonrecoverable Advance.
"Permitted Investments": As used herein, Permitted Investments
shall include the following:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality
thereof, provided such obligations are backed by the full faith and
credit of the United States and any obligation of, or guaranties by,
FHLMC or FNMA (other than senior debt obligations and mortgage
pass-through certificates guaranteed by FHLMC or FNMA) shall be a
Permitted Investment; provided that at the time of such investment,
such investment is acceptable to the Certificate Insurer, but excluding
any of such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption;
(b) federal funds and certificates of deposit, time and demand
deposits and banker's acceptances issued by any bank or trust company
incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by federal or state banking
authorities, provided that at the time of such investment or
contractual commitment providing for such investment the short-term
debt obligations of such bank or trust company at the date of
acquisition thereof have been rated in its highest rating by each
Rating Agency;
11
<PAGE> 20
(c) commercial paper (having original maturities of not more
than 180 days) rated in its highest rating by each Rating Agency;
(d) investments in money market funds rated in its highest
rating by each Rating Agency; and
(e) investments approved by the Rating Agencies and the
Certificate Insurer in writing delivered to the Trustee;
provided that each such Permitted Investment shall be a
"permitted investment" within the meaning of Section 860G(a)(5) of the
Code and that no instrument described hereunder shall evidence either
the right to receive (x) only interest with respect to the obligations
underlying such instrument or (y) both principal and interest payments
derived from obligations underlying such instrument and the interest
and principal payments with respect to such instrument provided a yield
to maturity at par greater than 120% of the yield to maturity at par of
the underlying obligations; and provided, further, that no instrument
described hereunder may be purchased at a price greater than par.
"Permitted Transferee": Any transferee of a Class R
Certificate other than a Disqualified Non-United States Person or Disqualified
Organization.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, national banking association,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan": As defined in Section 4.02(m).
"Policy Business Day": A Business Day as defined in the
Certificate Insurance Policy.
"Pool Principal Balance": The sum of the aggregate Principal
Balances of the Mortgage Loans and the Pre-Funded Amount as of any date of
determination.
"Preference Amount": Any amount previously distributed to a
Class A Certificateholder that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
"Preference Claim": As defined in Section 6.04(f).
"Pre-Funded Amount": With respect to any date of
determination, the amount on deposit in the Pre-Funding Account.
"Pre-Funding Account": The account established and maintained
pursuant to Section 6.12.
"Pre-Funding Period": The period beginning on the Closing Date
and ending on the earlier of the date on which (a) the amount on deposit in the
related Pre-Funding Account is less than $_________ or (b) the close of business
on __________, 199_.
"Premium Amount": Beginning on the third Distribution Date and
on each Distribution Date thereafter, the product of 1/12 of the Premium
Percentage and the aggregate Balance for the Class A Certificates immediately
prior to the related Distribution Date.
"Premium Exhibit": The document attached hereto as Exhibit R.
"Premium Percentage": With respect to any Mortgage Loan, the
rate per annum set forth in the Premium Exhibit.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was the subject during the
related Due Period of a Principal Prepayment in Full or Curtailment, an amount
12
<PAGE> 21
equal to (a) 30 days' interest on the Principal Balance of such Mortgage Loan at
a per annum rate equal to the Mortgage Interest Rate minus the rate at which the
Servicing Fee is calculated minus (b) the amount of interest actually remitted
by the Mortgagor in connection with such Principal Prepayment in Full or
Curtailment less the Servicing Fee for such Mortgage Loan in such month.
"Principal Balance": As to any Mortgage Loan and Distribution
Date, the principal balance of such Mortgage Loan as of the Due Date preceding
such date of determination as specified for such Due Date in the amortization
schedule (before any adjustment to such amortization schedule by reason of any
bankruptcy (other than Deficient Valuations) or similar proceeding or any
moratorium or similar waiver or grace period) after giving effect to Principal
Prepayments in Full or Curtailments received prior to such Due Date, Deficient
Valuations incurred prior to such Due Date, to any Curtailments applied by the
Servicer in reduction of the unpaid principal balance of such Mortgage Loan as
of such Due Date and to the payment of principal due on such Due Date and
irrespective of any delinquency in payment by the related Mortgagor. The
Principal Balance of a Mortgage Loan which becomes a Liquidated Mortgage Loan
prior to such Due Date shall be zero.
"Principal Prepayment in Full": Any payment or other recovery
of principal on a Mortgage Loan equal to the outstanding principal balance
thereof, received in advance of the final scheduled Due Date which is not
intended as an advance payment of a scheduled Monthly Payment.
"Purchase Agreement": The Mortgage Loan Purchase Agreement,
dated as of the date hereof, between the Seller and the Company relating to the
sale of the Mortgage Loans to the Company.
"Principal Remittance Amount": As of any Distribution Date,
the sum, without duplication of the amounts specified in clauses (b)(ii) through
(v), (vii) and (viii) of the definition of Class A Principal Distribution
Amount.
"Qualified Mortgage": "Qualified Mortgage" shall have the
meaning set forth in the definition thereof at Section 860G(a)(3) of the Code
(or any successor statute thereto) (but without regard to the rule in Treasury
Regulation Section 1.860G-2(f)(2) that treats a defective obligation as a
qualified mortgage, or any similar provision).
"Qualified Substitute Mortgage Loan": A mortgage loan or
mortgage loans substituted for a Deleted Mortgage Loan pursuant to Section 2.04
or 3.03 hereof, which (a) has the same or greater interest rate, (b) relates or
relate to a detached one-family residence or to the same type of Residential
Dwelling as the Deleted Mortgage Loan and in each case has or have the same or a
better lien priority as the Deleted Mortgage Loan and has the same occupancy
status or is an Owner Occupied Mortgaged Property, (c) matures or mature no
later than (and not more than one year earlier than) the Deleted Mortgage Loan
(except during the first 90 days after the Cut-off Date), (d) has or have a
Loan-to-Value Ratio or Loan-to-Value Ratios (or Combined Loan-to-Value Ratio or
Combined Loan-to-Value Ratios, with respect to a Second Mortgage Loan) at the
time of such substitution no higher than the Loan-to-Value Ratio (or Combined
Loan-to-Value Ratio, with respect to a Second Mortgage Loan) of the Deleted
Mortgage Loan, (e) has or have a principal balance or principal balances (after
application of all payments received on or prior to the date of substitution)
not substantially less and not more than the Principal Balance of the Deleted
Mortgage Loan as of such date, (f) satisfies or satisfy the criteria set forth
from time to time in the definition of "qualified replacement mortgage" in
Section 860G(a)(4) of the Code (or any successor statute thereto) and (g)
complies or comply as of the date of substitution with each representation and
warranty set forth in Sections 3.01 and 3.02 of the Purchase Agreement.
"Rating Agency": [S&P], [DCR], [Fitch] or [Moody's].
"Record Date": With respect to any Distribution Date, the
close of business on the last Business Day of the month immediately preceding
the month of such Distribution Date.
"Released Mortgaged Property Proceeds": As to any Mortgage
Loan, proceeds received by the Master Servicer in connection with (a) a taking
of an entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (b) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which are not released to the Mortgagor in accordance with applicable law,
Accepted Servicing Practices and this Agreement.
13
<PAGE> 22
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"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 temporary and final regulations promulgated thereunder and
published rulings, notices and announcements, as the foregoing may be in effect
from time to time.
"Reimbursement Amount": As of any Distribution Date, the sum
of (a)(i) all Insured Payments (as defined in the Certificate Insurance Policy)
previously paid by the Certificate Insurer and in each case not previously
repaid to the Certificate Insurer pursuant to Sections 6.05(b) or 6.05(c) hereof
plus (ii) interest accrued on each such Insured Payment and Preference Payments
not previously repaid calculated at the Class A Pass-Through Rate from the date
such Insured Payment or Preference Amount was made and (b)(i) any amounts then
due and owing to the Certificate Insurer under the Insurance Agreement, as
certified to the Trustee by the Certificate Insurer plus (ii) interest on such
amounts at the Late Payment Rate (as defined in the Insurance Agreement). The
Certificate Insurer shall notify the Trustee and the Company of the amount of
any Reimbursement Amount.
"REO Acquisition": The acquisition of any REO Property
pursuant to Section 5.12.
"REO Disposition": The final sale by the Master Servicer of a
Mortgaged Property acquired by the Master Servicer in foreclosure or by deed in
lieu of foreclosure.
"REO Mortgage Loan": Any Mortgage Loan which is not a
Liquidated Mortgage Loan and as to which the indebtedness evidenced by the
related Mortgage Note is discharged and the related Mortgaged Property is held
as part of the Trust Fund.
"REO Proceeds": Proceeds received in respect of any REO
Mortgage Loan (including, without limitations, proceeds from the rental of the
related Mortgaged Property).
"REO Property": As described in Section 5.12.
"Representation Letter": Letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Certificate Register under the nominee name of
the Depository.
"Request for Release": A request for release in substantially
the form attached as Exhibit H hereto.
"Required Subordinated Amount": For each Distribution Date,
the amount determined as follows: [describe].
"Residential Dwelling": A one- to four-family dwelling, a unit
in a planned unit development, a unit in a condominium development, a townhouse
or a manufactured housing unit which is non-mobile.
"Responsible Officer": When used with respect to the Trustee,
any officer assigned to the Corporate Trust Division (or any successor thereto),
including any Vice President, Senior Trust Officer, Trust Officer, Assistant
Trust Officer, 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 to whom, with respect to a particular
matter, such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the Seller or
the Servicer, the President or any Vice President, Assistant Vice President, or
any Secretary or Assistant Secretary.
["S&P": Standard & Poor's, or its successor in interest.]
"Second Mortgage Loan": Any Mortgage Loan secured by a second
lien on the related Mortgaged Property.
14
<PAGE> 23
"Security Balance": With respect to each Class of Class A
Certificates, as determined separately, as of any time of determination, the
related Original Security Balance less any amounts distributed in reduction of
the Security Balance thereof pursuant to Section 6.05 on all prior Distribution
Dates. The Class R Certificates do not have a "Security Balance".
"Seller": ________________, or its successor in interest.
"Senior Mortgage Loan": With respect to any Second Mortgage
Loan, a mortgage loan on the related Mortgaged Property that is senior to the
lien provided by such Second Mortgage Loan.
"Servicer": _______________, a _________ corporation, or any
successor appointed as herein provided.
"Servicer Remittance Amount": With respect to any Servicer
Remittance Date, an amount equal to the sum of (i) all unscheduled collections
of principal and interest on the Mortgage Loans (including Principal Prepayments
in Full and Curtailments, Net REO Proceeds and Net Liquidation Proceeds, if any)
collected by the Servicer during the prior calendar month and all scheduled
Monthly Payments due on the related Due Date and received on or prior to the
Business Day preceding such Servicer Remittance Date, (ii) all Periodic Advances
made by the Servicer with respect to payments due to be received on the Mortgage
Loans on the related Due Date and (iii) any other amounts required to be placed
in the Collection Account by the Servicer pursuant to this Agreement but
excluding the following:
(a) amounts received on particular Mortgage Loans as late
payments of principal or interest and respecting which the Servicer has
previously made an unreimbursed Periodic Advance;
(b) those portions of each payment of interest on a particular
Mortgage Loan which represent the Servicing Fee;
(c) that portion of Liquidation Proceeds and REO Proceeds
which represents any unpaid Servicing Fee;
(d) all income from Permitted Investments that is held in the
Collection Account for the account of the Servicer;
(e) all amounts in respect of late fees, assumption fees,
prepayment fees and similar fees;
(f) certain other amounts which are reimbursable to the
Servicer, as provided in this Agreement; and
(g) Net Foreclosure Profits.
"Servicer Remittance Date": With respect to any Distribution
Date, the 18th of the month in which such Distribution Date occurs, or if such
18th day is not a Business Day, the Business Day preceding such 18th day.
"Servicing Account": The account created and maintained
pursuant to Section 5.09.
"Servicing Advances": All reasonable and customary
"out-of-pocket" costs and expenses relating to a borrower default or delinquency
or other unanticipated event incurred by the Servicer in the performance of its
servicing obligations, including, but not limited to, the cost of (a) the
preservation, restoration and protection of the Mortgaged Property including,
without limitation, taxes and insurance costs, (b) any enforcement or judicial
proceedings, including foreclosures, (c) the management and liquidation of the
REO Property, including reasonable fees paid to any independent contractor in
connection therewith, (d) compliance with the obligations under Sections 5.02
(limited solely to the reasonable and customary out-of-pocket expenses of the
subservicer), 5.05, 5.07, 5.09 or 5.10, all of which reasonable and customary
out-of-pocket costs and expenses are reimbursable to the Master Servicer to the
extent provided in Section 5.04(a) and 5.10.
15
<PAGE> 24
"Servicing Compensation": The Servicing Fee and other amounts
to which the Servicer is entitled pursuant to Section 5.14.
"Servicing Fee": As to each Mortgage Loan, the annual fee
payable to the Servicer and the related Subservicer, if any, as indicated on the
related Mortgage Loan Schedule. Such fee shall be ___% per annum. Such fee shall
be calculated and payable monthly only from the amounts received in respect of
interest on such Mortgage Loan and shall be computed on the basis of the same
principal amount and for the period respecting which any related interest
payment on a Mortgage Loan is computed. The Servicing Fee includes any servicing
fees owed or payable to any Subservicer.
"Servicing Officer": Any officer of the Servicer involved in,
or responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Trustee and the Certificate Insurer by the Servicer, as such list may from
time to time be amended.
"Startup Day": The day designated as such pursuant to Section
10.01(b) hereof.
"Subordinated Amount": As of any Distribution Date, the
difference, if any, between (a) the Pool Principal Balance as of the close of
business on the last day of the related Due Period and (b) the aggregate
Security Balance of the Class A Certificates as of such Distribution Date (after
taking into account the payment of the Principal Remittance Amount related to
such Distribution Date); provided, however, that such amount shall not be less
than zero.
"Subordination Deficiency Amount": With respect to any
Distribution Date, the amount, if any, by which (a) the Required Subordinated
Amount applicable to such Distribution Date exceeds (b) the Subordinated Amount
applicable to such Distribution Date prior to taking into account the payment of
any related Subordination Increase Amounts on such Distribution Date.
"Subordination Deficit": As of any Distribution Date, the
amount, if any, by which (a) the aggregate Security Balance of the Class A
Certificates (after taking into account the payment of the Class A Principal
Distribution Amount (other than payments in respect thereof under the
Certificate Insurance Policy)) on such date exceeds (b) the Pool Principal
Balance determined as of the end of the immediately preceding Due Period.
"Subordination Increase Amount": With respect to any
Distribution Date, the lesser of (a) the Subordination Deficiency Amount as of
such Distribution Date (after taking into account the payment of the Class A
Principal Distribution Amount on such Distribution Date (other than clause
(viii) thereof)) and (b) the amount of Net Monthly Excess Cashflow on such
Distribution Date.
"Subordination Reduction Amount": With respect to any
Distribution Date, an amount equal to the lesser of (a) the Excess Subordinated
Amount for such Distribution Date and (b) the Principal Remittance Amount for
the prior Due Period.
"Subsequent Cut-off Date": With respect to those Subsequent
Mortgage Loans which are sold to the Trust Fund pursuant to a Subsequent
Transfer Instrument, the close of business on the day prior to the related
Subsequent Transfer Date.
"Subsequent Mortgage Loan": A Mortgage Loan sold by the
Company to the Trust Fund pursuant to Section 2.08, such Mortgage Loan being
identified on the Mortgage Loan Schedule attached to a Subsequent Transfer
Instrument.
"Subsequent Transfer Date": With respect to each Subsequent
Transfer Instrument, the date on which the related Subsequent Mortgage Loans are
sold to the Trust Fund.
"Subsequent Transfer Instrument": Each Subsequent Transfer
Instrument dated as of a Subsequent Transfer Date executed by the Trustee and
the Company substantially in the form of Exhibit N, by which Subsequent Mortgage
Loans are sold to the Trust Fund.
16
<PAGE> 25
"Substitution Adjustment": As to any date on which a
substitution occurs pursuant to Sections 2.04 or 3.03, the amount (if any) by
which the aggregate principal balances (after application of principal payments
received on or before the date of substitution of any Qualified Substitute
Mortgage Loans as of the date of substitution), are less than the aggregate of
the Principal Balances of the related Deleted Mortgage Loans.
"Tax Matters Person": The Person or Persons appointed pursuant
to Section 10.01(c) from time to time to act as the "tax matters person" (within
the meaning of the REMIC Provisions) of the Trust Fund.
"Tax Return": The federal income tax return on Internal
Revenue Service Form 1066, "U.S. Real Estate Mortgage Investment Conduit Income
Tax Return," including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provision of federal, state or local tax laws in
connection with the Trust Fund.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transfer Affidavit And Agreement": As defined in Section
4.02(j).
"Transferee": Any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer any
Ownership Interest in a Certificate.
"Trustee": _____________, or its successor in interest, or any
successor trustee appointed as herein provided.
"Trustee Fee": As to any Distribution Date, the fee payable to
the Trustee in respect of its services as Trustee that accrues at a monthly rate
equal to 1/12 of ___% of the sum of the Principal Balance of each Mortgage Loan
and the Pre-Funded Amount as of the immediately preceding Due Date.
"Trustee Remittance Report": As defined in Section 6.07.
"Trust Fund": The segregated pool of assets subject hereto,
constituting the trust created hereby and to be administered hereunder,
consisting of: (a) such Mortgage Loans as from time to time are subject to this
Agreement, together with the Mortgage Files relating thereto and all collections
thereon and proceeds thereof after the Cut-off Date, (b) such assets as from
time to time are identified as deposited in the Certificate Accounts (including
the Special Deposit), (c) such assets as from time to time are identified as REO
Property and collections thereon and proceeds thereof, assets that are deposited
in the Accounts, including amounts on deposit in the Accounts and invested in
Permitted Investments, (d) the Trustee's rights with respect to the Mortgage
Loans under all insurance policies required to be maintained pursuant to this
Agreement (including the Certificate Insurance Policy) and any Insurance
Proceeds (and any proceeds of the Certificate Insurance Policy), (e) Liquidation
Proceeds, (f) Released Mortgaged Property Proceeds, (g) the representations and
warranties of the Seller pursuant to the Purchase Agreement and (h) amounts on
deposit in the Capitalized Interest Account and the Pre-Funding Accounts.
"UCC": The Uniform Commercial Code in effect in the applicable
jurisdiction.
"UCC Financing Statement": A financing statement executed and
filed pursuant to the UCC.
"Underwriting Guidelines": The underwriting guidelines of the
Seller.
"United States Person": 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 is subject to United States federal income tax regardless of
its source, or a trust if a court
17
<PAGE> 26
within the United States is able to exercise primary jurisdiction over the
administration of such trust and one or more United States Persons have the
power to control all substantial decisions of such trust.
"Unpaid REO Amortization": As to any REO Mortgage Loan and any
month, the aggregate of the installments of principal and accrued interest
(adjusted to the related Net Mortgage Interest Rate) deemed to be due in such
month and in any prior months that remain unpaid, calculated in accordance with
Section 5.12.
Section 1.02 PROVISIONS OF GENERAL APPLICATION. (a) All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP.
(b) The terms defined in this Article include the plural as
well as the singular.
(c) The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole. All references to
Articles and Sections shall be deemed to refer to Articles and Sections of this
Agreement.
(d) Reference to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute to which
reference is made and all regulations promulgated pursuant to such statutes.
(e) All calculations of interest (other than with respect to
the Mortgage Loans, or as otherwise specifically set forth herein) provided for
herein shall be made on the basis of a 360-day year consisting of twelve 30-day
months. All calculations of interest with respect to any Mortgage Loan provided
for herein shall be made in accordance with the terms of the related Mortgage
Note and Mortgage.
(f) Any Mortgage Loan payment is deemed to be received on the
date such payment is actually received by the Servicer, provided, however, that
for purposes of calculating distributions on the Certificates, prepayments with
respect to any Mortgage Loan are deemed to be received on the date they are
applied in accordance with customary servicing practices consistent with the
terms of the related Mortgage Note and Mortgage to reduce the outstanding
principal balance of such Mortgage Loan on which interest accrues.
18
<PAGE> 27
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01 CONVEYANCE OF MORTGAGE LOANS; SPECIAL DEPOSIT;
PRIORITY AND SUBORDINATION OF OWNERSHIP INTERESTS. (a) The Company does hereby
sell, transfer, assign, set over and convey to the Trustee without recourse but
subject to the provisions in this Section 2.01 and the other terms and
provisions of this Agreement, all of the right, title and interest of the
Company in and to the Mortgage Loans (other than interest due thereon before the
Cut-off Date), and all other assets included or to be included in the Trust Fund
for the benefit of the Certificateholders and the Certificate Insurer. In
connection with such transfer and assignment, and pursuant to Section ____ of
the Purchase Agreement, the Company does hereby also irrevocably transfer,
assign, set over and otherwise convey to the Trustee all of its rights under the
Purchase Agreement including, without limitation, its right to exercise the
remedies created by Sections ____ and ____ of the Purchase Agreement for
breaches of representations and warranties, agreements and covenants of the
Seller contained in Sections ____ and ____ of the Purchase Agreement.
(b) The rights of the Certificateholders to receive payments
with respect to the Mortgage Loans in respect of the Certificates, and all
ownership interests of the Certificateholders in such payments, shall be as set
forth in this Agreement. In this regard, all rights of the Class R
Certificateholders to receive payments in respect of the Class R Certificates,
are subject and subordinate to the preferential rights of the Class A
Certificateholders to receive payments in respect of the Class A Certificates
and to the Certificate Insurer's rights to be reimbursed for Insured Payments
together with interest thereon at the rate specified herein or in the Insurance
Agreement. In accordance with the foregoing, the ownership interest of the Class
R Certificateholders in amounts deposited in the Certificate Account from time
to time shall not vest unless and until such amounts are distributed in respect
of the Class R Certificates in accordance with the terms of this Agreement.
(c) It is intended that the conveyance of the Mortgage Loans
by the Company to the Trustee as provided in this Section be, and be construed
as, a sale of the Mortgage Loans by the Company to the Trustee for the benefit
of the Certificateholders. It is, further, not intended that such conveyance be
deemed a pledge of the Mortgage Loans by the Company to the Trustee to secure a
debt or other obligation of the Company. However, in the event that the Mortgage
Loans are held to be property of the Company, or if for any reason this
Agreement is held or deemed to create a security interest in the Mortgage Loans,
then it is intended that, (a) this Agreement shall also be deemed to be a
security agreement within the meaning of Articles 8 and 9 of the New York
Uniform Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Account or the Collection Account, whether in the form of cash,
instruments, securities or other property and (2) an assignment by the Company
to the Trustee of any security interest in any and all of the Seller's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clauses (1)(A) through (C) granted by the Seller to the Company pursuant to the
Purchase Agreement; (c) the possession by the Trustee or its agent of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" or possession by a purchaser or a person designated by such
secured party, for purposes of perfecting the security interest pursuant to the
New York Uniform Commercial Code and the Uniform Commercial Code of any other
applicable jurisdiction (including, without limitation, Sections 9-305, 8-313 or
8-321 thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of perfecting such security interest under applicable law. The
Company and, at the Company's direction, the Seller and the Trustee shall, to
the extent consistent with this Agreement, take such reasonable actions as may
be necessary to ensure that, if this
19
<PAGE> 28
Agreement were deemed to create a security interest in the Mortgage Loans, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of the Agreement.
Section 2.02 POSSESSION OF MORTGAGE FILES; ACCESS TO MORTGAGE
FILES. (a) Upon the issuance of the Certificates, the ownership of each Mortgage
Note, the Mortgage and the contents of the Mortgage File related to each Initial
Mortgage Loan is vested in the Trustee for the benefit of the Certificateholders
and the Certificate Insurer.
(b) Pursuant to Section ____ of the Purchase Agreement, the
Company has delivered or caused to be delivered the Mortgage File related to
each Initial Mortgage Loan to the Trustee.
(c) The Trustee may enter into a custodial agreement pursuant
to which the Trustee will appoint a custodian (a "Custodian") to hold the
Mortgage Files in trust for the benefit of all present and future
Certificateholders and the Certificate Insurer; provided, however, that the
custodian so appointed shall in no event be the Company or the Servicer or any
Person known to a Responsible Officer of the Trustee to be an Affiliate of the
Company or the Servicer. The Trustee hereby appoints ___________________ as the
initial Custodian.
(d) The Custodian shall afford the Company, the Certificate
Insurer and the Servicer reasonable access to all records and documentation
regarding the Mortgage Loans relating to this Agreement, such access being
afforded at customary charges, upon reasonable request and during normal
business hours at the offices of the Custodian.
Section 2.03 DELIVERY OF MORTGAGE LOAN DOCUMENTS AND
CERTIFICATE INSURANCE POLICY. (a) In connection with each conveyance pursuant to
Section 2.01 hereof, the Company has delivered or does hereby agree to deliver
or cause to be delivered to the Trustee on or before the Closing Date, the
Certificate Insurance Policy, the Mortgage Loan Schedule and each of the
following documents for each Mortgage Loan sold by the Seller to the Company and
sold by the Company to the Trust Fund:
(i) The original Mortgage Note bearing all intervening
endorsements showing a complete chain of endorsements from the
originator of such Mortgage Loan to the Seller, endorsed by the Seller
without recourse in the following form: "Pay to the order of , without
recourse" and signed in the name of the Seller by an authorized
officer;
(ii) The original Mortgage with evidence of recording
indicated thereon;
(iii) An original assignment of the original Mortgage, in
suitable form for recordation in the jurisdiction in which the related
Mortgaged Property is located, such assignment to be in blank and
signed in the name of the Seller by an authorized officer;
(iv) The originals of all intervening assignments of the
Mortgage (with evidence of recording thereon) showing a complete chain
of assignments from the originator of such Mortgage Loan to the Seller;
(v) Any assumption, modification (with evidence of
recording thereon), consolidation or extension agreements;
(vi) The original policy of title insurance (or a commitment
for title insurance, if the policy is being held by the title insurance
company pending recordation of the Mortgage); and
(vii) The certificate of primary mortgage guaranty
insurance, if any, issued with respect to such Mortgage Loan;
PROVIDED, HOWEVER, that as to certain Mortgages or assignments
thereof which have been delivered or are being delivered to recording offices
for recording and have not been returned to the Seller in time to permit their
delivery hereunder at the time of such transfer, in lieu of delivering such
original documents, the Company shall deliver to the Trustee a true copy thereof
with a certification by the Seller on the face of such copy
20
<PAGE> 29
substantially as follows: "certified true and correct copy of original which has
been transmitted for recordation". The Seller will deliver such original
documents, together with any related policy of title insurance not previously
delivered, on behalf of the Company to the Trustee promptly after they are
received, but in any event no later than 120 days after the Closing Date. The
Company agrees, at its own expense, to record (or to provide the Trustee with
evidence of recordation thereof) each assignment referred to in clause (iii)
above promptly after the Closing Date in the appropriate public office for real
property records, provided that such assignments are redelivered by the Trustee
to the Seller upon the Seller's written request and at the Seller's expense,
unless the Seller (at its expense) furnishes to the Trustee, the Certificate
Insurer and the Rating Agencies an unqualified Opinion of Counsel reasonably
acceptable to the Trustee to the effect that recordation of such assignment is
not necessary under applicable state law to preserve the Trustee's interest in
the related Mortgage Loan against the claim of any subsequent transferee of such
Mortgage Loan or any successor to, or creditor of, the Seller.
Within a period of 14 days from the Closing Date, the Trustee
shall complete the endorsement of each Mortgage Note such that the final
endorsement appears in the following form:
"Pay to the order of ___________ as Trustee under that certain
Pooling and Servicing Agreement dated as of ________, 199_,
for NationsBanc Asset Securities, Inc., Asset Backed
Certificates, Series 199_-_, without recourse."
Within a period of 14 days from the Closing Date, the Trustee
shall also complete the endorsement of each Assignment of Mortgage and
Assignment of Leases, if any, such that the final Assignment of Mortgage appears
in the following form:
__________________, as Trustee under that certain Pooling and
Servicing Agreement dated as of _______, 199_, for
_______________, NationsBanc Asset Securities, Inc., Asset
Backed Certificates, Series 199_-_."
(b) In the event that any such original document is required
pursuant to the terms of this Section 2.03 to be a part of a Mortgage File, such
document shall be delivered promptly by the Company to the Trustee. In acting as
custodian of any such original document, the Servicer agrees further that it
does not and will not have or assert any beneficial ownership interest in the
Mortgage Loans or the Mortgage Files.
Section 2.04 ACCEPTANCE BY TRUSTEE OF THE TRUST FUND; CERTAIN
SUBSTITUTIONS; CERTIFICATION BY TRUSTEE. (a) The Trustee agrees to execute and
deliver to the Company, the Certificate Insurer, the Servicer and the Seller on
or prior to the Closing Date an acknowledgment of receipt of the Certificate
Insurance Policy and, with respect to each Mortgage Loan, on or prior to the
Closing Date, an acknowledgment of receipt of the original Mortgage Note (with
any exceptions noted), in the form attached as Exhibit E hereto and declares
that it will hold such documents and any amendments, replacements or supplements
thereto, as well as any other assets included in the definition of Trust Fund
and delivered to the Trustee, as Trustee in trust upon and subject to the
conditions set forth herein for the benefit of the Certificateholders and the
Certificate Insurer. The Trustee agrees, for the benefit of the
Certificateholders and the Certificate Insurer, to review (or cause to be
reviewed) each Mortgage File within 45 Business Days after the Closing Date
(with respect to the Mortgage Loans), and to deliver to the Seller, the
Servicer, the Company and the Certificate Insurer a certification in the form
attached hereto as Exhibit F to the effect that, as to each Mortgage Loan listed
in the related Mortgage Loan Schedule (other than any Mortgage Loan paid in full
or any Mortgage Loan specifically identified in such certification as not
covered by such certification), (i) all documents required to be delivered to it
pursuant to Section 2.03 are in its possession, (ii) each such document has been
reviewed by it and has not been mutilated, damaged, torn or otherwise physically
altered (handwritten additions, changes or corrections shall not constitute
physical alteration if initialed by the Mortgagor), appears regular on its face
and relates to such Mortgage Loan, and (iii) based on its examination and only
as to the foregoing documents, the information set forth on the Mortgage Loan
Schedule as to the information set forth in (i), (ii), (v), (vi), (x), (xi),
(xiii), (xiv), (xv), (xx) and (xxii) of the definition of "Mortgage Loan
Schedule" set forth herein accurately reflects the information set forth in the
Mortgage File delivered on such date. The Trustee makes no representations as to
and shall not be responsible to verify (i) the validity, legality,
enforceability, sufficiency, due authorization, recordability or genuineness of
any of the documents contained in each Mortgage File or of any of the Mortgage
Loans or (ii) the collectability, insurability, effectiveness or suitability of
any such Mortgage Loan.
21
<PAGE> 30
By _________, 199_, the Trustee shall deliver (or cause to be
delivered) to the Servicer, the Seller, the Company and the Certificate Insurer
a final certification in the form attached hereto as Exhibit G to the effect
that, as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than
any Mortgage Loan paid in full or any Mortgage Loan specifically identified in
such certification as not covered by such certification), (i) all documents
required to be delivered to it pursuant to Section 2.03 are in its possession,
(ii) each such document has been reviewed by it and has not been mutilated,
damaged, torn or otherwise physically altered (handwritten additions, changes or
corrections shall not constitute physical alteration if initialed by the
Mortgagor), appears regular on its face and relates to such Mortgage Loan, and
(iii) based on its examination and only as to the foregoing documents, the
information set forth in (i), (ii), (v), (vi), (x), (xi), (xiii), (xiv), (xv),
(xx) and (xxii) of the definition of "Mortgage Loan Schedule" set forth herein
accurately reflects the information set forth in the Mortgage File delivered on
such date.
(b) If the Certificate Insurer or the Trustee during the
process of reviewing the Mortgage Files finds any document constituting a part
of a Mortgage File which is not executed, has not been received, is unrelated to
the Mortgage Loan identified in the related Mortgage Loan Schedule, or does not
conform to the requirements of Section 2.03 or the description thereof as set
forth in the related Mortgage Loan Schedule, the Trustee or the Certificate
Insurer, as applicable, shall promptly so notify the Servicer, the Seller, the
Certificate Insurer and the Trustee. In performing any such review, the Trustee
may conclusively rely on the Seller 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 2.03 have been executed and received and relate to
the Mortgage Files identified in the related Mortgage Loan Schedule and such
documents conform to the standard set forth in clause (ii) of the paragraph
directly above. The Trustee shall request that the Seller cure any such defect
within 60 days from the date on which the Seller was notified of such defect,
and if the Seller does not cure such defect in all material respects during such
period, request that the Seller (i) substitute in lieu of such Mortgage Loan a
Qualified Substitute Mortgage Loan in the manner and subject to the conditions
set forth in Section 3.03 or (ii) purchase such Mortgage Loan on the next
succeeding Servicer Remittance Date (but not later than 90 days after the
discovery of such defect) at a purchase price equal to the actual stated
principal balance of such Mortgage Loan as of the date of purchase, plus all
accrued and unpaid interest on such principal balance computed at the Mortgage
Interest Rate, plus the amount of any unpaid Servicing Fees, unreimbursed
Periodic Advances and unreimbursed Servicing Advances made by the Servicer with
respect to such Mortgage Loan, which purchase price shall be deposited in the
Collection Account on the same Business Day, after deducting therefrom any
amounts received in respect of such repurchased Mortgage Loan or Loans and being
held in the Collection Account for future distribution to the extent such
amounts have not yet been applied to principal or interest on such Mortgage Loan
(the "Loan Repurchase Price"). It is understood and agreed that the obligation
of the Seller to so cure or purchase any Mortgage Loan as to which a material
defect in or omission of a constituent document exists shall constitute the sole
remedy respecting such defect or omission available to Certificateholders or the
Trustee on behalf of Certificateholders. In addition, it is understood and
agreed that the Company has assigned to the Trustee all of its rights under the
Purchase Agreement and the right to enforce any remedy against the Seller as
provided in Section 2.05 of the Purchase Agreement. For purposes of calculating
the amount the Servicer is required to remit on the Servicer Remittance Date
following such repurchase or substitution, any Loan Repurchase Price or
Substitution Adjustment that is paid and deposited in the related Collection
Account as provided above shall be deemed to have been deposited in the related
Collection Account in the Due Period preceding such Servicer Remittance Date.
(c) Upon receipt by the Trustee of a certification of a
Servicing Officer of such substitution or purchase and, in the case of a
substitution, upon receipt of the related Mortgage File, and the deposit of the
amounts described above in the Collection Account (which certification shall be
in the form of Exhibit H hereto), the Trustee shall release to the Servicer for
release to the Seller the related Mortgage File and shall execute, without
recourse, and deliver such instruments of transfer furnished by the Seller as
may be necessary to transfer such Mortgage Loan to the Seller. The Trustee shall
notify the Certificate Insurer if the Seller fails to repurchase or substitute
for a Mortgage Loan in accordance with the foregoing.
Section 2.05 EXECUTION OF CERTIFICATES. The Trustee
acknowledges the assignment to it of the Mortgage Loans and the delivery of the
Mortgage Files relating thereto to it and, concurrently with such delivery, has
executed, authenticated and delivered to or upon the order of the Company, in
exchange for the Mortgage Loans, the Mortgage Files and the other assets
included in the definition of Trust Fund, Certificates duly authenticated by the
Trustee in Authorized Denominations evidencing the entire ownership of the Trust
Fund.
22
<PAGE> 31
Section 2.06 FURTHER ACTION EVIDENCING ASSIGNMENTS. (a) The
Company agrees that, from time to time, at the Seller's expense, the Company
shall cause the Seller promptly to execute and deliver all further instruments
and documents, and take all further action, that may be necessary or
appropriate, or that the Servicer or the Trustee may reasonably request, in
order to perfect, protect or more fully evidence the transfer of ownership of
the Trust Fund or to enable the Trustee to exercise or enforce any of its rights
hereunder. Without limiting the generality of the foregoing, the Company will,
upon the request of the Servicer or of the Trustee execute and file (or cause to
be executed and filed) such real estate filings, financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate.
(b) The Company hereby grants to the Servicer and the Trustee
powers of attorney to execute all documents on its behalf under this Agreement
and the Purchase Agreement as may be necessary or desirable to effectuate the
foregoing.
Section 2.07[RESERVED].
Section 2.08CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS.
(a) Subject to the conditions set forth in paragraph (b) below
in consideration of the Trustee's delivery on the related Subsequent Transfer
Dates to or upon the order of the Company of all or a portion of the balance of
funds in the Pre-Funding Account, the Company shall on any Subsequent Transfer
Date sell, transfer, assign, set over and convey without recourse to the Trust
Fund but subject to the other terms and provisions of this Agreement all of the
right, title and interest of the Company in and to (i) the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule attached to the related
Subsequent Transfer Instrument delivered by the Company on such Subsequent
Transfer Date, (ii) principal due and interest accruing on the Subsequent
Mortgage Loans after the related Subsequent Cut-off Date and (iii) all items
with respect to such Subsequent Mortgage Loans to be delivered pursuant to
Section 2.03 above and the other items in the related Mortgage Files; provided,
however, that the Company reserves and retains all right, title and interest in
and to principal received and interest accruing on the Subsequent Mortgage Loans
prior to the related Subsequent Cut-off Date. The transfer to the Trustee by the
Company of the Subsequent Mortgage Loans identified on the Mortgage Loan
Schedule shall be absolute and is intended by the Company, the Servicer, the
Trustee and the Certificateholders to constitute and to be treated as a sale of
the Subsequent Mortgage Loans by the Company to the Trust Fund. The related
Mortgage File for each Subsequent Mortgage Loan shall be delivered to the
Trustee two Business Days prior to the Subsequent Transfer Date.
The purchase price paid by the Trustee from amounts released
from the Pre-Funding Account shall be one-hundred percent (100%) of the
aggregate principal balances of the Subsequent Mortgage Loans so transferred.
This Agreement shall constitute a fixed-price purchase contract in accordance
with Section 860G(a)(3)(A)(ii) of the Code.
(b) The Company shall transfer to the Trustee the Subsequent
Mortgage Loans and the other property and rights related thereto described in
Section 2.08 (a) above, and the Trustee shall release funds from the related
Pre-Funding Account, only upon the satisfaction of each of the following
conditions on or prior to the related Subsequent Transfer Date:
(i) the Company shall have provided the Trustee and the
Certificate Insurer with a timely Addition Notice and shall have
provided any information reasonably requested by the Trustee or the
Certificate Insurer with respect to the Subsequent Mortgage Loans;
(ii) the Company shall have delivered to the Trustee a duly
executed Subsequent Transfer Instrument, which shall include a Mortgage
Loan Schedule, listing the Subsequent Mortgage Loans;
(iii) as of each Subsequent Transfer Date, the Company shall
not be insolvent nor shall it have been made insolvent by such transfer
nor shall it be aware of any pending insolvency;
(iv) such sale and transfer shall not result in a material
adverse tax consequence to the Trust Fund or the Certificateholders;
23
<PAGE> 32
(v) the Pre-Funding Period shall not have terminated;
(vi) the Company shall have delivered to the Trustee an
Officer's Certificate, substantially in the form of Exhibit N,
confirming the satisfaction of each condition precedent and
representations specified in this Section 2.08(b) and Section 2.08(c)
following and in the related Subsequent Transfer Instrument;
(vii) the Certificate Insurer shall have delivered to the
Trustee an Officer's Certificate confirming that the Subsequent
Mortgage Loans conform to the representations and warranties of Section
5.07 of the Insurance Agreement;
(viii) the Company shall have delivered to the Trustee
Opinions of Counsel addressed to the Certificate Insurer, the Rating
Agencies and the Trustee with respect to the transfer of the Subsequent
Mortgage Loans substantially in the form of the Opinions of Counsel
delivered to the Certificate Insurer and the Trustee on the Closing
Date regarding certain bankruptcy, corporate and tax matters; and
(ix) the Trustee shall have delivered to the Certificate
Insurer and the Company an Opinion of Counsel addressed to the Company,
the Rating Agencies and the Certificate Insurer with respect to the
Subsequent Transfer Instrument substantially in the form of the Opinion
of Counsel delivered to the Certificate Insurer and the Company on the
Closing Date regarding certain corporate matters relating to the
Trustee.
(c) The obligation of the Trust Fund to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the following
representations and warranties of the Company with respect to such Subsequent
Mortgage Loan being satisfied: (i) such Subsequent Mortgage Loan may not be 30
or more days contractually delinquent as of the related Subsequent Cut-off Date;
(ii) the stated term to maturity of such Subsequent Mortgage Loan will not
exceed 360 months; (iii) such Subsequent Mortgage Loan may not provide for
negative amortization; (iv) such Subsequent Mortgage Loan will be underwritten
in accordance with the Underwriting Guidelines; (v) such Subsequent Mortgage
Loan will not have a Loan-to-Value Ratio (or Combined Loan-to-Value Ratio in the
case of second lien Mortgage Loans) greater than 90%; (vi) such Subsequent
Mortgage Loans will have as of the end of the Pre-Funding Period, a weighted
average term since origination not in excess of six months; (vii) no such
Subsequent Mortgage Loan shall have a rate less than ___%. In addition,
following the purchase of any Subsequent Mortgage Loans by the Trust Fund, the
Mortgage Loans (including the related Subsequent Mortgage Loans) as of the end
of the related Pre-Funding Period will (a) have a weighted average original term
to stated maturity of not more than 360 months; (b) have a weighted average
Loan-to-Value Ratio (or weighted average Combined Loan-to-Value Ratio in the
case of second lien Mortgage Loans) of not more than ____%, each by aggregate
principal balance of the related Mortgage Loans; (c) have no Mortgage Loan with
a principal balance in excess of $______; and (d) not have a concentration of
second lien Mortgage Loans in excess of ____%, by aggregate principal balance of
the related Mortgage Loans. In the sole discretion of the Certificate Insurer,
Subsequent Mortgage Loans with characteristics varying from those set forth
above may be purchased by the Trust Fund; provided, however, that the addition
of such Mortgage Loans will not materially affect the aggregate characteristics
of the Mortgage Loans.
(d) Within five Business Days after the end of the Pre-Funding
Period, the Company shall deliver to each Rating Agency a copy of the updated
Mortgage Loan Schedule including the Subsequent Mortgage Loans in electronic
format.
24
<PAGE> 33
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 REPRESENTATIONS OF THE SERVICER. The Servicer
hereby represents and warrants to the Trustee, the Company, the Certificate
Insurer and the Certificateholders as of the Closing Date:
(a) The Servicer is a ________ corporation duly organized,
validly existing and in good standing under the laws of the state of
its incorporation and is in compliance with the laws of each state in
which any Mortgaged Property is located to the extent necessary to
enable it to perform its obligations under the terms of this Agreement;
the Servicer has the full corporate power and authority to execute and
deliver this Agreement and to perform in accordance herewith; the
execution, delivery and performance of this Agreement by the Servicer
and the consummation of the transactions contemplated hereby have been
duly and validly authorized; this Agreement evidences the valid,
binding and enforceable obligation of the Servicer; and all requisite
corporate action has been taken by the Servicer to make this Agreement
valid and binding upon the Servicer in accordance with its terms;
(b) Neither the execution and delivery of this Agreement, nor
the fulfillment of or compliance with the terms and conditions of this
Agreement, will conflict with or result in a breach of any of the
terms, conditions or provisions of the Servicer's charter or by-laws or
any legal restriction or any agreement or instrument to which the
Servicer is now a party or by which it is bound, or constitute a
default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgment
or decree to which the Servicer or its property is subject, or impair
the ability of the Trustee (or the Servicer as the agent of the
Trustee) to realize on the Mortgage Loans, or impair the value of the
Mortgage Loans;
(c) The Servicer is an approved seller/servicer of
conventional residential mortgage loans for FNMA and FHLMC;
(d) There is no action, suit, proceeding or investigation
pending or, to the knowledge of the Servicer, threatened against the
Servicer which, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations,
financial condition, properties or assets of the Servicer, or in any
material impairment of the right or ability of the Servicer to carry on
its business substantially as now conducted, or of any action taken or
to be taken in connection with the obligations of the Servicer
contemplated herein, or which would materially impair the ability of
the Servicer to perform under the terms of this Agreement;
(e) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Servicer of or compliance by the Servicer with
this Agreement or the Mortgage Loans or the consummation of the
transactions contemplated by this Agreement, or if required, such
approval has been obtained prior to the Closing Date; and
(f) Neither this Agreement nor any statement, report or other
document furnished by the Servicer pursuant to this Agreement or in
connection with the transactions contemplated hereby contains any
untrue statement of material fact regarding the Servicer or omits to
state a material fact necessary to make the statements regarding the
Servicer contained herein or therein not misleading.
It is understood and agreed that the representations and
warranties set forth in this Section 3.01 shall survive the delivery of the
respective Mortgage Files to the Trustee or to a custodian, as the case may be,
and inure to the benefit of the Trustee, the Certificateholders and the
Certificate Insurer.
Section 3.02 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY. The Company hereby represents, warrants and covenants to the Trustee,
the Certificateholders and the Certificate Insurer that as of the date of this
Agreement or as of such date specifically provided herein:
25
<PAGE> 34
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) The Company has the corporate power and authority to
convey the Mortgage Loans and to execute, deliver and perform, and to
enter into and consummate transactions contemplated by, this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Company, all requisite corporate action
having been taken, and, assuming the due authorization, execution and
delivery hereof by the Servicer and the Trustee, constitutes or will
constitute the legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity
principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) No consent, approval, authorization or order of or
registration or filing with, or notice to, any governmental authority
or court is required for the execution, delivery and performance of or
compliance by the Company with this Agreement or the consummation by
the Company of any of the transactions contemplated hereby, except as
have been made on or prior to the Closing Date;
(e) None of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and conditions of this
Agreement, (i) conflicts or will conflict with or results or will
result in a breach of, or constitutes or will constitute a default or
results or will result in an acceleration under (A) the charter or
bylaws of the Company, or (B) of any term, condition or provision of
any material indenture, deed of trust, contract or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of its subsidiaries is bound; (ii) results or
will result in a violation of any law, rule, regulation, order,
judgment or decree applicable to the Company of any court or
governmental authority having jurisdiction over the Company or its
subsidiaries; or (iii) results in the creation or imposition of any
lien, charge or encumbrance which would have a material adverse effect
upon the Mortgage Loans or any documents or instruments evidencing or
securing the Mortgage Loans; (f) There are no actions, suits or
proceedings before or against or investigations of, the Company
pending, or to the knowledge of the Company, threatened, before any
court, administrative agency or other tribunal, and no notice of any
such action, which, in the Company's reasonable judgment, might
materially and adversely affect the performance by the Company of its
obligations under this Agreement, or the validity or enforceability of
this Agreement; and
(g) The Company is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency that would materially and
adversely affect its performance hereunder.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 3.02 shall survive delivery
of the respective Mortgage Files to the Trustee or to a custodian, as the case
may be, and shall inure to the benefit of the Trustee, the Certificateholders
and the Certificate Insurer.
Section 3.03 PURCHASE AND SUBSTITUTION. (a) It is understood
and agreed that the representations and warranties set forth in Sections ____
and ____ of the Purchase Agreement shall survive delivery of the Certificates to
the Certificateholders. Pursuant to the Purchase Agreement, with respect to any
representation or warranty contained in Sections ____ and ____ of the Purchase
Agreement that is made to the best of the Seller's knowledge, if it is
discovered by the Servicer, the Trustee, the Certificate Insurer or any
Certificateholder that the substance of such representation and warranty was
inaccurate as of the Closing Date and such inaccuracy materially and adversely
affects the value of the related Mortgage Loan, then notwithstanding the
Seller's lack of knowledge with respect to the inaccuracy at the time the
representation or warranty was made, such inaccuracy shall be deemed a breach of
the applicable representation or warranty. Upon discovery by the Seller, the
Servicer, the Trustee or the Certificate Insurer of a breach of any of such
representations and warranties which materially and adversely affects the value
of the Mortgage Loans or the interest of the
26
<PAGE> 35
Certificateholders or the Certificate Insurer, or which materially and adversely
affects the interests of the Certificate Insurer or the Certificateholders in
the related Mortgage Loan in the case of a representation and warranty relating
to a particular Mortgage Loan (notwithstanding that such representation and
warranty was made to the Seller's best knowledge), the party discovering such
breach shall give prompt written notice to the others. Subject to the last
paragraph of this Section 3.03, within 60 days of the earlier of its discovery
or its receipt of notice of any breach of a representation or warranty, pursuant
to the Purchase Agreement, the Seller shall be required to (a) promptly cure
such breach in all material respects, or (b) purchase such Mortgage Loan on the
next succeeding Servicer Remittance Date, in the manner and at the price
specified in Section 2.04(b), or (c) remove such Mortgage Loan from the Trust
Fund (in which case it shall become a Deleted Mortgage Loan) and substitute one
or more Qualified Substitute Mortgage Loans; provided, that, such substitution
is effected not later than the date which is two years after the Startup Day or
at such later date, if the Trustee and the Certificate Insurer receive an
Opinion of Counsel to the effect set forth below in this Section. Pursuant to
the Purchase Agreement, any such substitution shall be accompanied by payment by
the Seller of the Substitution Adjustment, if any, to be deposited in the
Collection Account.
(b) As to any Deleted Mortgage Loan for which the Seller
substitutes a Qualified Substitute Mortgage Loan or Loans, the Seller shall be
required pursuant to the Purchase Agreement to effect such substitution by
delivering to the Trustee a certification in the form attached hereto as Exhibit
H, executed by a Servicing Officer and the documents described in Sections
2.03(a)(i)-(vi) for such Qualified Substitute Mortgage Loan or Loans.
(c) The Servicer shall deposit in the Collection Account all
payments received in connection with such Qualified Substitute Mortgage Loan or
Loans after the date of such substitution. Monthly Payments received with
respect to Qualified Substitute Mortgage Loans on or before the date of
substitution will be retained by the Seller. The Trust Fund will own all
payments received on the Deleted Mortgage Loan on or before the date of
substitution, and the Seller shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan. The Servicer
shall give written notice to the Trustee and the Certificate Insurer that such
substitution has taken place and shall amend the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan from the terms of this
Agreement and the substitution of the Qualified Substitute Mortgage Loan. Upon
such substitution, such Qualified Substitute Mortgage Loan or Loans shall be
subject to the terms of this Agreement in all respects.
(d) It is understood and agreed that the obligations of the
Seller set forth in Sections ____ and ____ of the Purchase Agreement to cure,
purchase or substitute for a defective Mortgage Loan as provided in Sections
____ and ____ constitute the sole remedies of the Trustee, the Certificate
Insurer and the Certificateholders respecting a breach of the representations
and warranties of the Seller set forth in Sections ____ and ____ of the Purchase
Agreement. In addition, it is understood and agreed that the Company has
assigned to the Trustee all of its rights under the Purchase Agreement and the
right to enforce any remedy against the Seller as provided in Section 3.04 of
the Purchase Agreement. The Trustee shall give prompt written notice to the
Certificate Insurer and the Rating Agencies of any repurchase or substitution
made pursuant to this Section 3.03 or Section 2.04(b).
(e) Upon discovery by the Servicer, the Trustee, the
Certificate Insurer or any Certificateholder that any Mortgage Loan does not
constitute a Qualified Mortgage, the party discovering such fact shall promptly
(and in any event within five days of the discovery) give written notice thereof
to the other parties. In connection therewith, pursuant to the Purchase
Agreement, the Seller shall be required to repurchase or substitute a Qualified
Substitute Mortgage Loan for the affected Mortgage Loan within 90 days of the
earlier of such discovery by any of the foregoing parties, or the Trustee's or
the Seller's receipt of notice, in the same manner as it would a Mortgage Loan
for a breach of representation or warranty contained in Section ____ or ____ of
the Purchase Agreement. The Trustee shall reconvey to the Seller the Mortgage
Loan to be released pursuant hereto in the same manner, and on the same terms
and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section ____ or ____ of the Purchase
Agreement.
27
<PAGE> 36
ARTICLE IV
THE CERTIFICATES
Section 4.01 THE CERTIFICATES. The Certificates shall be
substantially in the forms annexed hereto as Exhibits B-1 and B-2. The
Certificates shall be issued in Authorized Denominations only. All Certificates
shall be executed by manual or facsimile signature on behalf of the Trustee by
an authorized officer and authenticated by the manual or facsimile signature of
an authorized officer. Certificates bearing the signatures of individuals who
were at the time of the execution of the Certificates the authorized officers of
the Trustee shall bind the Trustee, notwithstanding that such individuals or any
of them have ceased to hold such offices prior to the delivery of such
Certificates or did not hold such offices at the date of such Certificates. All
Certificates issued hereunder shall be dated the date of their authentication.
Section 4.02 REGISTRATION OF TRANSFER AND EXCHANGE OF
CERTIFICATES. (a) The Trustee, as registrar, shall cause to be kept a register
(the "Certificate Register") in which, subject to such reasonable regulations as
it may prescribe, the Trustee shall provide for the registration of Certificates
and the registration of transfer of Certificates. The Trustee is hereby
appointed registrar for the purpose of registering Certificates and transfers of
Certificates as herein provided. The Certificate Insurer shall be entitled to
inspect and verify the Certificate Register and the records of the Trustee
relating to the Certificates during normal business hours upon reasonable
notice.
(b) All Certificates issued upon any registration of transfer
or exchange of Certificates shall be valid evidence of the same ownership
interests in the Trust Fund and entitled to the same benefits under this
Agreement as the Certificates surrendered upon such registration of transfer or
exchange.
(c) Every Certificate presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Trustee duly
executed by the Holder thereof or his attorney duly authorized in writing.
(d) No service charge shall be made to a Holder for any
registration of transfer or exchange of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates; any other expenses in connection with such transfer or
exchange shall be an expense of the Trust Fund.
(e) It is intended that the Class A Certificates be registered
so as to participate in a global book-entry system with the Depository, as set
forth herein. Each Class of Class A Certificates shall, except as otherwise
provided in the next paragraph, be initially issued in the form of a single
fully registered Class A Certificate of such Class with a denomination equal to
the Original Security Balance of such Class. Upon initial issuance, the
ownership of each such Class A Certificate shall be registered in the
Certificate Register in the name of Cede & Co., or any successor thereto, as
nominee for the Depository. The Company and the Trustee are hereby authorized to
execute and deliver the Representation Letter with the Depository. With respect
to Class A Certificates registered in the Certificate Register in the name of
Cede & Co., as nominee of the Depository, the Company, the Seller, the Servicer,
the Trustee and the Certificate Insurer shall have no responsibility or
obligation to Direct or Indirect Participants or beneficial owners for which the
Depository holds Class A Certificates from time to time as a Depository. Without
limiting the immediately preceding sentence, the Company, the Seller, the
Servicer, the Trustee and the Certificate Insurer shall have no responsibility
or obligation with respect to (i) the accuracy of the records of the Depository,
Cede & Co., or any Direct or Indirect Participant with respect to any Ownership
Interest, (ii) the delivery to any Direct or Indirect Participant or any other
Person, other than a Certificateholder, of any notice with respect to the Class
A Certificates or (iii) the payment to any Direct or Indirect Participant or any
other Person, other than a Certificateholder, of any amount with respect to any
distribution of principal or interest on the Class A Certificates. No Person
other than a Certificateholder shall receive a certificate evidencing such Class
A Certificate. Upon delivery by the Depository to the Trustee of written notice
to the effect that the Depository has determined to substitute a new nominee in
place of Cede & Co., and subject to the provisions hereof with respect to the
payment of interest by the mailing of checks or drafts to the Certificateholders
appearing as Certificateholders at the close of business on a Record Date, the
name "Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
28
<PAGE> 37
(f) In the event that (i) the Depository or the Company
advises the Trustee in writing that the Depository is no longer willing or able
to discharge properly its responsibilities as nominee and depository with
respect to the Class A Certificates and the Company or the Depository is unable
to locate a qualified successor or (ii) the Company at its sole option elects to
terminate the book-entry system through the Depository, the Class A Certificates
shall no longer be restricted to being registered in the Certificate Register in
the name of Cede & Co. (or a successor nominee) as nominee of the Depository. At
that time, the Company may determine that the Class A Certificates shall be
registered in the name of and deposited with a successor depository operating a
global book-entry system, as may be acceptable to the Company, or such
depository's agent or designee but, if the Company does not select such
alternative global book-entry system, then the Class A Certificates may be
registered in whatever name or names Certificateholders transferring Class A
Certificates shall designate, in accordance with the provisions hereof;
provided, however, that any such reregistration shall be at the expense of the
Company.
(g) Notwithstanding any other provision of this Agreement to
the contrary, so long as any Class A Certificate is registered in the name of
Cede & Co., as nominee of the Depository, all distributions of principal or
interest on such Class A Certificates as the case may be and all notices with
respect to such Class A Certificates as the case may be shall be made and given,
respectively, in the manner provided in the Representation Letter.
(h) Except as provided in Section 4.02(i), no transfer, sale,
pledge or other disposition of a Class R Certificate shall be made unless such
transfer, sale, pledge or other disposition is exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event that a transfer of a Class R Certificate is to be made under
this Section 4.02(h), (i) the Company may direct the Trustee to require an
Opinion of Counsel acceptable to and in form and substance satisfactory to the
Trustee and the Company that such transfer shall be made pursuant to an
exemption, describing the applicable exemption and the basis therefor, from said
Act and laws or is being made pursuant to said Act and laws, which Opinion of
Counsel shall not be an expense of the Trustee, the Company or the Servicer,
provided that such Opinion of Counsel will not be required in connection with
the initial transfer of any such Certificate by the Company or any affiliate
thereof, to a non-affiliate of the Company and (ii) the Trustee shall require
the transferee to execute a representation letter, substantially in the form of
Exhibit O hereto, and the Trustee shall require the transferor to execute a
representation letter, substantially in the form of Exhibit P hereto, each
acceptable to and in form and substance satisfactory to the Company and the
Trustee certifying to the Company and the Trustee the facts surrounding such
transfer, which representation letters shall not be an expense of the Trustee,
the Company or the Servicer, provided that such representation letter will not
be required in connection with any transfer of any such Certificate by the
Company to an affiliate of the Company. Any such Certificateholder desiring to
effect such transfer shall, and does hereby agree to, indemnify the Trustee, the
Company and the Servicer against any liability that may result if the transfer
is not so exempt or is not made in accordance with such applicable federal and
state laws.
(i) Transfers of Certificates may be made in accordance with
this Section 4.02(i) if the prospective transferee of a Certificate provides the
Trustee and the Company with an investment letter substantially in the form of
Exhibit Q attached hereto, which investment letter shall not be an expense of
the Trustee, the Company or the Servicer, and which investment letter states
that, among other things, such transferee is a "qualified institutional buyer"
as defined under Rule 144A. Such transfers shall be deemed to have complied with
the requirements of Section 4.02(h) hereof; provided, however, that no Transfer
of any of the Certificates may be made pursuant to this Section 4.02(i) by the
Company. Any such Certificateholder desiring to effect such transfer shall, and
does hereby agree to, indemnify the Trustee, the Company and the Servicer
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such applicable federal and state laws.
(j) 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 to have irrevocably appointed the Company or its designee as its
attorney-in-fact to negotiate the terms of any mandatory sale under clause (8)
below and to execute all instruments of transfer and to do all other things
necessary in connection with any such sale, and the rights of each Person
acquiring any Ownership Interest in a Class R Certificate are expressly subject
to the following provisions:
29
<PAGE> 38
(1) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall be a Permitted Transferee and shall promptly notify
the Trustee of any change or impending change in its status as a Permitted
Transferee.
(2) In connection with any proposed Transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery to it, and
shall not register the Transfer of any Class R Certificate until its receipt of,
an affidavit and agreement (a "Transfer Affidavit and Agreement") attached
hereto as Exhibit I from the proposed Transferee, in form and substance
satisfactory to the Trustee, representing and warranting, among other things,
that such Transferee is a Permitted Transferee, that it is not acquiring its
Ownership Interest in the Class R Certificate that is the subject of the
proposed Transfer as a nominee, trustee or agent for any Person that is not a
Permitted Transferee, that for so long as it retains its Ownership Interest in a
Class R Certificate, it will endeavor to remain a Permitted Transferee, and that
it has reviewed the provisions of this Section 4.02(j) and agrees to be bound by
them.
(3) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (2) above, if the Trustee has
actual knowledge that the proposed Transferee is not a Permitted Transferee, no
Transfer of an Ownership Interest in a Class R Certificate to such proposed
Transferee shall be effected.
(4) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall agree (x) to require a Transfer Affidavit and
Agreement from any other Person to whom such Person attempts to transfer its
Ownership Interest in a Class R Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate (attached hereto as Exhibit
J) to the Trustee stating that, among other things, it has no actual knowledge
that such other Person is not a Permitted Transferee.
(5) The Trustee will register the Transfer of any Class R
Certificate only if it shall have received the Transfer Affidavit and Agreement
and all of such other documents as shall have been reasonably required by the
Trustee as a condition to such registration. In addition, no Transfer of a Class
R Certificate shall be made unless the Trustee shall have received a
representation letter from the Transferee of such Certificate to the effect that
such Transferee is not a Disqualified Non-United States Person and is not a
Disqualified Organization. Transfers of the Class R Certificates to Disqualified
Non-United States Persons and Disqualified Organizations are prohibited.
(6) Any attempted or purported transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of this Section
4.02 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 4.02, 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 notify the Company upon receipt of written notice or discovery
by a Responsible Officer that the registration of transfer of a Class R
Certificate was not in fact permitted by this Section 4.02. Knowledge shall not
be imputed to the Trustee with respect to an impermissible transfer in the
absence of such a written notice or discovery by a Responsible Officer. 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
4.02 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 and Transfer Certificate. 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 Holder of such Certificate.
(k) The Trustee shall make available to the Internal Revenue
Service and those Persons specified by the REMIC Provisions, all information
necessary to compute any tax imposed (A) as a result of the transfer of an
ownership interest in a Class R Certificate to any Person who is a Disqualified
Organization, including the information regarding "excess inclusions" of such
Class R Certificates required to be provided to the Internal Revenue Service and
certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and
1.860E- 2(a)(5), and (B) as a result of any regulated investment company, real
estate investment trust, common trust fund,
30
<PAGE> 39
partnership, trust, estate or organization described in Section 1381 of the Code
that holds an Ownership Interest in a Class R Certificate having as among its
record holders at any time any Person who is a Disqualified Organization. The
Trustee may charge and shall be entitled to reasonable compensation for
providing such information as may be required from those Persons which may have
had a tax imposed upon them as specified in clauses (A) and (B) of this
paragraph for providing such information.
(l) No transfer of a Class R Certificate or any interest
therein shall be made to any employee benefit plan or other retirement
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code (each,
a "Plan"), unless the prospective transferee of such Class R Certificate
provides the Servicer and the Trustee with a certification of facts and, at the
prospective transferee's expense, an Opinion of Counsel which establish to the
satisfaction of the Servicer and the Trustee that such transfer will not result
in a violation of Section 406 of ERISA or Section 4975 of the Code or cause the
Servicer or the Trustee to be deemed a fiduciary of such Plan or result in the
imposition of an excise tax under Section 4975 of the Code. In the absence of
their having received the certification of facts or Opinion of Counsel
contemplated by the preceding sentence, the Trustee and the Servicer shall
require the prospective transferee of any Class R Certificate to certify in the
form of Exhibit O or Exhibit Q that (A) it is neither (i) a Plan nor (ii) a
Person who is directly or indirectly purchasing a Class R Certificate on behalf
of, as named fiduciary of, as trustee of, or with assets, of a Plan and (B) all
funds used by such transferee to purchase such Certificates will be funds held
by it in its general account which it reasonably believes do not constitute
"plan assets" of any Plan.
(m) Subject to the restrictions set forth in this Agreement,
upon surrender for registration of transfer of any Certificate at the office or
agency of the Trustee located in New York, New York, the Trustee shall execute,
authenticate and deliver in the name of the designated transferee or
transferees, a new Certificate of the same Class and Percentage Interest and
dated the date of authentication by the Trustee. At the option of the
Certificateholders, Certificates may be exchanged for other Certificates of
Authorized Denominations of a like aggregate Percentage Interest, upon surrender
of the Certificates to be exchanged at such office. 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. No service charge shall be made for any transfer or
exchange of Certificates, but the Trustee may require 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. All Certificates
surrendered for transfer and exchange shall be cancelled by the Trustee.
Section 4.03 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 Trustee such
security or indemnity as may reasonably be required by each of 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, authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and Percentage Interest, but bearing a number not contemporaneously
outstanding. Upon the issuance of any new Certificate under this Section 4.03,
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 their fees
and expenses connected therewith. Any duplicate Certificate issued pursuant to
this Section 4.03 shall constitute complete and indefeasible evidence of
ownership in the Trust Fund, as if originally issued, whether or not the
mutilated, destroyed, lost or stolen Certificate shall be found at any time.
Section 4.04 PERSONS DEEMED OWNERS. Prior to due presentation
of a Certificate for registration of transfer and subject to the provisions of
Section 4.02 and Article X, the Servicer, the Company, the Seller, the
Certificate Insurer and the Trustee may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving remittances pursuant to Section 6.05 and for all other purposes
whatsoever, and the Servicer, the Company, the Seller, the Certificate Insurer
and the Trustee shall not be affected by notice to the contrary.
31
<PAGE> 40
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.01 APPOINTMENT OF THE SERVICER. (a) ________ agrees
to act as the Servicer and to perform all servicing duties under this Agreement
subject to the terms hereof.
(b) The Servicer shall service and administer the Mortgage
Loans on behalf of the Trustee and shall have full power and authority, acting
alone or through one or more Subservicers, to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable. Without limiting the generality of the foregoing, the Servicer may,
and is hereby authorized and empowered by the Trustee to, execute and deliver,
on behalf of itself, the Certificateholders and the Trustee 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
Mortgage Loans, the insurance policies and accounts related thereto and the
properties subject to the Mortgages. Upon the execution and delivery of this
Agreement, and from time to time as may be required thereafter, the Trustee
shall execute for the Servicer any powers of attorney and such other documents
as may be necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder.
In servicing and administering the Mortgage Loans, the
Servicer shall employ procedures consistent with Accepted Servicing Practices
and in a manner consistent with recovery under any insurance policy required to
be maintained by the Servicer pursuant to this Agreement.
Costs incurred by the Servicer in effectuating the timely
payment of taxes and assessments on the property securing a Mortgage Note and
foreclosure costs may be added by the Servicer to the amount owing under such
Mortgage Note where the terms of such Mortgage Note so permit; provided,
however, that the addition of any such cost shall not be taken into account for
purposes of calculating the principal amount of the Mortgage Note and Mortgage
Loan, the Monthly Payments on the Mortgage Note and Mortgage Loan or
distributions to be made to Certificateholders. Such costs shall be recoverable
by the Servicer pursuant to Section 5.04.
(c) Subject to Section 5.12, the Servicer is hereby authorized
and empowered to execute and deliver on behalf of the Trustee and each
Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the Mortgaged Properties. If
reasonably required by the Servicer, the Trustee shall execute any powers of
attorney furnished to the Trustee by the Servicer and other documents necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.
(d) On and after such time as the Trustee receives the
resignation of, or notice of the removal of, the Servicer from its rights and
obligations under this Agreement, and with respect to resignation pursuant to
Section 5.24, after receipt by the Trustee and the Certificate Insurer of the
Opinion of Counsel required pursuant to Section 5.24, the Trustee or its
designee approved by the Certificate Insurer (which approval shall not be
unreasonably withheld) shall assume all of the rights and obligations of the
Servicer, subject to Section 7.02 hereof. The Servicer shall, upon request of
the Trustee but at the expense of the Servicer, deliver to the Trustee all
documents and records relating to the Mortgage Loans and an accounting of
amounts collected and held by the Servicer and otherwise use its best efforts to
effect the orderly and efficient transfer of servicing rights and obligations to
the assuming party.
(e) If the Mortgage relating to a Mortgage Loan did not have a
lien senior on the related Mortgaged Property as of the Cut-Off Date, then the
Servicer, in such capacity, may not consent to the placing of a lien senior to
that of the Mortgage on the related Mortgaged Property. If the Mortgage relating
to a Mortgage Loan had a lien senior to the Mortgage Loan on the related
Mortgaged Property as of the Cut-Off Date, then the Servicer, in such capacity,
may consent to the refinancing of such senior lien; provided that (i) the
resulting Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than
the Combined Loan-to-Value Ratio prior to such refinancing and (ii) the interest
rate for the loan evidencing the refinanced senior lien on the date of such
refinancing is no higher than the interest rate on the loan evidencing the
existing senior lien immediately prior to the date of such refinancing.
32
<PAGE> 41
(f) The Servicer shall deliver a list of Servicing Officers to
the Trustee and the Certificate Insurer by the Closing Date.
Section 5.02 [Reserved]
Section 5.03 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS;
COLLECTION ACCOUNT. (a) The Servicer shall make reasonable efforts to collect
all payments called for under the terms and provisions of the Mortgage Loans,
and shall, to the extent such procedures shall be consistent with this Agreement
and any applicable primary mortgage insurance policy, follow such collection
procedures as shall constitute Accepted Servicing Practices. Consistent with the
foregoing, the Servicer may in its discretion (i) waive any prepayment charge,
assumption fee, late payment charge or other charge in connection with a
Mortgage Loan, and (ii) arrange a schedule, running for no more than 180 days
after the Due Date for payment of any installment on any Mortgage Note, for the
liquidation of delinquent items. Any provision of this agreement to the contrary
notwithstanding, the Servicer shall not agree to the modification or waiver of
any provision of a Mortgage Loan at a time when such Mortgage Loan is not in
default or such default is not reasonably foreseeable, if such modification or
waiver would be treated as a taxable exchange under Section 1001 of the Code,
unless such exchange would not be considered a "prohibited transaction" under
the REMIC Provisions.
The Servicer shall establish and maintain in the name of the
Trustee the Collection Account, in trust for the benefit of the
Certificateholders and the Certificate Insurer. The Collection Account shall be
established and maintained as an Eligible Account.
The Servicer shall deposit in the Collection Account (i) any
amounts representing Monthly Payments on the Mortgage Loans due or to be applied
as of a date after the Cut-off Date, with respect to the Initial Mortgage Loans,
or Subsequent Cut-off Date, with respect to the Subsequent Mortgage Loans, (ii)
any amounts representing Monthly Payments on the Initial Mortgage Loans due or
to be applied as of a date on or before the Cut-off Date (except for any
interest accrued prior to the Cut-off Date and except for any principal received
by the Company prior to the Cut-off Date the receipt of which is reflected on
the Mortgage Loan Schedule) and (iii) thereafter, on a daily basis within two
Business Days of receipt (except as otherwise permitted herein), the following
payments and collections received or made by it (other than any amounts in
respect of principal of or interest on the Mortgage Loans which, under clauses
(i) and (ii) above, are not required to be deposited in the Collection Account):
(i) all payments received after the Cut-off Date or
Subsequent Cut-off Date, as applicable on account of principal on the
Mortgage Loans and all Principal Prepayments in Full, Curtailments and
all Net REO Proceeds collected after the Cut-off Date or Subsequent
Cut-off Date, as applicable;
(ii) all payments received after the Cut-off Date or
Subsequent Cut-off Date, as applicable on account of interest on the
Mortgage Loans (other than payments of interest that accrued on each
Mortgage Loan up to and including the Cut-off Date or Subsequent
Cut-off Date, as applicable);
(iii) all Net Liquidation Proceeds;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase
of any Mortgage Loan and the amount of any Substitution Adjustment
pursuant to Sections 2.04 and 3.03; and
(vii) any amount expressly required to be deposited in the
Collection Account in accordance with certain provisions of this
Agreement, including, without limitation Sections 2.04(b), 2.04(c),
3.03(a), 3.03(c), 5.06, 5.07 and 5.18 of this Agreement;
provided, however, that the Servicer shall be entitled, at its
election, either (a) to withhold and to pay to itself the applicable Servicing
Fee from any payment on account of interest or other recovery (including Net REO
Proceeds) as received and prior to deposit of such payments in the Collection
Account or (b) to
33
<PAGE> 42
withdraw the applicable Servicing Fee from the Collection Account after the
entire payment or recovery has been deposited therein; provided, further, that
with respect to any payment of interest received by the Master Servicer in
respect of a Mortgage Loan (whether paid by the Mortgagor or received as
Liquidation Proceeds, Insurance Proceeds or otherwise) which is less than the
full amount of interest then due with respect to such Mortgage Loan, only that
portion of such payment that bears the same relationship to the total amount of
such payment of interest as the rate used to determine the Servicing Fee bears
to the Mortgage Interest Rate borne by such Mortgage Loan shall be allocated to
the Servicing Fee with respect to such Mortgage Loan. All other amounts shall be
deposited in the Collection Account not later than the second Business Day
following the day of receipt and posting by the Servicer.
The Servicer may invest the funds in the Collection Account
only in Permitted Investments. No Permitted Investment shall be sold or disposed
of at a gain prior to maturity unless the Servicer has obtained an Opinion of
Counsel (at the Servicer's expense) that such sale or disposition will not cause
the Trust Fund to be subject to the tax on income from prohibited transactions
imposed by Section 860F(a)(1) of the Code, otherwise subject the Trust Fund to
tax or cause the Trust Fund to fail to qualify as a REMIC. All income (other
than any gain from a sale or disposition of the type referred to in the
preceding sentence) realized from any such Permitted Investment shall be for the
benefit of the Servicer as additional servicing compensation. The amount of any
losses incurred in respect of any such investments shall be deposited in the
Collection Account by the Servicer out of its own funds immediately as realized.
The foregoing requirements for deposit in the Collection
Account shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of those
described in the last paragraph of Section 5.14 and payments in the nature of
prepayment charges, late payment charges or assumption fees need not be
deposited by the Servicer in the Collection Account. If the Servicer deposits in
the Collection Account any amount not required to be deposited therein, it may
at any time withdraw such amount from the Collection Account, any provision
herein to the contrary notwithstanding. All funds deposited by the Servicer in
the Collection Account shall be held in the Collection Account for the account
of the Trustee in trust for the Certificateholders until disbursed in accordance
with Section 6.01 or withdrawn in accordance with Section 5.04.
(b) Prior to the time of their required deposit in the
Collection Account, all amounts required to be deposited therein may be
deposited in an account in the name of Servicer, provided that such account is
an Eligible Account. All such funds shall be held by the Servicer in trust for
the benefit of the Certificateholders and the Certificate Insurer pursuant to
the terms hereof.
(c) The Collection Account may, upon written notice by the
Trustee to the Certificate Insurer, be transferred to a different depository so
long as such transfer is to an Eligible Account.
Section 5.04 PERMITTED WITHDRAWALS FROM THE COLLECTION
ACCOUNT. The Servicer may, from time to time, make withdrawals from the
Collection Account for the following purposes:
(a) to reimburse itself for any accrued unpaid Servicing Fees
and for unreimbursed Periodic Advances and Servicing Advances. The Servicer's
right to reimbursement for unpaid Servicing Fees and unreimbursed Servicing
Advances shall be limited to late collections on the related Mortgage Loan,
including Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance
Proceeds and such other amounts as may be collected by the Master Servicer from
the related Mortgagor or otherwise relating to the Mortgage Loan in respect of
which such unreimbursed amounts are owed. The Servicer's right to reimbursement
for unreimbursed Periodic Advances shall be limited to late collections of
interest on any Mortgage Loan and to Liquidation Proceeds and Insurance Proceeds
on related Mortgage Loans;
(b) to reimburse itself for any Periodic Advances or Servicing
Advances determined in good faith to have become Nonrecoverable Advances, such
reimbursement to be made from any funds in the Collection Account;
(c) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code in accordance with a
final, nonappealable order of a court having competent jurisdiction;
34
<PAGE> 43
(d) to withdraw any funds deposited in the Collection Account
that were not required to be deposited therein;
(e) to pay itself Servicing Compensation pursuant to Section
5.14 hereof to the extent not retained or paid pursuant to Section 5.03, 5.04 or
5.14;
(f) to pay to the Seller with respect to each Mortgage Loan or
property acquired in respect thereof that has been repurchased or replaced
pursuant to Section 2.04 or 3.03 or to pay to itself with respect to each
Mortgage Loan or property acquired in respect thereof that has been purchased
pursuant to Section 8.01 all amounts received thereon and not required to be
distributed as of the date on which the related repurchase or purchase price or
Principal Balance, as the case may be, was determined;
(g) to pay to the Seller with respect to each Mortgage Loan
the amount of interest accrued and unpaid on such Mortgage Loan on the Cut-off
Date (with respect to the Initial Mortgage Loans) or Subsequent Cut-off Date
(with respect to the Subsequent Mortgage Loans);
(h) to make deposits to the Certificate Accounts (which shall
include the Trustee Fee) in the amounts and in the manner provided for herein;
(i) to pay itself any interest earned on or investment income
earned with respect to funds in the Collection Account;
(j) to reimburse itself or the Company pursuant to Section
11.01; and
(k) to clear and terminate the Collection Account upon the
termination of this Agreement.
The Servicer shall keep and maintain a separate accounting for
each Mortgage Loan for the purpose of accounting for withdrawals from the
Collection Account pursuant to subclause (a).
Section 5.05 PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES.
With respect to each Mortgage Loan, the Servicer shall maintain accurate records
reflecting casualty insurance coverage.
With respect to each Mortgage Loan as to which the Servicer
maintains escrow accounts, the Servicer shall maintain accurate records
reflecting the status of ground rents, taxes, assessments, water rates and other
charges which are or may become a lien upon the Mortgaged Property and the
status of primary mortgage guaranty insurance premiums, if any, and casualty
insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment
thereof prior to the applicable penalty or termination date and at a time
appropriate for securing maximum discounts allowable, employing for such purpose
deposits of the Mortgagor in any escrow account which shall have been estimated
and accumulated by the Servicer in amounts sufficient for such purposes, as
allowed under the terms of the Mortgage. To the extent that a Mortgage does not
provide for escrow payments, the Servicer shall, if it has received notice of a
default or deficiency, monitor such payments to determine if they are made by
the Mortgagor.
Section 5.06 MAINTENANCE OF CASUALTY INSURANCE. The Servicer
shall cause to be maintained for each Mortgage Loan (at the expense of the
borrower or, if required by the terms of the Mortgage Loan and not paid for by
the borrower, at the expense of the Trust Fund) a casualty insurance policy with
extended coverage issued by a generally acceptable insurer in an amount which is
not less than the full insurable value of the Mortgaged Property securing such
Mortgage Loan or the unpaid principal balance of such Mortgage Loan, whichever
is less; provided, however, that such insurance may not be less than the minimum
amount required to fully compensate for any loss or damage on a replacement cost
basis. If, upon origination of the Mortgage Loan, the improvements on the
Mortgaged Property were in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards (and such
flood insurance has been made available) the Servicer will cause to be
maintained (at the expense of the borrower or, if required by the terms of the
Mortgage Loan and not paid for by the borrower, at the expense of the Trust
Fund) a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally acceptable
insurance carrier, in an amount representing coverage not less than the least of
(i) the unpaid principal balance of the Mortgage Loan, (ii) the full insurable
value and (iii) the maximum amount of insurance
35
<PAGE> 44
which was available under the Flood Disaster Protection Act of 1973. The
Servicer shall also maintain similar fire insurance coverage and, if applicable,
flood insurance on property acquired upon foreclosure, or by deed in lieu of
foreclosure, of any Mortgage Loan in an amount which is at least equal to the
lesser of (i) the full insurable value of the improvements which are a part of
such property and (ii) the principal balance owing on such Mortgage Loan at the
time of such foreclosure or grant of deed in lieu of foreclosure; provided,
however, that such insurance may not be less than the minimum amount required to
fully compensate for any loss or damage on a replacement cost basis. It is
understood and agreed that such insurance shall be with insurers approved by the
Servicer and that no earthquake or other additional insurance is to be required
of any Mortgagor, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance.
Pursuant to Section 5.03, any amounts collected by the Servicer under any
insurance policies maintained pursuant to this Section 5.06 (other than amounts
to be applied to the restoration or repair of the related Mortgaged Property or
released to the Mortgagor in accordance with Accepted Servicing Practices) shall
be deposited into the Collection Account, subject to withdrawal pursuant to
Section 5.04 unless such insurance was not required by the terms of the Mortgage
Loan. Any cost incurred by the Servicer in maintaining any such insurance shall
be added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; provided, however, that the addition of any such cost
shall not be taken into account for purposes of calculating the principal amount
of the Mortgage Note or Mortgage Loan, the Monthly Payments on the Mortgage Note
or the distributions to be made to the Certificateholders. Such costs shall be
recoverable by the Servicer pursuant to Section 5.04. In the event that the
Servicer shall obtain and maintain a blanket policy issued by an insurer that is
acceptable to FNMA or FHLMC, insuring against hazard losses on all of the
Mortgage Loans, it shall conclusively be deemed to have satisfied its obligation
as set forth in the first sentence of this Section 5.06, it being understood and
agreed that such policy may contain a deductible clause, in which case the
Servicer shall, in the event that there shall not have been maintained on the
related mortgaged or acquired property an insurance policy complying with the
first sentence of this Section 5.06 and there shall have been a loss which would
have been covered by such a policy had it been maintained, be required to
deposit from its own funds into the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause.
Section 5.07 MAINTENANCE OF MORTGAGE IMPAIRMENT INSURANCE
POLICY. In the event that the Servicer shall obtain and maintain a blanket
policy (the "Mortgage Impairment Insurance Policy") with an insurer either (i)
having a General Policy rating of A:VIII or better in Best's Key Rating Guide or
(ii) approved in writing by the Certificate Insurer, such approval not to be
unreasonably withheld, insuring against fire and hazards of extended coverage on
all of the Mortgage Loans, then, to the extent such policy names the Servicer as
loss payee and provides coverage in an amount equal to the aggregate unpaid
principal balance on the Mortgage Loans without co-insurance, and otherwise
complies with the requirements of Section 5.06, the Servicer shall be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage under Section 5.06, it being understood and agreed that such
blanket policy may contain a deductible clause, in which case the Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property a policy complying with Section 5.06, and there shall have
been a loss which would have been covered by such policy, deposit in the
Collection Account the difference, if any, between the amount that would have
been payable under a policy complying with Section 5.06 and the amount paid
under such blanket policy. Upon the request of the Certificate Insurer, the
Trustee or any Certificateholder, the Servicer shall cause to be delivered to
the Certificate Insurer, the Trustee or such Certificateholder, as the case may
be, a certified true copy of such policy. The Servicer agrees to prepare and
present, on behalf of itself, the Trustee, the Certificate Insurer and
Certificateholders, claims under any such policy in a timely fashion in
accordance with the terms of such policy.
Section 5.08 FIDELITY BOND; ERRORS AND OMISSIONS POLICY. (a)
The Servicer shall maintain with a responsible company, and at its own expense,
a blanket fidelity bond (a "Fidelity Bond") and an errors and omissions
insurance policy (an "Errors and Omissions Policy"), in a minimum amount
acceptable to FNMA or FHLMC or, if _______is the Servicer or if the Trustee is
the successor Servicer, in an amount generally maintained by prudent mortgage
loan servicers having servicing portfolios of a similar size.
(b) The Servicer shall be deemed to have complied with this
provision if one of its respective Affiliates has such a Fidelity Bond and
Errors and Omissions Policy and, by the terms of such fidelity bond and errors
and omission policy, the coverage afforded thereunder extends to the Servicer.
Any such Fidelity Bond and Errors and Omissions Policy shall not be cancelled or
modified in a materially adverse manner without 10 days prior written notice to
the Certificate Insurer.
36
<PAGE> 45
Section 5.09 COLLECTION OF TAXES, ASSESSMENTS AND OTHER ITEMS;
SERVICING ACCOUNT. In addition to the Collection Account, the Servicer shall
establish and maintain a Servicing Account, which shall be an Eligible Account,
and shall deposit therein all payments by Mortgagors for taxes, assessments,
primary mortgage or hazard insurance premiums or comparable items. Withdrawals
from the Servicing Account may be made to effect payment of taxes, assessments,
primary mortgage or hazard insurance premiums or comparable items, to reimburse
the Servicer out of related collections for any advances made in the nature of
any of the foregoing, to refund to any Mortgagors any sums determined to be
overages, or to pay any interest owed to Mortgagors on such account to the
extent required by law or to clear and terminate the Servicing Account at the
termination of this Agreement upon the termination of the Trust Fund. The
Servicer shall advance the payments referred to in the first sentence of this
Section 5.09 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 to so advance only to the extent that such advances,
in the good faith judgment of the Servicer, will be recoverable by the Servicer
pursuant to Section 5.04 out of Liquidation Proceeds, Insurance Proceeds or
otherwise.
Section 5.10 PERIODIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION; ADDITIONAL INFORMATION. The Trustee shall prepare or cause to be
prepared for filing with the Commission any and all reports, statements and
information respecting the Trust Fund and/or the Certificates required to be
filed, and shall solicit any and all proxies of the Certificateholders whenever
such proxies are required to be solicited, pursuant to the Securities Exchange
Act of 1934, as amended. The Company shall promptly file, and exercise its
reasonable best efforts to obtain a favorable response to, no-action requests
with, or other appropriate exemptive relief from, the Commission seeking the
usual and customary exemption from such reporting requirements granted to
issuers of securities similar to the Certificates. Fees and expenses incurred by
the Trustee in connection with the foregoing shall be reimbursed pursuant to
Section 9.05 and shall not be paid by the Trust Fund.
The Servicer and the Company each agree to promptly furnish to
the Trustee, from time to time upon request, such further information, reports
and financial statements within their control related to this Agreement and the
Mortgage Loans as the Trustee reasonably deems appropriate to prepare and file
all necessary reports with the Securities and Exchange Commission.
Section 5.11 ENFORCEMENT OF DUE-ON-SALE CLAUSES; ASSUMPTION
AGREEMENTS. In any case in which a Mortgaged Property is about to be conveyed by
the Mortgagor (whether by absolute conveyance or by contract of sale, and
whether or not the Mortgagor remains liable thereon) and the Servicer has
knowledge of such prospective conveyance, the Servicer shall effect assumptions
in accordance with the terms of any due-on-sale provision contained in the
related Mortgage Note or Mortgage. The Servicer shall enforce any due-on-sale
provision contained in such Mortgage Note or Mortgage to the extent the
requirements thereunder for an assumption of the Mortgage Loan have not been
satisfied to the extent permitted under the terms of the related Mortgage Note,
unless such provision is not exercisable under applicable law and governmental
regulations or in the Servicer's judgment, such exercise is reasonably likely to
result in legal action by the Mortgagor, or such conveyance is in connection
with a permitted assumption of the related Mortgage Loan. Subject to the
foregoing, the Servicer is authorized to take or enter into an assumption
agreement from or with the Person to whom such property is about to be conveyed,
pursuant to which such person becomes liable under the related Mortgage Note
and, unless prohibited by applicable state law, the Mortgagor remains liable
thereon. The Servicer is also authorized, to release the original Mortgagor from
liability upon the Mortgage Loan and substitute the new Mortgagor as obligor
thereon. In connection with such assumption or substitution, the Servicer shall
apply such underwriting standards and follow such practices and procedures as
shall be normal and usual for mortgage loans similar to the Mortgage Loans and
as it applies to mortgage loans owned solely by it. The Servicer shall notify
the Trustee that any such assumption or substitution agreement has been
completed by forwarding to the Trustee the original copy of such assumption or
substitution agreement, which copy shall be added by the Trustee 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. In connection with any such assumption or substitution agreement,
the Mortgage Interest Rate of the related Mortgage Note, the payment terms and
other material terms shall not be changed. Any fee collected by the Servicer for
entering into an assumption or substitution of liability agreement will be
retained by the Servicer as servicing compensation.
37
<PAGE> 46
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any conveyance by
the Mortgagor of the property subject to the Mortgage or any assumption of a
Mortgage Loan by operation of law which the Servicer in good faith determines it
may be restricted by law from preventing, for any reason whatsoever, or if the
exercise of such right would impair or threaten to impair any recovery under any
applicable insurance policy or, in the Servicer's judgment, be reasonably likely
to result in legal action by the Mortgagor.
Section 5.12 REALIZATION UPON DEFAULTED MORTGAGE LOANS.
(a) Except as provided in the last two paragraphs of this
Section 5.12(a), the Servicer shall foreclose upon or otherwise comparably
convert the ownership of properties securing such of the Mortgage Loans as come
into and continue in default and as to which no satisfactory arrangements can be
made for collection of delinquent payments pursuant to Section 5.03. In
connection with such foreclosure or other conversion, the Servicer shall follow
Accepted Servicing Practices. The foregoing is subject to the proviso that the
Servicer shall not be required to expend its own funds in connection with any
foreclosure or to restore any damaged property unless it shall determine that
(i) such foreclosure and/or restoration will increase the proceeds of
liquidation of the Mortgage Loan to Certificateholders after reimbursement to
itself for such expenses and (ii) such expenses will be recoverable to it
through Liquidation Proceeds (respecting which it shall have priority for
purposes of withdrawal from the Collection Account pursuant to Section 5.04) or
otherwise. The Servicer shall be entitled to reimbursement of the Servicing Fee
and other amounts due it, if any, to the extent, but only to the extent, that
withdrawals from the Collection Account with respect thereto are permitted under
Section 5.04.
The Servicer may foreclose against the Mortgaged Property
securing a defaulted Mortgage Loan either by foreclosure, by sale or by strict
foreclosure, and in the event a deficiency judgment is available against the
Mortgagor or any other person, may proceed for the deficiency.
In the event that title to any Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure (an "REO Property"), the deed
or certificate of sale shall be issued to the Servicer on behalf of the Trustee
in the name of the Trustee on behalf of the Certificateholders. The Servicer
shall administer the REO Property so that it qualifies at all times as
"foreclosure property," within the meaning of Section 860G(a)(8) of the Code,
and shall not permit any income to be earned with respect thereto that is "net
income from foreclosure property" within the meaning of Section 860G(d) of the
Code or "income from non-permitted assets" within the meaning of Section
860F(a)(2)(B) of the Code. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall be
considered to be a Mortgage Loan held in the Trust Fund until such time as the
related Mortgaged Property shall be sold and such Mortgage Loan becomes a
Liquidated Mortgage Loan. Consistent with the foregoing, for purposes of all
calculations hereunder, so long as such Mortgage Loan shall be considered to be
an Outstanding Mortgage Loan:
(i) It shall be assumed that, notwithstanding that the
indebtedness evidenced by the related Mortgage Note shall have been
discharged, such Mortgage Note and the related amortization schedule in
effect at the time of any such acquisition of title (after giving
effect to any previous Curtailments and before any adjustment thereto
by reason of any bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period) remain in effect, except that such
schedule shall be adjusted to reflect the application of Net REO
Proceeds received in any month pursuant to the succeeding clause.
(ii) Net REO Proceeds received in any month shall be
deemed to have been received first in payment of the accrued interest
that remained unpaid on the date that such Mortgage Loan became an REO
Mortgage Loan, with the excess thereof, if any, being deemed to have
been received in respect of the delinquent principal installments that
remained unpaid on such date. Thereafter, Net REO Proceeds received in
any month shall be applied to the payment of installments of principal
and accrued interest on such Mortgage Loan deemed to be due and payable
in accordance with the terms of such Mortgage Note and such
amortization schedule. If such Net REO Proceeds exceed the then Unpaid
REO Amortization, the excess shall be treated as a Curtailment received
in respect of such Mortgage Loan.
(iii) Only that portion of Net REO Proceeds allocable to
interest that bears the same relationship to the total amount of Net
REO Proceeds allocable to interest as the rate of the Servicing Fee
38
<PAGE> 47
bears to the Mortgage Interest Rate borne by such Mortgage Loan shall
be allocated to the Servicing Fee with respect thereto.
In the event that the Trust Fund acquires any Mortgaged
Property as aforesaid or otherwise in connection with a default or reasonably
foreseeable default on a Mortgage Loan, such Mortgaged Property shall be
disposed of by or on behalf of the Trust Fund within three years after its
acquisition by the Trust Fund unless (a) the Servicer shall have provided to the
Trustee an Opinion of Counsel (at the expense of the Trust Fund) to the effect
that the holding by the Trust Fund of such Mortgaged Property subsequent to
three years after its acquisition (and specifying the period beyond such
three-year period for which the Mortgaged Property may be held) will not cause
the Trust Fund to be subject to the tax on prohibited transactions imposed by
Section 860F(a)(1) of the Code, otherwise subject the Trust Fund to tax or cause
the Trust Fund to fail to qualify as a REMIC at any time that any Certificates
are outstanding, or (b) the Servicer (at the Trust Fund's expense) shall have
applied for, at least 60 days prior to the expiration of such three-year period,
an extension of such three-year period in the manner contemplated by Section
856(e)(3) of the Code, in which case the three-year period shall be extended by
the applicable period. The Servicer shall further ensure that the Mortgaged
Property is administered so that it constitutes "foreclosure property" within
the meaning of Section 860G(a)(8) of the Code at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any income
from non-permitted assets as described in Section 860F(a)(2)(B) of the Code, and
that the Trust Fund does not derive any "net income from foreclosure property"
within the meaning of Section 860G(c)(2) of the Code with respect to such
property.
Any REO Disposition shall be for cash only (unless changes in
the REMIC Provisions made subsequent to the Startup Day allow a sale for other
consideration).
In lieu of foreclosing upon any defaulted Mortgage Loan, the
Servicer may, in its discretion, permit the assumption of such Mortgage Loan if,
in the Servicer's judgment, such default is unlikely to be cured and if the
assuming borrower satisfies the Servicer's underwriting guidelines with respect
to mortgage loans owned by the Servicer. In connection with any such assumption,
the Mortgage Interest Rate of the related Mortgage Note and the payment terms
shall not be changed. Any fee collected by the Servicer for entering into an
assumption agreement will be retained by the Servicer as servicing compensation.
Alternatively, the Servicer may encourage the refinancing of any defaulted
Mortgage Loan by the Mortgagor.
Notwithstanding the foregoing, prior to instituting
foreclosure proceedings or accepting a deed-in-lieu of foreclosure with respect
to any Mortgaged Property, the Servicer shall make, or cause to be made,
inspection of the Mortgaged Property in accordance with the Accepted Servicing
Practices and, with respect to environmental hazards, such procedures are as
required by the provisions of the FNMA's selling and servicing guide applicable
to single-family homes and in effect on the date hereof. The Servicer shall be
entitled to rely upon the results of any such inspection made by others. In
cases where the inspection reveals that such Mortgaged Property is potentially
contaminated with or affected by hazardous wastes or hazardous substances, the
Servicer shall promptly give written notice of such fact to the Certificate
Insurer, the Trustee and each Class A Certificateholder. The Servicer shall not
commence foreclosure proceedings or accept a deed-in-lieu of foreclosure for
Mortgaged Property with respect to this paragraph without obtaining the written
consent of the Certificate Insurer.
(b) Promptly after the Closing Date, the Servicer shall, with
respect to each Mortgage Loan for which the Mortgage provides a second lien on
the related Mortgaged Property, cause to be recorded in the appropriate public
office for real property records, where permitted by applicable law and where
applicable law does not require that a second mortgagee be named as a party
defendant in foreclosure or comparable proceedings in order to foreclose or
otherwise preempt such mortgagee's equity of redemption, a request for notice of
any action by or on behalf of any mortgagee under a Senior Mortgage Loan. The
Servicer also shall promptly provide written notice to each mortgagee under a
Senior Mortgage Loan of the existence of the related Mortgage Loan and request
notification of any action taken or to be taken against the related Mortgagor or
Mortgaged Property by or on behalf of such mortgagee in respect of such Senior
Mortgage Loan.
(c) Upon becoming aware that a Senior Mortgage Loan has come
into default or of any action that the related mortgagee has taken or may take
in respect thereof, the Servicer shall, consistent with the REMIC Provisions,
take such actions as it shall deem necessary or advisable, as shall be normal
and usual in its general mortgage servicing activities and as shall be required
or permitted by Accepted Servicing Practices. The Servicer,
39
<PAGE> 48
however, shall not be required to expend its own funds in connection therewith
unless it shall determine that such expense will be recoverable to it. All such
expenses shall be included as Liquidation Expenses pursuant to the definition
thereof, and shall be reimbursable from the related Liquidation Proceeds in
accordance with Section 5.04.
Section 5.13 TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES.
Upon the payment in full of any Mortgage 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 shall immediately notify the Trustee in the form of
a Request for Release in the form attached hereto as Exhibit H (which request
shall include a statement to the effect that all amounts received in connection
with such payment which are required to be deposited in the Collection Account
pursuant to Section 5.03 have been or shall be so deposited) of a Servicing
Officer and shall request delivery to it of the Mortgage File. Upon receipt of
such Request for Release, the Trustee, or the Custodian on its behalf, shall
promptly release the related Mortgage File to the Servicer. Upon any such
payment in full, the Servicer is authorized to give, as agent for the Trustee
and the mortgagee under the Mortgage which secured the Mortgage Loan, an
instrument of satisfaction (or assignment of mortgage without recourse)
regarding the property subject to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of such payment, it being
understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In connection therewith, the Trustee shall
execute and return to the Servicer any required power of attorney provided to
the Trustee by the Servicer and other required documentation in accordance with
Section 5.01(c). From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan and in accordance with Accepted Servicing
Practices, the Trustee shall, upon request of the Servicer and delivery to the
Trustee of a Request for Release signed by a Servicing Officer, release, or
cause the Custodian to release, the related Mortgage File to the Servicer and
shall execute such documents as shall be necessary to the prosecution of any
such proceedings. Such Request for Release shall obligate the Servicer to return
the Mortgage File to the Trustee when the need therefor by the Servicer no
longer exists unless the Mortgage Loan shall be liquidated, in which case, upon
receipt of a certificate of a Servicing Officer similar to the Request for
Release hereinabove specified, the Mortgage File shall be delivered by the to
the Servicer.
Section 5.14 SERVICING FEE; SERVICING COMPENSATION. The
Servicer shall be entitled, at its election, either (a) to pay itself the
Servicing Fee out of any Mortgagor payment on account of interest or Net REO
Proceeds prior to the deposit of such payment in the Collection Account or (b)
to withdraw from the Collection Account such Servicing Fee pursuant to Section
5.04. The Servicer shall also be entitled, at its election, either (a) to pay
itself the Servicing Fee in respect of each delinquent Mortgage Loan out of
Liquidation Proceeds in respect of such Mortgage Loan or other recoveries with
respect thereto to the extent permitted in Section 5.03(a) to withdraw from the
Collection Account the Servicing Fee in respect of each such Mortgage Loan to
the extent of such Liquidation Proceeds or other recoveries, to the extent
permitted by Section 5.04(a).
Servicing compensation in the form of Net Foreclosure Profits,
prepayment penalties, assumption fees, late payment charges, tax service fees,
fees for statement of account or payoff of the Mortgage Loan (to the extent
permitted by applicable law) or otherwise shall be retained by the Servicer and
are not required to be deposited in the Collection Account. The aggregate
Servicing Fee is reserved for the administration of the Trust Fund and, in the
event of replacement of the Master Servicer as servicer of the Mortgage Loans,
for the payment of other expenses related to such replacement. The aggregate
Servicing Fee shall be offset as provided in Section 5.20. The Servicer shall be
required to pay all expenses incurred by it in connection with its servicing
activities hereunder (including maintenance of the hazard insurance required by
Section 5.05) and shall not be entitled to reimbursement therefor except as
specifically provided herein.
Section 5.15 REPORTS TO THE TRUSTEE AND THE COMPANY;
COLLECTION ACCOUNT STATEMENTS. Not later than 15 days after each Distribution
Date, the Servicer shall provide to the Trustee and the Company a statement,
certified by a Servicing Officer, setting forth the status of the Collection
Account as of the close of business on the last day of the immediately preceding
calendar month, stating that all distributions required by this Agreement to be
made by the Servicer on behalf of the Trustee have been made (or if any required
distribution has not been made by the Servicer, specifying the nature and status
thereof) and showing, for the period covered by such statement, the aggregate of
deposits into and withdrawals from the Collection Account for each category of
deposit specified in Section 5.03 and each category of withdrawal
40
<PAGE> 49
specified in Section 5.04 and the aggregate of deposits into the Certificate
Accounts as specified in Section 6.01(c). Such statement shall also state the
aggregate unpaid principal balance of all the Mortgage Loans as of the close of
business on the last day of the month preceding the month in which such
Distribution Date occurs. Copies of such statement shall be provided by the
Trustee to any Certificateholder upon request.
Section 5.16 ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer
will deliver to the Trustee, the Certificate Insurer and the Rating Agencies on
or before ________ each year, beginning with _____, 199_, an Officers'
Certificate stating as to each signer thereof, that (i) a review of the
activities of the Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officer's supervision,
and (ii) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all 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. Such Officers' Certificate shall be accompanied by the statement
described in Section 5.17 of this Agreement. Copies of such statement shall,
upon request, be provided to any Certificateholder by the Servicer, or by the
Trustee at the Servicer's expense if the Servicer shall fail to provide such
copies.
Section 5.17 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING
REPORT. On or before _________ of every year, beginning with _______, 199_, the
Servicer, at its expense, shall cause a firm of nationally recognized
independent public accountants to furnish a statement to the Trustee, the
Certificate Insurer and the Rating Agencies to the effect that, on the basis of
an examination of certain documents and records relating to the servicing of the
mortgage loans being serviced by the Servicer under pooling and servicing
agreements similar to this Agreement, conducted substantially in compliance with
the Uniform Single Attestation Program for Mortgage Bankers, such firm is of the
opinion that such servicing has been conducted in compliance with this
Agreement. Copies of such statement shall, upon request, be provided to
Certificateholders by the Servicer, or by the Trustee at the Servicer's expense
if the Servicer shall fail to provide such copies. For purposes of such
statement, such firm may conclusively presume that any pooling and servicing
agreement which governs mortgage pass-through certificates offered by the
Company (or any predecessor or successor thereto) in a registration statement
under the Securities Act of 1933, as amended, is similar to this Agreement,
unless such other pooling and servicing agreement expressly states otherwise.
Section 5.18 OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS.
Any Affiliate of the Seller, in its sole discretion, shall have the right to
elect (by written notice sent to the Servicer, the Trustee and the Certificate
Insurer), but shall not be obligated, to purchase for its own account from the
Trust Fund any Mortgage Loan which is 90 days or more Delinquent in the manner
and at the price specified in Section 2.04(b). The purchase price for any
Mortgage Loan purchased hereunder shall be deposited in the Collection Account
and the Trustee, upon receipt of such deposit, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared by
the purchaser of such Mortgage Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the purchaser of such Mortgage Loan shall succeed
to all the Trustee's right, title and interest in and to such Mortgage Loan and
all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Mortgage Loan
shall thereupon own such Mortgage Loan, and all security and documents, free of
any further obligation to the Trustee or the Certificateholders with respect
thereto.
Section 5.19 REPORTS TO BE PROVIDED BY THE SERVICER. The
Servicer agrees to make available on a reasonable basis to the Certificate
Insurer a knowledgeable financial or accounting officer for the purpose of
answering reasonable questions respecting recent developments affecting the
Servicer or the financial statements of the Servicer and to permit the
Certificate Insurer to inspect the Servicer's servicing facilities during normal
business hours for the purpose of satisfying the Certificate Insurer that the
Servicer has the ability to service the Mortgage Loans in accordance with this
Agreement.
Section 5.20 ADJUSTMENT OF SERVICING COMPENSATION IN RESPECT
OF PREPAID MORTGAGE LOANS. The aggregate amount of the Servicing Fees that the
Servicer shall be entitled to receive with respect to all of the Mortgage Loans
and each Distribution Date shall be offset on such Distribution Date by an
amount equal to the aggregate Prepayment Interest Shortfall with respect to all
Mortgage Loans which were subjects of Principal Prepayments in Full or
Curtailments during the month preceding the month of such Distribution Date. The
amount of any offset against the aggregate Servicing Fee with respect to any
Distribution
41
<PAGE> 50
Date under this Section 5.20 shall be limited to the aggregate amount of the
Servicing Fees otherwise payable to the Servicer (without adjustment on account
of Prepayment Interest Shortfalls) with respect to (i) scheduled payments having
the Due Date occurring in the month of such Distribution Date received by the
Servicer prior to the Servicer Remittance Date, and (ii) Principal Prepayments
in Full, Curtailments and Liquidation Proceeds received in the month preceding
the month in which such Distribution Date occurs, and the rights of the
Certificateholders to the offset of the aggregate Prepayment Interest Shortfalls
shall not be cumulative.
Section 5.21 PERIODIC ADVANCES. If, on any Servicer Remittance
Date, the Servicer determines that any Monthly Payments due on the Due Date
immediately preceding such Servicer Remittance Date have not been received as of
the close of business on the Business Day preceding such Servicer Remittance
Date, the Servicer shall determine the amount of any Periodic Advance required
to be made with respect to the related Distribution Date. The Servicer shall, on
the Servicer Remittance Date, deliver in a computer-readable form (including
electronic transmission) to the Trustee indicating the payment status of each
Mortgage Loan as of the Business Day prior to such Servicer Remittance Date. The
Servicer shall include in the amount to be deposited in the related Certificate
Account on such Servicer Remittance Date an amount equal to the Periodic
Advance, if any, which deposit may be made in whole or in part from funds in the
Collection Account being held for future distribution or withdrawal on or in
connection with Distribution Dates in subsequent months. Any funds being held
for future distribution to Certificateholders and so used shall be replaced by
the Servicer from its own funds by deposit in the related Certificate Account on
or before the Business Day preceding any such future Servicer Remittance Date to
the extent that funds in the related Certificate Account on such Servicer
Remittance Date shall be less than payments to Certificateholders required to be
made on such date.
The Servicer shall designate on its records the specific
Mortgage Loans and related installments (or portions thereof) as to which such
Periodic Advance shall be deemed to have been made, such determination being
conclusive for purposes of withdrawals from the Collection Account pursuant to
Section 5.04.
Section 5.22 THIRD PARTY CLAIMS. The Trustee shall reimburse
the Seller from amounts otherwise distributable on the Class R Certificates for
all amounts advanced by the Seller pursuant to the second sentence of Section
4.03(a)(ii) of the Purchase Agreement except when the relevant claim relates
directly to the failure of the Seller to perform its duties in compliance with
the terms of the Purchase Agreement.
Section 5.23 MAINTENANCE OF CORPORATE EXISTENCE AND LICENSES;
MERGER OR CONSOLIDATION OF THE SERVICER. (a) The Servicer will keep in full
effect its existence, rights and franchises as a corporation, will obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Mortgage Loans and to perform its duties under this
Agreement and will otherwise operate its business so as to cause the
representations and warranties under Section 3.01 to be true and correct at all
times under this Agreement.
(b) Any Person into which the Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any Person
succeeding to the business of the Servicer, shall be an established mortgage
loan servicing institution acceptable to the Certificate Insurer that has a net
worth of at least $15,000,000, and in all events shall be the successor of the
Servicer 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. The Servicer shall send notice of any such merger or
consolidation to the Trustee and the Certificate Insurer.
Section 5.24 ASSIGNMENT OF AGREEMENT BY SERVICER; SERVICER NOT
TO RESIGN. The Servicer shall not assign this Agreement or resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Certificate Insurer and the Trustee or upon the determination that the
Servicer's duties hereunder are no longer permissible under applicable law and
that such incapacity cannot be cured by the Servicer without incurring, in the
reasonable judgment of the Certificate Insurer, unreasonable expense. Any such
determination that the Servicer's duties hereunder are no longer permissible
under applicable law permitting the resignation of the Servicer shall be
evidenced by a written Opinion of Counsel (who may be counsel for the Servicer)
to such effect delivered to the Trustee, the Seller, the Company and the
Certificate Insurer. No such resignation shall become effective until the
Trustee or a successor appointed in accordance with the terms of this Agreement
has assumed the Servicer's responsibilities and obligations hereunder in
accordance
42
<PAGE> 51
with Section 7.02. The Servicer shall provide the Trustee, the Rating Agencies
and the Certificate Insurer with 30 days prior written notice of its intention
to resign pursuant to this Section 5.24.
Section 5.25 INFORMATION REPORTS TO BE FILED BY THE SERVICER.
The Servicer shall file information returns with respect to the receipt of
mortgage interest received in a trade or business, reports of foreclosures and
abandonments of any Mortgaged Property and cancellation of indebtedness income
with respect to any Mortgaged Property as required by Sections 6050H, 6050J and
6050P of the Code, respectively.
43
<PAGE> 52
ARTICLE VI
DISTRIBUTIONS AND PAYMENTS
Section 6.01 ESTABLISHMENT OF CERTIFICATE ACCOUNTS; DEPOSITS
TO THE CERTIFICATE ACCOUNTS. (a) The Trustee shall establish and maintain a
Certificate Account which shall be titled "Certificate Account, _______________,
as trustee for the registered holders of NationsBanc Asset Securities, Inc.,
Asset-Backed Certificates, Series 199_-_, Class A-1, Class A-2, Class A-3, Class
A-4, and Class R" which shall be an Eligible Account.
(b) The Servicer may direct the Trustee in writing to invest
the funds in the Certificate Account only in Permitted Investments. No Permitted
Investment shall be sold or disposed of at a gain prior to maturity unless the
Servicer has delivered to the Trustee an Opinion of Counsel (at the Servicer's
expense) that such sale or disposition will not cause the Trust Fund to be
subject to the tax on income from prohibited transactions imposed by Section
860F(a)(1) of the Code, otherwise subject the Trust Fund to tax or cause the
Trust Fund to fail to qualify as a REMIC. All income (other than any gain from a
sale or disposition of the type referred to in the preceding sentence) realized
from any such Permitted Investment shall be for the benefit of the Servicer as
additional servicing compensation. The amount of any losses incurred in respect
of any such investments shall be deposited in the related Certificate Account by
the Servicer out of its own funds immediately as realized.
(c) On each Servicer Remittance Date, the Servicer shall cause
to be deposited in the Certificate Account, from funds on deposit in the
Collection Account, an amount equal to the Servicer Remittance Amount.
Section 6.02 PERMITTED WITHDRAWALS FROM THE CERTIFICATE
ACCOUNT. The Trustee shall withdraw or cause to be withdrawn funds from the
Certificate Account for the following purposes:
(a) to effect the distributions described in Section 6.05;
(b) to pay to the Seller with respect to each Mortgage Loan or
property acquired in respect thereof that has been repurchased or replaced
pursuant to Section 2.04 or 3.03 or to pay to the Servicer with respect to each
Mortgage Loan or property acquired in respect thereof that has been purchased
all amounts received thereon and not required to be distributed as of the date
on which the related repurchase or purchase price or Principal Balance was
determined;
(c) to pay the Servicer any interest earned on or investment
income earned with respect to funds in the Certificate Accounts;
(d) to return to the Collection Account any amount deposited
in the Certificate Account that was not required to be deposited therein;
(e) to make reimbursements to itself in accordance with
Section 9.05; and
(f) to clear and terminate the Certificate Accounts upon
termination of any of the Trust Fund pursuant to Article VIII.
The Trustee shall keep and maintain a separate accounting for
withdrawals from the Certificate Account pursuant to each of subclauses (a)
through (f) listed above.
Section 6.03 COLLECTION OF MONEY. Except as otherwise
expressly provided herein, the Trustee may demand payment or delivery of all
money and other property payable to or receivable by the Trustee pursuant to
this Agreement, including (a) all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans and
required to be paid over to the Trustee by the Servicer and (b) Insured
Payments. The Trustee shall hold all such money and property received by it, as
part of the Trust Fund and shall apply it as provided in this Agreement.
44
<PAGE> 53
Section 6.04 THE CERTIFICATE INSURANCE POLICY. (a) Within two
Business Days after each Servicer Remittance Date the Trustee shall determine
with respect to the immediately following Distribution Date the amount to be on
deposit in the Certificate Account on such Distribution Date as a result of the
Servicer's remittance of the Servicer Remittance Amount on the related Servicer
Remittance Date plus the amount of any amounts deposited into the Certificate
Account from the Pre-Funding Account pursuant to Section 6.12 and any
Capitalized Interest Amount to be deposited pursuant to Section 6.13 for such
Distribution Date less the amounts described in clauses (i) through (ii) of
Section 6.05(b) or (c) for the related Distribution Date, and not including the
amount of any Insured Payment which is required to be deposited in the
Certificate Account for such Distribution Date. The amounts described in the
preceding sentence, with respect to each Distribution Date are the "Available
Funds" for such Distribution Date.
(b) If on any Distribution Date there is an Available Funds
Shortfall, the Trustee shall complete a Notice in the form of Exhibit A to the
related Certificate Insurance Policy and submit such notice to the Certificate
Insurer no later than 12:00 noon New York City time on the second Policy
Business Day preceding such Distribution Date as a claim for an Insured Payment
in an amount equal to such Available Funds Shortfall.
(c) The Trustee shall establish a separate Eligible Account
for the benefit of Holders of the Certificates and the Certificate Insurer
referred to herein as the "Certificate Insurance Payments Account" over which
the Trustee shall have exclusive control and sole right of withdrawal. The
Trustee shall deposit upon receipt any amount paid under the Certificate
Insurance Policy in the Certificate Insurance Payments Account and distribute
such amount only for purposes of payment to Certificateholders of the Insured
Distribution Amount for which a claim was made and such amount may not be
applied to satisfy any costs, expenses or liabilities of the Servicer, the
Trustee or the Trust Fund. Amounts paid under the Certificate Insurance Policy,
to the extent needed to pay the Insured Distribution Amount shall be transferred
by the Trustee from the Certificate Insurance Payments Account to the
Certificate Account on the related Distribution Date and disbursed by the
Trustee to Certificateholders in accordance with Section 6.05. It shall not be
necessary for payments made under the Certificate Insurance Policy to be made by
checks or wire transfers separate from other amounts distributed pursuant to
Section 6.05. However, the amount of any payment of principal or of interest on
the Certificates to be paid from funds transferred from the Certificate
Insurance Payments Account shall be noted as provided in paragraph (d) below.
Funds held in the Certificate Insurance Payments Account shall not be invested.
Any funds remaining in the Certificate Insurance Payments Account on the first
Policy Business Day following a Distribution Date shall be returned to the
Certificate Insurer pursuant to the written instructions of the Certificate
Insurer by the end of such Policy Business Day.
(d) The Trustee Remittance Report shall indicate the amount of
interest and principal paid in respect of the Class A Certificates from moneys
received under the Certificate Insurance Policy.
(e) In the event that the Trustee has received a certified
copy of an order of the appropriate court that any Insured Payment has been
voided in whole or in part as a preference payment under applicable bankruptcy
law, the Trustee shall so notify the Certificate Insurer, shall comply with the
provisions of the Certificate Insurance Policy to obtain payment by the
Certificate Insurer of such voided Insured Payment, and shall, at the time it
provides notice to the Certificate Insurer, notify, by mail to
Certificateholders of the affected Certificates that, in the event any
Certificateholder's Insured Payment is so recovered, such Certificateholder will
be entitled to payment pursuant to the Certificate Insurance Policy, a copy of
which shall be made available through the Trustee, the Certificate Insurer or
the Certificate Insurer's fiscal agent, if any, and the Trustee shall furnish to
the Certificate Insurer or its fiscal agent, if any, its records evidencing the
payments which have been made by the Trustee and subsequently recovered from
Certificateholders, and dates on which such payments were made.
(f) The Trustee shall promptly notify the Certificate Insurer
of any proceeding or the institution of any action, of which a Responsible
Officer of the Trustee has actual knowledge, seeking the avoidance as a
preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law (a "Preference Claim") of any distribution made with respect to the
Certificates. Each Certificateholder, by its purchase of Certificates, the
Servicer and the Trustee agree that, the Certificate Insurer (so long as no
Certificate 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 such Preference Claim and (ii) the posting of
any surety, supersedeas or performance bond pending any
45
<PAGE> 54
such appeal. In addition and without limitation of the foregoing, the
Certificate Insurer shall be subrogated to, and each Certificateholder, the
Servicer and the Trustee hereby delegate and assign to the Certificate Insurer,
to the fullest extent permitted by law, the rights of the Servicer, the Trustee
and each Certificateholder in the conduct of any such Preference Claim,
including, without limitation, all rights of any party to any adversary
proceeding or action with respect to any court order issued in connection with
any such Preference Claim.
Section 6.05 DISTRIBUTIONS. (a) No later than 12:00 noon New
York time on each Servicer Remittance Date, the Servicer shall deliver to the
Trustee a report in computer-readable form (including electronic transmission,
provided that a portion of such report relating to certain delinquency
information may be delivered in hard copy form rather than computer-readable
form) containing such information as to each Mortgage Loan as of such date and
such other information as the Trustee shall reasonably require.
(b) With respect to funds deposited in the Certificate
Account, on each Distribution Date, the Trustee shall make the following
allocations, disbursements and transfers in the following order of priority, and
each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) to the Certificate Insurer, the Premium Amount;
(ii) to the Trustee, an amount equal to the Trustee's Fees;
(iii) to the Certificate Insurer the lesser of (x) an amount
equal to (i) the amount then on deposit in the Certificate Account
remaining after the foregoing distributions minus (ii) the Insured
Distribution Amount for such Distribution Date and (y) the outstanding
Reimbursement Amounts, if any, as of such Distribution Date;
(iv) from amounts then on deposit in the Certificate Account
(including any Insured Payments), to the Class A Certificateholders an
amount equal to the Class A Interest Distribution Amount;
(v) from amounts then on deposit in the Certificate Account
(including any Insured Payments), to the Class A Certificateholders an
amount equal to the lesser of (a) the Class A Principal Distribution
Amount and (b) the amount remaining in the Certificate Account after
distributions pursuant to clauses (i) through (iv) above; and;
(vi) from amounts then on deposit in the Certificate Account,
to the Holders of the Class R Certificates, the amount remaining on
such Distribution Date, if any.
Notwithstanding clause (v) above, the aggregate amounts
distributed on all Distribution Dates to the Holders of the Class A Certificates
on account of the Class A Principal Distribution Amount shall not exceed the
aggregate Original Security Balance for the Class A Certificates.
Distributions of the Class A Principal Distribution Amount
shall be allocated as follows: [describe distribution priority among Class A
Certificates].
Section 6.06 INVESTMENT OF ACCOUNTS. (a) So long as no Event
of Default shall have occurred and be continuing, and consistent with any
requirements of the Code, all or a portion of any Account (other than the
Certificate Insurance Payments Account) held by the Trustee shall be invested
and reinvested by the Trustee, as directed in writing by the Servicer (with
respect to the Certificate Accounts) or the Company (with respect to the
Pre-Funding Account and the Interest Coverage Accounts) in one or more Permitted
Investments bearing interest or sold at a discount. If an Event of Default shall
have occurred and be continuing or if the Servicer does not provide investment
directions, the Trustee shall invest all Accounts in Permitted Investments
described in paragraph (d) of the definition of Permitted Investments. No such
investment in any Account shall mature later than the Business Day immediately
preceding the next Distribution Date (except that if such Permitted Investment
is an obligation of the Trustee, then such Permitted Investment shall mature not
later than such Distribution Date).
46
<PAGE> 55
(b) Subject to Section 9.01 hereof, the Trustee shall not in
any way be held liable by reason of any insufficiency in any Account held by the
Trustee resulting from any investment loss on any Permitted Investment included
therein (except to the extent that the Trustee is the obligor and has defaulted
thereon or as provided in subsection (b) of this Section 6.06).
(c) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
earnings on, funds deposited in any Account (excluding the Pre-Funding Account
and the Capitalized Interest Account) shall be for the benefit of the Servicer
as servicing compensation (in addition to the Servicing Fee). The Servicer shall
deposit in each Account (excluding the Pre-Funding Account and the Capitalized
Interest Account) and the Company shall deposit in each Pre-Funding Account and
Capitalized Interest Account, the amount of any loss incurred in respect of any
Permitted Investment held therein which is in excess of the income and gain
thereon immediately upon realization of such loss, without any right to
reimbursement therefor from its own funds.
Section 6.07 REPORTS BY TRUSTEE. (a) On each Distribution Date
the Trustee shall provide to each Holder, to the Servicer, to the Certificate
Insurer, to the Underwriters, to the Company and to the Rating Agencies a
written report (the "Trustee Remittance Report"), setting forth information
including, without limitation, the following information:
(i) the amount of the distribution with respect to each
Class of the Class A Certificates and Class R Certificates;
(ii) the amount of such distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments in Full and Curtailments or other unscheduled recoveries
of principal included therein and separately identifying any
Subordination Increase Amounts;
(iii) the amount of such distributions allocable to interest
and the calculation thereof;
(iv) the Security Balance of each Class of the Class A
Certificates as of such Distribution Date after giving effect to any
payment of principal on such Distribution Date;
(v) the amount of any Insured Payment included in the
amounts distributed to the Class A Certificateholders on such
Distribution Date;
(vi) the Required Subordinated Amount and the Subordinated
Amount as of such Distribution Date;
(vii) the total of any Substitution Adjustments and any Loan
Repurchase Price amounts included in such distribution;
(viii) the amounts, if any, of any Liquidation Loan Losses
for the related Due Period and the cumulative amount of Liquidated
Loan Losses from the Closing Date;
(ix) the number of Mortgage Loans and the aggregate Stated
Principal Balance of Mortgage Loans purchased pursuant to Section 5.18
for the related Distribution Date and since the closing date the
cumulative number and Stated Principal Balance of Mortgage Loans
purchased pursuant to Section 5.18.
(x) the number of Mortgage Loans and the aggregate
Principal Balance of Mortgage Loans purchased or substituted
for pursuant to Sections 3.03 and 2.04 for the related Distribution
Date and, since the Closing Date, the cumulative number and Principal
Balance of Mortgage Loans purchased or substituted for pursuant to
Sections 3.03 and 2.04;
(xi) the Class A Pass-Through Rate for such Distribution
Date;
(xii) the amount on deposit in the Pre-Funding Account and
the Capitalized Interest Account;
47
<PAGE> 56
(xiii) for the Distribution Date occurring in ________ 199_,
the balance of the Pre-Funded Amount that has not been used to purchase
Subsequent Mortgage Loans and that is being distributed to the Class A
Certificateholders as a mandatory prepayment of principal, if any, on
such Distribution Date; and
(xii) the amount, if any, of the Capitalized Interest Amount
included in such distribution.
Items (i), (ii) and (iii) above shall, with respect to the
Class A Certificates, be presented on the basis of a Certificate having a $1,000
denomination. In addition, by January 31 of each calendar year following any
year during which the Certificates are outstanding, the Trustee shall furnish a
report to each Holder of record if so requested in writing at any time during
each calendar year as to the aggregate of amounts reported pursuant to (i), (ii)
and (iii) with respect to the Certificates for such calendar year. Such
information shall be deemed to have been furnished if provided pursuant to the
requirements of the Code from time to time in force.
(b) All distributions made to each Class of Class A
Certificate and the Class R Certificate on each Distribution Date will be made
on a pro rata basis among the Certificateholders of such Class on the next
preceding Record Date based on the Percentage Interest represented by their
respective Certificates, and shall be made by wire transfer of immediately
available funds to the account of such Certificateholder at a bank or other
entity having appropriate facilities therefor, if, in the case of a Class A
Certificateholder, such Certificateholder shall own of record Certificates of
the same Class which have denominations aggregating at least $5,000,000
appearing in the Certificate Register and shall have provided complete wiring
instructions by the Record Date, and otherwise by check mailed to the address of
such Certificateholder appearing in the Certificate Register.
(c) In addition, on each Distribution Date the Trustee will
distribute to each Holder, to the Certificate Insurer, to the Servicer, to the
Company and to the Rating Agencies, together with the information described in
subsection (a) preceding, the following information with respect to the Mortgage
Loans as of the close of business on the last Business Day of the prior calendar
month, which is hereby required to be prepared by the Servicer and furnished to
the Trustee for such purpose on or prior to the related Servicer Remittance
Date:
(i) the total number of Mortgage Loans and the aggregate
Principal Balances thereof, together with the number and aggregate
principal balances of such Mortgage Loans and the percentage (based on
the aggregate Principal Balances of the Mortgage Loans) of the
aggregate Principal Balances of such Mortgage Loans to the aggregate
Principal Balance of all Mortgage Loans (A) 30-59 days Delinquent, (B)
60-89 days Delinquent and (C) 90 or more days Delinquent;
(ii) the number and aggregate Principal Balances of all
Mortgage Loans and percentage (based on the aggregate Principal
Balances of the Mortgage Loans) of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans in foreclosure proceedings and the number and aggregate Principal
Balances of all Mortgage Loans and percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
which are also included in any of the statistics described in the
foregoing clauses (i)(A), (i)(B) and (i)(C);
(iii) the number and aggregate Principal Balances of all
Mortgage Loans and percentage (based on the aggregate Principal
Balances of the Mortgage Loans) of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans relating to Mortgagors in bankruptcy proceedings and the number
and aggregate Principal Balances of all Mortgage Loans and percentage
(based on the aggregate Principal Balances of the Mortgage Loans) of
any such Mortgage Loans which are also included in any of the
statistics described in the foregoing clauses (i)(A), (i)(B) and
(i)(C);
(iv) the number and aggregate Principal Balances of all
Mortgage Loans and percentage (based on the aggregate Principal
Balances of the Mortgage Loans) of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans relating to REO Properties and the number and aggregate Principal
Balances of all Mortgage Loans and percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
which are also included in any of the statistics described in the
foregoing clause (i)(A), (i)(B) and (i)(C);
48
<PAGE> 57
(v) the weighted average Mortgage Interest Rate as of the
Due Date occurring in the Due Period related to such Distribution Date;
(vi) the weighted average remaining term to stated maturity
of all Mortgage Loans;
(vii) the book value of any REO Property; and
(viii) the number and aggregate Principal Balance of all
Subsequent Mortgage Loans added during the preceding Due Period.
Section 6.08 ADDITIONAL REPORTS BY TRUSTEE. (a) The Trustee
shall report to the Company, the Servicer and the Certificate Insurer with
respect to the amount then held in each Account (including investment earnings
accrued or scheduled to accrue) held by the Trustee and the identity of the
investments included therein, as the Company, the Servicer or the Certificate
Insurer may from time to time request in writing.
(b) From time to time, at the request of the Certificate
Insurer, the Trustee shall report to the Certificate Insurer with respect to its
actual knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
the Purchase Agreement or in Section 3.01 or 3.02 hereof.
Section 6.09 COMPENSATING INTEREST. Not later than the close
of business on the third Business Day prior to the Distribution Date, the
Servicer shall remit to the Trustee (without right or reimbursement therefor)
for deposit into the related Certificate Account an amount equal to the lesser
of (a) the aggregate of the Prepayment Interest Shortfalls for the related
Distribution Date resulting from Principal Prepayments in Full and Curtailments
during the related Due Period and (b) its aggregate Servicing Fees payable in
the related Due Period and shall not have the right to reimbursement therefor
(the "Compensating Interest").
Section 6.10 EFFECT OF PAYMENTS BY THE CERTIFICATE INSURER;
SUBROGATION. Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on the Class A Certificates which is made
with moneys received pursuant to the terms of the Certificate Insurance Policy
shall not be considered payment of the Certificates from the Trust Fund. The
Company, the Servicer and the Trustee acknowledge, and each Holder by its
acceptance of a Certificate agrees, that without the need for any further action
on the part of the Certificate Insurer, the Company, the Servicer, the Trustee
or the Certificate Registrar (a) to the extent the Certificate Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Class A Certificates to the Holders of such Certificates, the Certificate
Insurer will be fully subrogated to, and each Certificateholder, the Servicer
and the Trustee hereby delegate and assign to the Certificate Insurer, to the
fullest extent permitted by law, the rights of such Holders to receive such
principal and interest from the Trust Fund, including, without limitation, any
amounts due to the Certificateholders in respect of securities law violations
arising from the offer and sale of the Class A Certificates, and (b) the
Certificate Insurer shall be paid such amounts but only from the sources and in
the manner provided herein for the payment of such amounts. The Trustee and the
Servicer shall cooperate in all respects with any reasonable request by the
Certificate Insurer for action to preserve or enforce the Certificate Insurer's
rights or interests under this Agreement without limiting the rights or
affecting the interests of the Holders as otherwise set forth herein.
Section 6.11 ALLOCATION OF LIQUIDATED LOAN LOSSES. Prior to
each Distribution Date the Servicer shall determine the total amount of related
Liquidated Loan Losses, if any, that occurred during the related Due Period with
respect to the Loans. The amount of such Liquidated Loan Losses shall be
evidenced by an Officer's Certificate to be delivered to the Trustee not later
than the Servicer Remittance Date. On each Distribution Date, the principal
portion of all Liquidated Loan Losses on the Mortgage Loans shall increase the
Subordination Deficit in the manner described in this Agreement.
Section 6.12 PRE-FUNDING ACCOUNT.
(a) No later than the Closing Date, the Trustee shall
establish and maintain with itself one or more segregated trust accounts that
are Eligible Accounts, which shall be titled "Pre-Funding Account,
____________________ as trustee for the registered holders of NationsBanc Asset
Securities, Inc., Asset Backed
49
<PAGE> 58
Certificates, Series 199__-__" (the "Pre-Funding Account"). The Trustee shall,
promptly upon receipt, deposit in the Pre-Funding Account and retain therein the
Original Pre-Funded Amount remitted on the Closing Date to the Trustee by the
Company. Funds deposited in the Pre-Funding Account shall be held in trust by
the Trustee for the Holders of the Class A Certificates and the Certificate
Insurer for the uses and purposes set forth herein. If the Trustee shall not
have received an investment direction from the Company, the Trustee will invest
funds deposited in the Pre-Funding Account in Permitted Investments of the kind
described in clause (d) of the definition of Permitted Investments with a
maturity date no later than the second Business Day preceding each Distribution
Date. For federal income tax purposes, the Company shall be the owner of the
Pre-Funding Account and shall report all items of income, deduction, gain or
loss arising therefrom. All income and gain realized from investment of funds
deposited in the Pre-Funding Account shall be transferred to the Interest
Coverage Account on the Business Day immediately preceding each Distribution
Date. The Company shall deposit in the related Pre-Funding Account the amount of
any net loss incurred in respect of any such Permitted Investment immediately
upon realization of such loss without any right of reimbursement therefor.
(b) Amounts on deposit in the Pre-Funding Account shall be
withdrawn by the Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee shall
withdraw from the Pre-Funding Account and deposit into the Certificate
Account an amount equal to 100% of the Principal Balances of the
Subsequent Mortgage Loans transferred and assigned to the Trustee on
such Subsequent Transfer Date and pay such amount to or upon the order
of the Company upon satisfaction of the conditions set forth in Section
2.08(b) with respect to such transfer and assignment; and
(ii) If the Pre-Funded Amount has not been reduced to zero
during the Pre-Funding Period, on the Servicer Remittance Date
immediately prior to the Distribution Date occurring in _______ 199__,
the Trustee shall deposit into the Certificate Account any amounts
remaining in the Pre-Funding Account.
Section 6.13 CAPITALIZED INTEREST ACCOUNT.
(a) No later than the Closing Date, the Trustee shall
establish and maintain with itself a separate, segregated trust account, which
shall be an Eligible Account, titled "Capitalized Interest Account,
_______________________________, as trustee for the registered holders of
NationsBanc Asset Securities, Inc. Asset Backed Certificates, Series 199__-__"
(the "Capitalized Interest Account"). The Trustee shall, promptly upon receipt,
deposit in the Capitalized Interest Account and retain therein the Initial
Capitalized Interest Amount remitted on the Closing Date to the Trustee by the
Company. In addition, the Trustee shall deposit into the Capitalized Interest
Account all income and gain on investments in the Pre-Funding Account pursuant
to Section 6.12. Funds deposited in the Capitalized Interest Account shall be
held in trust by the Trustee for the Holders of the Class A Certificates and the
Certificate Insurer for the uses and purposes set forth herein. For federal
income tax purposes, the Company shall be the owner of the Capitalized Interest
Account and shall report all items of income, deduction, gain or loss arising
therefrom. The Company shall deposit in the Capitalized Interest Account the
amount of any net loss incurred in respect of any such Permitted Investment
immediately upon realization of such loss without any right of reimbursement
therefor.
(b) On each of the first ____ Distribution Dates, the Trustee
shall (a) withdraw from the Capitalized Interest Account and deposit in the
Certificate Account the Capitalized Interest Amount.
On each Distribution Date following the conveyance of a
Subsequent Mortgage Loan to the Trustee, funds on deposit in the Capitalized
Interest Account in an amount equal to 1/360 of the product of (i) the Principal
Balance of such Subsequent Mortgage Loan and (ii) the sum of (A) the weighted
average Class A Pass-Through Rate for such Distribution Date minus % (B) %, and
(iii) the number of days, up to a maximum of 30 per calendar month, from the
Subsequent Cut-off Date to ___________, 199__, shall be remitted, without
notice, immediately upon receipt thereof to the Company.
Upon the earliest of (i) the reduction of the Security Balance
of the Class A-4 Certificates to zero, (ii) the termination of the Trust Fund in
accordance with Section 8.01 and (iii) the first Business Day following the
first Distribution Date following the conveyance of the last Subsequent Mortgage
Loan to the Trustee, any amount remaining on deposit in the Capitalized Interest
Account after distributions pursuant to Sections 6.13(b) above shall be
withdrawn by the Trustee and paid to the Company.
50
<PAGE> 59
ARTICLE VII
DEFAULT
Section 7.01 EVENTS OF DEFAULT. (a)"Event of Default",
wherever used herein, means any one of the following events:
(i) any failure by the Servicer to remit to the Trustee any
payment, other than a Servicing Advance, required to be made by the
Servicer under the terms of this Agreement which continues unremedied
for five Business Days after the date upon which such payment was
required to be made;
(ii) the failure by the Servicer to make any required
Servicing Advance which failure 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 the Servicer by the
Trustee or to the Servicer and the Trustee by any Certificateholder or
the Certificate Insurer;
(iii) any failure on the part of the Servicer duly to observe
or perform in any material respect any other of the covenants or
agreements on the part of the Servicer contained in this Agreement, or
the failure of any representation and warranty made pursuant to Section
3.01 to be true and correct which continues unremedied for a period of
30 days (or 15 days in the case of a failure to pay the premium for any
insurance policy which is required to be maintained under this
Agreement) after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the
Servicer, as the case may be, by the Company or the Trustee or to the
Servicer and the Trustee by any Certificateholder or the Certificate
Insurer;
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or for
the appointment of a conservator or receiver or liquidator in any
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 the Servicer and such decree
or order shall have remained in force, undischarged or unstayed for a
period of 60 days; or
(v) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings of
or relating to the Servicer or of or relating to all or substantially
all of the Servicer's property;
(vi) the Servicer shall admit in writing its inability to pay
its debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors, or voluntarily suspend payment of its
obligations.
(b) If an Event of Default described in 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, but only at the direction of the
Certificate Insurer or the Majority Certificateholders and with the prior
written consent of the Certificate Insurer, by notice in writing to the Servicer
and a Responsible Officer of the Trustee, and in addition to whatever rights
such Certificateholders may have at law or equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof, as servicer. Upon receipt by the Servicer of
such written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Mortgage Loans or otherwise, shall,
subject to Section 7.02, pass to and be vested in the Trustee or its designee
approved by the Certificate Insurer and the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, at the expense of the Servicer, any and all documents and other
instruments and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including, but
not limited to, the transfer and endorsement or assignment of the Mortgage Loans
and related documents. The Servicer agrees to cooperate (and pay any related
costs and expenses) with the Trustee in effecting the termination of the
Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to the Trustee or its designee for administration by it of all
amounts
51
<PAGE> 60
which shall at the time be credited by the Servicer to the Collection Account or
thereafter received with respect to the Mortgage Loans. The Trustee shall
promptly notify the Certificate Insurer and the Rating Agencies of the
occurrence of an Event of Default.
Section 7.02 TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a) On
and after the time the Servicer receives a notice of termination pursuant to
Section 7.01, or the Trustee receives the resignation of the Servicer evidenced
by an Opinion of Counsel pursuant to Section 5.24, or the Servicer is removed as
Servicer pursuant to Article VII, in which event the Trustee shall promptly
notify the Rating Agencies, except as otherwise provided in Section 7.01, the
Trustee shall be the successor in all respects to the Servicer in its capacity
as servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof
arising on or after the date of succession; provided, however, that the Trustee
shall not be liable for any actions or the representations and warranties of any
servicer prior to it and including, without limitation, the obligations of the
Servicer set forth in Sections 2.04 and 3.03. The Trustee, as successor
servicer, or any other successor servicer shall be obligated to pay Compensating
Interest pursuant to Section 6.09 in any event and to make advances pursuant to
Section 5.21 unless, and only to the extent the Trustee as successor servicer
determines reasonably and in good faith that such advances would not be
recoverable pursuant to Sections 5.04(b), 5.04(g) or 5.04(j), such determination
to be evidenced by a certification of a Responsible Officer of the Trustee, as
successor servicer delivered to the Certificate Insurer.
(b) Notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if the Majority
Certificateholders with the consent of the Certificate Insurer or the
Certificate Insurer so requests in writing to the Trustee, appoint, pursuant to
the provisions set forth in paragraph (c) below, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution acceptable to the Certificate Insurer that has a net worth of not
less than $15,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder.
(c) In the event the Trustee is the successor servicer, it
shall be entitled to Servicing Compensation (including the Servicing Fee as
adjusted pursuant to the definition thereof) and other funds pursuant to Section
5.14 hereof as the Servicer. In the event the Trustee is unable or unwilling to
act as successor servicer, the Trustee shall solicit, by public announcement,
bids from housing and home finance institutions, banks and mortgage servicing
institutions meeting the qualifications set forth above. Such public
announcement shall specify that the successor servicer shall be entitled to the
full amount of the aggregate Servicing Fees hereunder as servicing compensation,
together with the other Servicing Compensation. Within thirty days after any
such public announcement, the Trustee shall negotiate and effect the sale,
transfer and assignment of the servicing rights and responsibilities hereunder
to the qualified party submitting the highest qualifying bid. The Trustee shall
deduct from any sum received by the Trustee from the successor to the Master
Servicer in respect of such sale, transfer and assignment all costs and expenses
of any public announcement and of any sale, transfer and assignment of the
servicing rights and responsibilities hereunder and the amount of any
unreimbursed Servicing Advances and Periodic Advances owed to the Trustee. After
such deductions, the remainder of such sum shall be paid by the Trustee to the
Master Servicer at the time of such sale, transfer and assignment to the
Servicer's successor.
(d) The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. The Servicer agrees to cooperate with the Trustee and any successor
servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Trustee or
such successor servicer, as applicable, at the Servicer's cost and expense, all
documents and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder and shall promptly also transfer to the Trustee
or such successor servicer, as applicable, all amounts that then have been or
should have been deposited in the Collection Account by the Servicer or that are
thereafter received with respect to the Mortgage Loans. Any collections received
by the Servicer after such removal or resignation shall be endorsed by it to the
Trustee and remitted directly to the Trustee or, at the direction of the
Trustee, to the successor servicer. Neither the Trustee nor any other successor
servicer shall be held liable by reason of any failure to make, or any delay in
making, any distribution hereunder or any portion thereof caused by (i) the
failure of the Servicer to deliver, or any delay in delivering, cash, documents
or records to it, or (ii) restrictions imposed by any regulatory authority
having jurisdiction over the Servicer hereunder. No appointment of a successor
to the Servicer hereunder shall be effective until the Trustee and the
Certificate Insurer shall have consented in writing
52
<PAGE> 61
thereto, and written notice of such proposed appointment shall have been
provided by the Trustee to the Certificate Insurer and to each
Certificateholder. The Trustee shall not resign as servicer until a successor
servicer reasonably acceptable to the Certificate Insurer has been appointed.
(e) Pending appointment of a successor to the Servicer
hereunder, the Trustee shall 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 Mortgage
Loans as it and such successor shall agree; PROVIDED, HOWEVER, that no such
compensation shall be in excess of that permitted the Servicer pursuant to
Section 5.14, together with other Servicing Compensation. The Servicer, the
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
Section 7.03 WAIVER OF DEFAULTS. The Majority
Certificateholders may, on behalf of all Certificateholders, and subject to the
consent of the Certificate Insurer, waive any events permitting removal of the
Servicer as servicer pursuant to this Article VII; provided, however, that the
Majority Certificateholders may not waive a default in making a required
distribution on a Certificate without the consent of the holder of such
Certificate. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Trustee to the Rating Agencies.
Section 7.04 MORTGAGE LOANS, TRUST FUND AND ACCOUNTS HELD FOR
BENEFIT OF THE CERTIFICATE INSURER. (a) The Trustee shall hold the Trust Fund
and the Mortgage Files for the benefit of the Certificateholders and the
Certificate Insurer and all references in this Agreement and in the Certificates
to the benefit of Holders of the Certificates shall be deemed to include the
Certificate Insurer. The Trustee shall cooperate in all reasonable respects with
any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement and
the Certificates unless, as stated in an Opinion of Counsel addressed to the
Trustee and the Certificate Insurer, such action is adverse to the interests of
the Certificateholders or diminishes the rights of the Certificateholders or
imposes additional burdens or restrictions on the Certificateholders.
(b) The Servicer hereby acknowledges and agrees that it shall
service the Mortgage Loans for the benefit of the Certificateholders and for the
benefit of the Certificate Insurer, and all references in this Agreement to the
benefit of or actions on behalf of the Certificateholders shall be deemed to
include the Certificate Insurer.
53
<PAGE> 62
ARTICLE VIII
TERMINATION
Section 8.01 TERMINATION. (a) Subject to Section 8.02, this
Agreement shall terminate upon notice to the Trustee of either: (i) the
disposition of all funds with respect to the last Mortgage Loan and the
remittance of all funds due hereunder and the payment of all amounts due and
payable to the Certificate Insurer and the Trustee or (ii) mutual consent of the
Servicer, the Certificate Insurer and all Certificateholders in writing;
provided, however, that in no event shall the Trust Fund established by this
Agreement terminate later than twenty-one years after the death of the last
surviving lineal descendant of Joseph P. Kennedy, late Ambassador of the United
States to the Court of St. James, alive as of the date hereof.
(b) In addition, subject to Section 8.02, the Servicer may, at
its option and at its sole cost and expense, terminate this Agreement on any
date on which the related Pool Principal Balance is less than 10% of the sum of
(x) the aggregate of the Principal Balances of the Mortgage Loans on the Cut-off
Date plus (y) the aggregate of the Principal Balances of the Subsequent Mortgage
Loans on their respective Subsequent Cut-off Dates, by purchasing, on the next
succeeding Distribution Date, all of the outstanding Mortgage Loans and REO
Properties at a price (the "Termination Price") equal to the sum of (i) 100% of
the Principal Balance of each such outstanding Mortgage Loan and each REO
Property, (ii) the aggregate amount of accrued and unpaid interest on such
Mortgage Loans through the related due period and 30 days' interest on such
Mortgage Loans at a rate equal to the related Mortgage Interest Rate (net of the
Servicing Fee) with respect to such Mortgage Loan, (iii) any unreimbursed
amounts due to the Certificate Insurer under this Agreement or the Insurance
Agreement, (iv) the amount of any unreimbursed Servicing Advances made by the
Servicer with respect to the related Mortgage Loans and (v) any excess of the
actual stated principal balance of each such Mortgage Loan and REO Property over
the Principal Balance thereof, the aggregate amount of accrued and unpaid
interest on such excess through the related due period and 30 days' interest on
such excess at a rate equal to the related Mortgage Interest Rate with respect
to each related Mortgage Loan. Any such purchase shall be accomplished by
deposit into the Certificate Account of the Termination Price. From the
Termination Price so deposited, the Trustee shall reimburse the Servicer for the
amount of any unpaid Servicing Fees, unreimbursed Periodic Advances and
unreimbursed Servicing Advances made by the Servicer with respect to the related
Mortgage Loans. No such termination is permitted without the prior written
consent of the Certificate Insurer (i) if it would result in a draw on the
Certificate Insurance Policy or (ii) unless the Servicer shall have delivered to
the Certificate Insurer an opinion of counsel reasonably satisfactory to the
Certificate Insurer stating that no amounts paid hereunder are subject to
recapture as preferential transfers under the United States Bankruptcy Code, 11
U.S.C. ss.ss. 101 et seq., as amended.
(c) If on any Distribution Date, the Servicer determines that
there are no outstanding Mortgage Loans and no other funds or assets in the
Trust Fund other than funds in the related Certificate Account, the Servicer
shall send a final distribution notice promptly to the related
Certificateholders in accordance with paragraph (d) below.
(d) Notice of any termination, specifying the Distribution
Date upon which the Trust Fund will terminate and that the Certificateholders
shall surrender their Certificates to the Trustee for payment of the final
distribution and cancellation, shall be given promptly by the Servicer by letter
to the Certificateholders mailed during the month of such final distribution
before the Master Servicer Remittance Date in such month, specifying (i) the
Distribution Date upon which final payment of the Certificates will be made upon
presentation and surrender of the Certificates at the office of the Trustee
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Trustee therein specified. The Servicer shall give such notice
to the Trustee therein specified. The Servicer shall give such notice to the
Trustee at the time such notice is given to the Certificateholders. The
obligations of the Certificate Insurer hereunder shall terminate upon the
deposit by the Servicer with the Trustee of a sum sufficient to purchase all of
the Mortgage Loans and REO Properties in the Trust Fund as set forth above and
when the aggregate Security Balance of the Certificates has been reduced to
zero.
(e) In the event that all Certificateholders do not surrender
their Certificates for cancellation within six months after the time specified
in the above-mentioned written notice, the Servicer shall give a second
54
<PAGE> 63
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 of the 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
subject hereto. If within nine months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Class R
Certificateholders shall be entitled to all unclaimed funds and other assets
which remain subject hereto and the Trustee upon transfer of such funds shall be
discharged of any responsibility for such funds and the Certificateholders shall
look only to such Class R Certificateholders for payment. Such funds shall
remain uninvested.
Section 8.02 ADDITIONAL TERMINATION REQUIREMENTS. (a) In the
event that the Servicer exercises its purchase option with respect to the Trust
Fund as provided in Section 8.01, the Trust Fund shall be terminated in
accordance with the following additional requirements, unless the Trustee has
been furnished with an Opinion of Counsel to the effect that the failure of the
Trust Fund to comply with the requirements of this Section 8.02 will not (i)
result in the imposition of taxes on "prohibited transactions" of the Trust Fund
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 Class A Certificates are outstanding:
(i) The Trustee shall establish a 90-day liquidation period
for the Trust Fund and specify the first day of such period in a
statement attached to the Trust Fund's final Tax Return pursuant to
Treasury Regulation Section 1.860F-1. The Trustee shall satisfy all the
requirements of a qualified liquidation under Section 860F of the Code
and any regulations thereunder;
(ii) During such 90-day liquidation period, and at or prior
to the time of making of the final payment on the Certificates, the
Trustee shall sell all of the assets of the Trust Fund for cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Holders of the Class R Certificates all
cash on hand in the Trust Fund (other than cash retained to meet
claims), and the REMIC shall terminate at that time.
(b) By their acceptance of the Class R Certificates, the
Holders thereof hereby agree to authorize the Trustee to specify the 90-day
liquidation period for the Trust Fund, which authorization shall be binding upon
all successor Class R Certificateholders.
Section 8.03 ACCOUNTING UPON TERMINATION OF SERVICER. Upon
termination of the Servicer, the Servicer shall, at its expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the funds in any Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Trustee all of the Mortgage Files and related documents and
statements held by it hereunder and a Mortgage Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Trustee and, upon request, to the Certificateholders a full
accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for the payments
or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Mortgage Loans to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the "Servicer" under this
Agreement.
55
<PAGE> 64
ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.01 DUTIES OF TRUSTEE. The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. If an Event of Default occurs
and is continuing, 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 its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs. Any permissive right of the Trustee
enumerated in this Agreement shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; provided, however,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Master Servicer or the Seller hereunder. If any such
instrument is found not to conform to the requirements of this Agreement in a
material manner, the Trustee shall take action as it deems appropriate to have
the instrument corrected and will provide notice thereof to the Certificate
Insurer.
The Trustee shall sign on behalf of the Trust Fund any tax
return that the Trustee is required to sign pursuant to applicable federal,
state or local tax laws.
The Trustee covenants and agrees that it shall perform its
obligations hereunder in a manner so as to maintain the status of the Trust Fund
as a REMIC under the REMIC Provisions and to prevent the imposition of any
federal, state or local income, prohibited transaction, contribution or other
tax on the Trust Fund to the extent that maintaining such status and avoiding
such taxes are reasonably within the control of the Trustee and are reasonably
within the scope of its duties under this Agreement.
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; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default which may have
occurrer, 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, in the absence of bad faith on the part of
the Trustee, 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;
(ii) The Trustee shall not be personally liable for an error
of judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect
to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of the Certificate Insurer
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.
Section 9.02 CERTAIN MATTERS AFFECTING THE TRUSTEE. Except as
otherwise provided in Section 9.01:
(a) The Trustee 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
56
<PAGE> 65
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;
(b) The Trustee may consult with counsel 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 therewith;
(c) The Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Agreement or to make any
investigation of matters arising hereunder or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request,
order or direction of any of the Certificateholders or the Certificate
Insurer, pursuant to the provisions of this Agreement, unless such
Certificateholders or the Certificate Insurer, as the case may be,
shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred
therein or thereby; nothing contained herein shall, however, relieve
the Trustee of the obligation, upon the occurrence of an Event of
Default (which has not been cured), to exercise such of the rights and
powers vested in it by this Agreement, and to use the same degree of
care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own
affairs;
(d) The Trustee shall not be personally 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;
(e) Prior to the occurrence of an Event of Default hereunder
and after the curing of all Events of Default which may have occurred,
the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing to do so
by the Certificate Insurer or by at least a 25% Percentage Interest of
any Class of Class A 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 such Certificateholders, the Trustee may require
reasonable indemnity against such expense, or liability from such
Certificateholders as a condition to taking any such action;
(f) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys;
(g) 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
(h) The Trustee shall not be required to give any bond or
surety in respect of the execution of the Trust created hereby or the
powers granted hereunder.
Section 9.03 TRUSTEE NOT LIABLE FOR CERTIFICATES OR MORTGAGE
LOANS. The recitals contained herein and in the Certificates, other than the
signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the statements of the Company or the Servicer,
as the case may be, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document, other than the signature of the Trustee on
the Certificates and the Certificate of Authentication. The Trustee shall not be
accountable for the use or application by the Company or the Servicer of any of
the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Seller in respect of the Mortgage Loans or
deposited in or withdrawn from the Custodial Account or the Certificate Accounts
or any other account by or on behalf of the Company or the Servicer, other than
any funds held by or on behalf of the Trustee in accordance with Section 6.01.
57
<PAGE> 66
Section 9.04 TRUSTEE MAY OWN CERTIFICATES. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights it would have if it were not Trustee.
Section 9.05 PAYMENT OF TRUSTEE'S FEES. The Trustee shall
withdraw from the Certificate Account on each Distribution Date and pay to
itself the Trustee's Fee. Except as otherwise provided in this Agreement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
indemnified by the Trust Fund and held harmless against any loss, liability or
"unanticipated" out-of-pocket expense incurred or paid to third parties (which
expenses shall not include salaries paid to employees, or allocable overhead, of
the Trustee) in connection with the acceptance or administration of its trusts
hereunder or the Certificates, or its performance under the Insurance Agreement,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of duties hereunder or
under the Insurance Agreement or by reason of reckless disregard of obligations
and duties hereunder or under the Insurance Agreement. All such amounts shall be
payable from funds in the Certificate Accounts as provided in Section 6.02(e).
The provisions of this Section 9.05 shall survive the termination of this
Agreement and the removal or resignation of the Trustee.
The Servicer covenants and agrees to indemnify the Trustee and
any director, officer, employee or agent of the Trustee against any losses,
liabilities, damages, claims or expenses (including reasonable legal fees and
such related expenses) that may be sustained by the Trustee in connection with
this Agreement related to the willful misfeasance, bad faith or negligence in
the performance of the Servicer's duties hereunder.
Section 9.06 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee
hereunder shall at all times be a corporation or a national banking association
organized and doing business under the laws of any state or the United States of
America or the District of Columbia, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authority. In addition, the Trustee shall at all times be acceptable to the
Rating Agencies rating the Certificates. If such corporation 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 the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 9.07.
The corporation or national banking association serving as Trustee may have
normal banking and trust relationships with the Seller and their affiliates or
the Servicer and its affiliates; provided, however, that such corporation cannot
be an affiliate of the Servicer other than the Trustee in its role as successor
to the Servicer.
Section 9.07 RESIGNATION AND REMOVAL OF THE TRUSTEE. The
Trustee may at any time resign and be discharged from the trusts hereby created
by giving notice thereof to the Company, the Certificate Insurer, the Servicer
and to all Certificateholders; provided, that such resignation shall not be
effective until a successor trustee is appointed and accepts appointment in
accordance with the following provisions. Upon receiving such notice of
resignation, the Servicer shall, with the written consent of the Certificate
Insurer, promptly appoint a successor trustee who meets the eligibility
requirements of Section 9.06 by written instrument, in duplicate, which
instrument shall be delivered to the resigning Trustee and to the successor
trustee. A copy of such instrument shall be delivered to the Certificateholders,
the Certificate Insurer and the Servicer by the Company. If no successor trustee
shall have been so appointed and have accepted appointment within 60 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee;
provided, however, that the resigning Trustee shall not resign and be discharged
from the trusts hereby created until such time as the Rating Agency rating the
Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.06 and shall fail to resign after
written request therefor by the Servicer or the Certificate Insurer, or if at
any time the Trustee shall become incapable of acting, or shall be adjudged
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 if the rating of the long-term debt obligations of the Trustee
is not acceptable to the Rating Agencies in respect of mortgage pass-through
certificates having a rating equal to the then current rating on the
Certificates, then the Servicer, with the written
58
<PAGE> 67
consent of the Certificate Insurer, may remove the Trustee and appoint a
successor trustee who meets the eligibility requirements of Section 9.06 by
written instrument, in duplicate, which instrument shall be delivered to the
Trustee so removed and to the successor trustee. A copy of such instrument shall
be delivered to the Certificateholders, the Certificate Insurer and the Company
by the Servicer.
The Majority Certificateholders, with the written consent of
the Certificate Insurer, may at any time remove the Trustee and appoint a
successor trustee by written instrument or instruments, in triplicate, signed by
the Certificate Insurer or such Holders or their attorneys-in-fact duly
authorized, one complete set of which instruments shall be delivered to the
Servicer, one complete set to the Trustee so removed and one complete set to the
successor so appointed. A copy of such instrument shall be delivered to the
Certificateholders, the Certificate Insurer and the Company by the Servicer.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 9.08.
Section 9.08 SUCCESSOR TRUSTEE. Any successor trustee
appointed as provided in Section 9.07 shall execute, acknowledge and deliver to
the Servicer, the Certificate Insurer and to its predecessor trustee 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
predecessor trustee shall deliver to the successor trustee all of the Mortgage
Files and related documents and statements held by it hereunder, and 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 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor trustee as
provided in this Section, the Servicer shall mail notice of the succession of
such trustee hereunder to the Certificate Insurer and all Holders of
Certificates at their addresses as shown in the Certificate Register provided
that the Servicer has received such Certificate Register. If the Servicer fails
to mail such notice within ten days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Servicer.
Notwithstanding anything to the contrary contained herein, so
long as no Certificate Insurer Default exists, the appointment of any successor
trustee pursuant to any provision of this Agreement will be subject to the prior
written consent of the Certificate Insurer.
Section 9.09 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 such corporation shall be eligible under the provisions of
Section 9.06, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 9.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions hereof, 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 the same may at the time be located, the Company
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, such title to the Trust Fund, or
any part thereof, and, subject to the other provisions of this Section 9.10,
such powers, duties, obligations, rights and trusts as the Company and the
Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone
59
<PAGE> 68
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 9.06 hereunder and no notice to Holders of Certificates of
the appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 9.08 hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 9.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, 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 Master 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 Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article IX. 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.
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.
60
<PAGE> 69
ARTICLE X
REMIC PROVISIONS
Section 10.01 REMIC ADMINISTRATION.
(a) The Trustee shall make an election to treat the Trust Fund
(exclusive of the Capitalized Interest Account and the Pre-Funding Account) as a
REMIC under the Code, and if necessary, under applicable state law. Such
election will be made on Form 1066 or other appropriate federal tax or
information return or any appropriate state return for the taxable year ending
on the last day of the calendar year in which the Certificates are issued. For
purposes of the REMIC election in respect of the Trust Fund, (i) each Class of
Class A Certificates shall be designated as the "regular interests" and the
Class R Certificates shall be designated as the sole Class of "residual
interest" in the REMIC. The Trustee shall not permit the creation of any
"interests" in the Trust Fund (within the meaning of Section 860G of the Code)
other than the REMIC regular interests and the interests represented by the
Certificates.
(b) The Closing Date is hereby designated as the Startup Day
of the Trust Fund within the meaning of Section 860G(a)(9) of the Code.
(c) The Trustee shall pay out of its own funds, without any
right of reimbursement, any and all expenses relating to any tax audit of the
Trust Fund (including, but not limited to, any professional fees or any
administrative or judicial proceedings with respect thereto that involved the
Internal Revenue Service or state tax authorities), other than the expense of
obtaining any tax related Opinion of Counsel not obtained in connection with
such an audit and other than taxes, in either case except as specified herein;
provided, however, that if such audit resulted from the negligence of the
Servicer or the Company, then the Servicer or the Company, as the case may be,
shall pay such expenses. The Trustee, as agent for the tax matters person, shall
(i) act on behalf of the Trust Fund in relation to any tax matter or controversy
involving the Trust Fund and (ii) represent the Trust Fund in any administrative
or judicial proceeding relating to an examination or audit by any governmental
taxing authority with respect thereto. The Holder of the largest Percentage
Interest in the Class R Certificates from time to time is hereby designated as
Tax Matters Person with respect to the Trust Fund and hereby irrevocably
appoints and authorizes the Trustee to act its agent to perform the duties of
the Tax Matters Person with respect to the Trust Fund. To the extent authorized
under the Code and the regulations promulgated thereunder, each Holder of a
Class R Certificate hereby irrevocably appoints and authorizes the Trustee to be
its attorney-in-fact for purposes of signing any Tax Returns required to be
filed on behalf of the Trust Fund.
(d) The Trustee shall prepare or cause to be prepared, sign
and file all of the Tax Returns in respect of the Trust Fund created hereunder,
other than Tax Returns required to be filed by the Servicer pursuant to Section
5.25. The expenses of preparing and filing such returns shall be borne by the
Trustee without any right of reimbursement therefor.
(e) The Trustee shall perform on behalf of the Trust Fund all
reporting and other tax compliance duties that are the responsibility of the
Trust Fund under the Code, REMIC Provisions or other compliance guidance issued
by the Internal Revenue Service or any state or local taxing authority. Among
its other duties, as required by the Code, the REMIC Provisions or other such
compliance guidance, the Trustee shall provide (i) to any Transferor of a Class
R Certificate and to the Internal Revenue Service such information as is
necessary for the application of any tax relating to the transfer of a Class R
Certificate to any Person who is not a Disqualified Organization, (ii) to
Certificateholders such information or reports as are required by the Code or
the REMIC Provisions including reports relating to interest, original issue
discount and market discount or premium and (iii) to the Internal Revenue
Service the name, title, address and telephone number of the person who will
serve as the representative of the Trust Fund. In addition, the Company 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 reasonably determines to
be relevant for tax purposes as to the valuations and issue prices of the
Certificates, including, without limitation, the price, yield, prepayment
assumption and projected cash flow of the Certificates.
(f) The Trustee shall take such action and shall cause the
Trust Fund created hereunder to take such action as shall be necessary to create
or maintain the status thereof as a REMIC under the REMIC Provisions
61
<PAGE> 70
(and the Master Servicer shall assist it, to the extent reasonably requested by
it). The Trustee shall not take any action, cause the Trust Fund to take any
action or fail to take (or fail to cause to be taken) any action that, under the
REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger
the status of the Trust Fund as a REMIC or (ii) result in the imposition of a
tax upon the Trust Fund (including but not limited to the tax on prohibited
transactions as defined in Section 860F(a)(2) of the Code and the tax on
contributions to a REMIC set forth in Section 860G(d) of the Code) (either such
event, an "Adverse REMIC Event") unless the Trustee received an Opinion of
Counsel (at the expense of the party seeking to take such action but in no event
shall such Opinion of Counsel be an expense of the Trustee) to the effect that
the contemplated action will not, with respect to the Trust Fund created
hereunder, endanger such status or result in the imposition of such a tax. The
Servicer shall not take or fail to take any action (whether or not authorized
hereunder) as to which the Trustee has advised it in writing that it has
received an Opinion of Counsel (which such Opinion of Counsel shall not be an
expense of the Trustee) to the effect that an Adverse REMIC Event could occur
with respect to such action. In addition, prior to taking any action with
respect to the Trust Fund or its assets, or causing the Trust Fund to take any
action which is not expressly permitted under the terms of this Agreement, the
Servicer will consult with the Trustee or its designee, in writing, with respect
to whether such action could cause an Adverse REMIC Event to occur with respect
to the Trust Fund, and the Servicer shall not take any such action or cause the
Trust Fund to take any such action as to which the Trustee has advised it in
writing that an Adverse REMIC Event could occur. The Trustee may consult with
counsel to make such written advice, and the cost of same shall be borne by the
party seeking to take the action not permitted by this Agreement (but in no
event shall such cost be an expense of the Trustee). At all times as may be
required by the Code, the Trustee will ensure that substantially all of the
assets of the Trust Fund will consist of "qualified mortgages" as defined in
Section 860G(a)(3) of the Code and "permitted investments" as defined in Section
860G(a)(5) of the Code.
(g) In the event that any tax is imposed on "prohibited
transactions" of the Trust Fund created hereunder as defined in Section
860F(a)(2) of the Code on "net income from foreclosure property" of the Trust
Fund as defined in Section 860G(c) of the Code, on any contributions to the
Trust Fund after the Startup Day therefor pursuant to Section 860G(d) of the
Code, or any other tax is imposed by the Code or any applicable provisions of
state or local tax laws, such tax shall be charged (i) to the Trustee pursuant
to Section 10.03 hereof, if such tax arises out of or results from a breach by
the Trustee of any of its obligations under this Article X, (ii) to the Master
Servicer pursuant to Section 10.03 hereof, if such tax arises out of or results
from a breach by the Master Servicer of any of its obligations under Article V
or this Article X, or otherwise (iii) against amounts on deposit in the related
Certificate Account and shall be paid by withdrawal therefrom.
(h) On or before April 15 of each calendar year, commencing
April 15, 1997, the Trustee shall deliver to the Servicer and each Rating Agency
a Certificate from a Responsible Officer of the Trustee stating the Trustee's
compliance with this Article X.
(i) The Servicer and the Trustee shall, for federal income tax
purposes, maintain books and records with respect to the Trust Fund on a
calendar year and on an accrual basis.
(j) The Trustee shall not accept any contributions of assets
to the Trust Fund unless it shall have received an Opinion of Counsel (which
such Opinion of Counsel shall not be an expense of the Trustee) to the effect
that the inclusion of such assets in the Trust Fund will not cause the Trust
Fund to fail to qualify as a REMIC at any time that any Certificates are
outstanding or subject the Trust Fund to any tax under the REMIC Provisions or
other applicable provisions of federal, state and local law or ordinances.
(k) Neither the Trustee nor the Servicer shall enter into any
arrangement by which the Trust Fund will receive a fee or other compensation for
services nor permit the Trust Fund to receive any income from assets other than
"qualified mortgages" as defined in Section 860G(a)(3) of the Code or "permitted
investments" as defined in Section 860G(a)(5) of the Code.
(l) Solely for purposes of satisfying Section
1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest possible maturity
date" of the Class A Certificates is ___________ 25, 20__.
(m) Upon filing with the Internal Revenue Service, the Trustee
shall furnish to the Holders of the Class R Certificates the Form 1066 and each
Form 1066Q.
62
<PAGE> 71
Section 10.02 PROHIBITED TRANSACTIONS AND ACTIVITIES.
Neither the Company, the Servicer nor the Trustee shall sell,
dispose of or substitute for any of the Mortgage Loans, except in connection
with (i) the foreclosure of a Mortgage Loan, including but not limited to, the
acquisition or sale of a Mortgaged Property acquired by deed in lieu of
foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the termination of the
Trust Fund pursuant to Article VIII of this Agreement, or (iv) a purchase of
Mortgage Loans pursuant to Article II or III of this Agreement nor acquire any
assets for the Trust Fund, nor sell or dispose of any investments in the
Certificate Accounts for gain, nor accept any contributions to the Trust Fund
after the Closing Date unless it has received an Opinion of Counsel (at the
expense of the party seeking to cause such sale, disposition, substitution or
acquisition but in no event shall such Opinion of Counsel be an expense of the
Trustee) that such sale, disposition, substitution or acquisition will not (a)
affect adversely the status of the Trust Fund as a REMIC or (b) cause the Trust
Fund to be subject to a tax on "prohibited transactions" or "contributions"
pursuant to the REMIC Provisions.
Section 10.03 SERVICER AND TRUSTEE INDEMNIFICATION.
(a) The Trustee agrees to indemnify the Trust Fund, the
Company and the Servicer for any taxes and costs including, without limitation,
any reasonable attorneys' fees imposed on or incurred by the Trust Fund, the
Company or the Master Servicer, as a result of a breach of the Trustee's
covenants set forth in this Article X.
(b) The Servicer agrees to indemnify the Trust Fund, the
Company and the Trustee for any taxes and costs (including, without limitation,
any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the
Company or the Trustee, as a result of a breach of the Servicer's covenants set
forth in this Article X or in Article V with respect to compliance with the
REMIC Provisions, including without limitation, any penalties arising from the
Trustee's execution of Tax Returns prepared by the Servicer pursuant to Section
5.25 that contain errors or omissions.
63
<PAGE> 72
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01 LIMITATION ON LIABILITY OF THE COMPANY AND THE
SERVICER. Neither the Company, the Servicer nor any of the directors, officers,
employees or agents of the Company or the Servicer shall be under any liability
to the Certificate Insurer, the Trust Fund or 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 Company or the Servicer (but this provision
shall protect the above described persons) against any breach of warranties or
representations made herein, or against any specific liability imposed on the
Servicer or the Company pursuant to any other Section hereof; and provided
further that this provision shall not protect the Company, the Servicer or any
such person, against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Company,
the Servicer and any director, officer, employee or agent of the Company 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 Company, the Servicer and any director, officer, employee or agent of the
Company or the Master Servicer shall be indemnified and held harmless by the
Trust Fund against any loss, liability or expense incurred in connection with
any legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense related to Servicer's servicing obligations with
respect to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) or related to the Servicer's obligations under this Agreement, or 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. Neither the Company nor
the Servicer shall be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective duties under this
Agreement and which in its opinion may involve it in any expense or liability;
provided, however, that the Company or the Servicer may in its sole discretion
undertake any such action which it may deem necessary or desirable with respect
to this Agreement and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In the event the Company or the
Servicer take any action as described in the preceding sentence, the legal
expenses and costs of such action, if previously approved in writing by the
Certificate Insurer, which approval shall not be unreasonably withheld, and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund, and the Servicer or the Company, as the case may be, will be
entitled to be reimbursed therefor out of funds in the Collection Account.
Section 11.02 ACTS OF CERTIFICATEHOLDERS. (a) Except as
otherwise specifically provided herein, whenever Certificateholder action,
consent or approval is required under this Agreement, such action, consent or
approval shall be deemed to have been taken or given on behalf of, and shall be
binding upon, all Certificateholders if the Majority Certificateholders or the
Certificate Insurer agrees to take such action or give such consent or approval.
(b) The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heir to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
(c) No Certificateholder shall have any right to vote (except
as expressly provided for 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 person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
Section 11.03 AMENDMENT. This Agreement may be amended from
time to time by the Company, the Servicer and the Trustee without the consent of
any of the Certificateholders, (i) to cure any ambiguity or mistake, (ii) to
correct, modify or supplement any provisions herein which may be inconsistent
with any other provisions herein, (iii) to make any other provisions with
respect to matters or questions arising under
64
<PAGE> 73
this Agreement which are not materially inconsistent with the provisions hereof
amend this Agreement in any respect subject to the provisions below, or (iv) if
such amendment, as evidenced by an Opinion of Counsel (provided by the Person
requesting such amendment) delivered to the Trustee, is reasonably necessary to
comply with any requirements imposed by the Code or any successor or amendatory
statute or any temporary or final regulation, revenue ruling, revenue procedure
or other written official announcement or interpretation relating to federal
income tax laws or any proposed such action which, if made effective, would
apply retroactively to the Trust Fund at least from the effective date of such
amendment; provided that in the case of clause (iii) such action shall not
adversely affect in any material respect the interests of any Certificateholder
(other than Certificateholders who shall consent to such amendment) or the
Certificate Insurer, as evidenced either by an Opinion of Counsel (provided by
the Person requesting such amendment) or written notification from each Rating
Agency to the effect that such amendment will not cause such Rating Agency to
lower or withdraw the then current ratings on the Certificates, delivered to the
Trustee and the Certificate Insurer.
This Agreement may also be amended from time to time by the
Company, the Servicer and the Trustee with the consent of the Certificate
Insurer and the Majority Certificateholders 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 received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Certificate Insurer and the Holders
of all Certificates then outstanding. Notwithstanding any other provision of
this Agreement, for purposes of the giving or withholding of consents pursuant
to this Section 11.03, Certificates registered in the name of the Company or the
Servicer or any affiliate thereof shall be entitled to voting rights with
respect to matters described in (i), (ii) and (iii) of this paragraph.
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 (provided by the Person requesting
such amendment) to the effect that such amendment will not result in the
imposition of any tax on the Trust Fund pursuant to the REMIC Provisions or
cause the Trust Fund to fail to qualify as a REMIC at any time that any of the
Certificates are outstanding.
Promptly after the execution of any such amendment the Trustee
shall furnish a statement describing the amendment to each Certificateholder,
the Certificate Insurer, and each Rating Agency.
It shall not be necessary for the consent of
Certificateholders under this Section 11.03 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.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
Section 11.04 RECORDATION OF AGREEMENT. To the extent
permitted by applicable law, this Agreement, or a memorandum thereof if
permitted under applicable law, is subject to recordation in all appropriate
public offices for real property records in all of 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 Master Servicer at the
Certificateholders' expense on direction and at the expense of Majority
Certificateholders requesting such recordation, but only when accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Certificateholders or is necessary for
the administration or servicing of the Mortgage Loans.
Section 11.05 NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to (i) in the case of the Servicer, _______________________________,
Attention: _____________________________, (ii) in the case of NationsBanc Asset
Securities, Inc., NationsBank Corporate Center, Charlotte, North Carolina,
Attention: ________________________________, (iii) in the case of the Trustee,
_____________________________________, Attention: _____________________, (iv) in
the case of the Certificateholders, as set forth in the Certificate Register,
(v) in the case of [Rating
65
<PAGE> 74
Agency], ___________________________, Attention: _________________________, and
(vi) in the case of the Certificate Insurer, _____________________, Attention:
____________________. Any such notices shall be deemed to be effective with
respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Certificateholders shall be effective upon mailing or
personal delivery.
Section 11.06 SEVERABILITY OF PROVISIONS. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be
held invalid for any reason whatsoever, 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 covenants, agreements, provisions or
terms of this Agreement or of the Certificates or the rights of the Holders
thereof.
Section 11.07 COUNTERPARTS. This Agreement may be executed in
one or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
agreement.
Section 11.08 SUCCESSORS AND ASSIGNS. This Agreement shall
inure to the benefit of and be binding upon the Servicer, the Company, the
Trustee and the Certificateholders and their respective successors and permitted
assigns.
Section 11.09 HEADINGS. The headings of the various articles
and sections of this Agreement have been inserted for convenience of reference
only and shall not be deemed to be part of this Agreement.
Section 11.10 THE CERTIFICATE INSURER DEFAULT. Any right
conferred to the Certificate Insurer, including, without limitation, the right
to receive the Premium Amount pursuant to Section 6.05(b)(i) and 6.05(c)(i),
shall be suspended during any period in which a Certificate Insurer Default
exists. At such time as the Certificates are no longer outstanding hereunder,
and no amounts owed to the Certificate Insurer hereunder remain unpaid, the
Certificate Insurer's rights hereunder shall terminate.
Section 11.11 THIRD PARTY BENEFICIARY. The parties agree that
each of the Seller and the Certificate Insurer are intended and shall have all
rights of a third-party beneficiary of this Agreement.
Section 11.12 INTENT OF THE PARTIES. It is the intent of the
Company and Certificateholders that, for federal income taxes, state and local
income or franchise taxes and other taxes imposed on or measured by income, the
Certificates will be treated as evidencing beneficial ownership interests in a
REMIC. The parties to this Agreement and the holder of each Certificate, by
acceptance of its Certificate, and each beneficial owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates in accordance with the preceding sentence for purposes of federal
income taxes, state and local income and franchise taxes and other taxes imposed
on or measured by income.
Section 11.13 NOTICE TO RATING AGENCIES AND CERTIFICATEHOLDER.
The Trustee shall use its best efforts to promptly provide
notice to the Rating Agencies and the Certificate Insurer 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;
4. The repurchase of Mortgage Loans pursuant to Section
3.03;
5. The final payment to Certificateholders; and
6. Any change in the location of the Collection Account
or the Certificate Accounts.
66
<PAGE> 75
In addition, the Trustee shall promptly furnish to the Rating
Agencies copies of the following:
1. Each report to Certificateholders described in
Section 6.07; and
2. Each annual independent public accountants' servicing
report described in Section 5.17.
Any such notice pursuant to this Section 11.13 shall be in
writing and shall be deemed to have been duly given if personally delivered or
mailed by first class mail, postage prepaid, or by express delivery service
(except in the case of notice to the Certificate Insurer which notice shall be
given in accordance with Section 11.05 hereof).
Section 11.14 GOVERNING LAW. (a) THIS AGREEMENT AND THE
CERTIFICATES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW
YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
67
<PAGE> 76
IN WITNESS WHEREOF, the Servicer, the Trustee and the Company
have caused their names to be signed hereto by their respective officers
thereunto duly authorized as of the day and year first above written.
NationsBanc Asset Securities, Inc.,
as Company
By:
--------------------------------
Name:
Title:
as Servicer
By:
--------------------------------
Name:
Title:
as Trustee
By:
--------------------------------
Name:
Title:
68
<PAGE> 77
State of ____________ )
) ss.:
County of ___________ )
On the ____ day of ________, 199__ before me, a Notary Public
in and for the State of _______________, personally appeared
____________________, known to me to be a ___________________ of NationsBanc
Asset Securities, Inc., the corporation that executed the within instrument and
also known to me to be the person who executed it on behalf of said corporation,
and acknowledged to me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
--------------------------------------
Notary Public
My Commission expires ________________
[Notary Page]
<PAGE> 78
State of ___________ )
) ss.:
County of __________ )
On the ____ day of ______, 199__ before me, a Notary Public in
and for the State of ____________, personally appeared _____________________,
known to me to be ____________________ of _____________________, the corporation
that executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
--------------------------------------
Notary Public
My Commission expires ________________
[Notary Page]
<PAGE> 79
State of ___________ )
) ss.:
County of __________ )
On the __th day of _______, 199__, before me, a Notary Public
in and for the State of ________, personally appeared _______________, known to
me to be _______________ of ____________________, the corporation that executed
the within instrument and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and
affixed my official seal the day and year in this certificate first above
written.
--------------------------------------
Notary Public
My Commission expires ________________
[Notary Page]
<PAGE> 80
EXHIBIT A
Certificate Insurance Policy
<PAGE> 81
EXHIBIT B-1
FORM OF CLASS [A-1][A-2][A-3][A-4] CERTIFICATE SOLELY FOR U.S.
FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL
ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY,
IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES
OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO
THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF
PREPAYMENT, USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES, EQUAL TO A CONSTANT PREPAYMENT RATE OF ____% PER ANNUM (THE
"PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN
$______________ OF OID PER $__________ OF SECURITY BALANCE, THE YIELD TO
MATURITY IS ______% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL
PERIOD IS NO MORE THAN $_________ PER $___________ OF SECURITY BALANCE, COMPUTED
USING THE EXACT METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL
PREPAY AT A RATE BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
<TABLE>
<S> <C>
Certificate No. ___
____% Initial Pass-Through Rate
Date of Pooling and Servicing Agreement: Aggregate Security Balance of the
_______, 199__ Class [A-1][A-2][A-3][A-4] Certificates: $__________
First Distribution Date: ____________, 199__ Initial Security Balance of this Certificate:
$--------------
Percentage Interest: %
CUSIP:
</TABLE>
ASSET BACKED CERTIFICATE
SERIES 199__-__
evidencing a percentage interest in the distributions
allocable to the Class [A- 1][A-2][A-3][A-4] Certificates with respect to a
Trust Fund consisting primarily of a pool of conventional oneto four-family
fixed rate first lien and second lien residential mortgage loans sold by
NationsBanc Asset Securities, Inc.
This certifies that __________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in certain
distributions with respect to a Trust Fund consisting primarily of a pool of
conventional one- to four-family fixed rate first lien and second lien mortgage
loans (the "Mortgage Loans"), sold by NationsBanc Asset Securities, Inc. (the
"Company"). The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as specified above (the "Agreement") among the Company,
______________, as servicer (the "Servicer"), and _________________, as trustee
(the "Trustee"), a summary of certain of the pertinent provisions of which is
set forth hereafter. To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Agreement.
This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the holder of
this Certificate by virtue of the acceptance hereof assents and by which such
holder is bound.
<PAGE> 82
This Certificate is payable solely from the assets of the
Trust Fund and the Certificate Insurance Policy (as defined below) and does not
represent an obligation of or interest in the Company, the Servicer, the Trustee
referred to below or any of their affiliates. Neither this Certificate nor the
underlying Mortgage Loans are guaranteed or insured by any governmental agency
or instrumentality or by the Company, the Servicer, the Trustee or any of their
affiliates. None of the Company, the Servicer, or any of their affiliates will
have any obligation with respect to any certificate or other obligation secured
by or payable from payments on the Certificates.
____________________ (the "Certificate Insurer") has issued a
certificate insurance policy (the "Certificate Insurance Policy") with respect
to the Class A Certificates, a copy of which is attached to the Agreement.
Pursuant to the terms of the Agreement, a distribution will be
made on the 25th day of each month or, if such 25th day is not a Business Day,
the Business Day immediately following (the "Distribution Date"), commencing as
described in the Agreement, to the Person in whose name this Certificate is
registered at the close of business on the last Business Day of the month
immediately preceding the month of such Distribution Date (the "Record Date"),
from the Available Funds and in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount of interest and principal,
if any required to be distributed to holders of Class [A-1][A-2][A-3][A-4]
Certificates on such Distribution Date.
All distributions on this Certificate will be made or caused
to be made by the Trustee in immediately available funds either (i) by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register or (ii) by wire transfer to the account
of any Person entitled thereto if such Person shall have so notified the Trustee
and such Certificateholder is the registered holder of Class
[A-1][A-2][A-3][A-4] Certificates the aggregate Security Balance of which is not
less than $5,000,000.
Notwithstanding the above, the final distribution on this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this Certificate at the office or
agency appointed by the Trustee for that purpose. The initial Security Balance
of this Certificate is set forth above. The Security Balance hereof will be
reduced by this Certificate's Percentage Interest of distributions of the Class
A Principal Distribution Amount allocated to the Class A [A-1][A-2][A-3][A-4]
Certificates.
This Certificate is one of a duly authorized issue of
Certificates issued in __________ Classes designated as Asset Backed
Certificates of the Series specified hereon (herein collectively called the
"Certificates").
The Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. In the event that Servicer
funds are advanced with respect to any Mortgage Loan, such advance is
reimbursable to the Servicer, to the extent provided in the Agreement, from
related recoveries on such Mortgage Loan or from other cash that would have been
distributable to Certificateholders.
As provided in the Agreement, withdrawals from the Collection
Account and/or the Certificate Account created for the benefit of
Certificateholders may be made by the Servicer from time to time for purposes
other than distributions to Certificateholders, such purposes including without
limitation reimbursement to the Company and the Master Servicer of advances
made, or certain expenses incurred, by either of them.
The Agreement permits, with certain exceptions therein
provided, the amendment of the Agreement and the modification of the rights and
obligations of the Company, the Servicer and the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Company, the Servicer
and the Trustee with the consent of the Certificate Insurer and the Majority
Certificateholders. Any such consent by the holder of this Certificate shall be
conclusive and binding on such holder and upon all future holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon the Certificate. The Agreement also permits the amendment thereof in
certain circumstances without the consent of the holders of any of the
Certificates and, in certain additional circumstances, without the consent of
the holders of certain Classes of Certificates.
2
<PAGE> 83
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies appointed by the Trustee in the City and
State of New York, duly endorsed by, or accompanied by an assignment in the form
below or other written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the holder hereof or such
holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of authorized denominations evidencing the same Class and aggregate
Percentage Interest will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
in Classes and in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of authorized denominations evidencing the
same Class and aggregate Percentage Interest, as requested by the holder
surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Servicer, the Trustee and the Certificate
Registrar and any agent of the Company, the Servicer, the Trustee or the
Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Company, the
Servicer, the Trustee nor any such agent shall be affected by notice to the
contrary.
This Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
The obligations created by the Agreement in respect of the
Certificates and the Trust Fund created thereby shall terminate upon the payment
to Certificateholders of all amounts held by or on behalf of the Trustee and
required to be paid to them pursuant to the Agreement following the earlier of
(i) the maturity or other liquidation of the last Mortgage Loan subject thereto
or the disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan and (ii) the purchase by the Servicer from the
Trust Fund of all remaining Mortgage Loans, thereby effecting early retirement
of the Class [A-1][A-2][A-3][A-4] Certificates. The Agreement permits, but does
not require, the Servicer to purchase at a price determined as provided in the
Agreement all remaining Mortgage Loans; provided, that any such option may only
be exercised if the Pool Principal Balance as of the Distribution Date upon
which the proceeds of any such purchase are distributed is less than 10% of the
Original Pool Principal Balance (net of any excess of the Original Pre-Funded
Amounts over the aggregate of the Principal Balances of the Subsequent Mortgage
Loans as of their respective Subsequent Cut-off Dates).
Unless the certificate of authentication hereon has been
executed by the Certificate Registrar, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be valid for any
purpose.
3
<PAGE> 84
IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed.
Dated: , 199
---------- --- ---------------------------------,
as Trustee
By:
-------------------------------
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Class [A-1][A-2][A-3][A-4] Certificates
referred to in the within-mentioned Agreement.
---------------------------------,
as Certificate Registrar
By:
-------------------------------
Authorized Signatory
4
<PAGE> 85
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto ___________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and
Taxpayer Identification Number of assignee)
a Percentage Interest equal to ____% evidenced by the within
Asset Backed Certificate and hereby authorize(s) the registration of transfer of
such interest to assignee on the Certificate Register of the Trust Fund.
I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address:__________________________
________________________________________________________________________________
Dated:
-----------------------------------------------
Signature by or on behalf of assignor
-----------------------------------------------
Signature Guaranteed
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of
distribution:
Distributions shall be made, by wire transfer or otherwise,
in immediately available funds to ______________________________________________
for the account of _____________________________________account number
_____________________________________, or, if mailed by check, to
___________________________________________________________________. Applicable
statements should be mailed to _____________________________________. This
information is provided by _______________________________________, the assignee
named above, or _____________________________, as its agent.
<PAGE> 86
EXHIBIT B-2
FORM OF CLASS R CERTIFICATE
THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A
NON-UNITED STATES PERSON OR A DISQUALIFIED ORGANIZATION (AS DEFINED BELOW).
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE
IS A "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986 (THE "CODE").
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN OR OTHER PLAN SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975
OF THE CODE, UNLESS THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL SATISFACTORY
TO THE MASTER SERVICER, THE COMPANY AND THE TRUSTEE THAT THE PURCHASE OF THIS
CERTIFICATE BY, ON BEHALF OF OR WITH "PLAN ASSETS" OF SUCH PLAN IS PERMISSIBLE
UNDER APPLICABLE LAW, WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED
TRANSACTION AND WILL NOT SUBJECT THE SERVICER, THE COMPANY OR THE TRUSTEE TO ANY
OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE
MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES A TRANSFER AFFIDAVIT TO THE
MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (A) THE UNITED
STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED
STATES, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN AN
INSTRUMENTALITY WHICH IS A CORPORATION IF ALL OF ITS ACTIVITIES ARE SUBJECT TO
TAX AND, EXCEPT FOR THE FHLMC, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT
SELECTED BY SUCH GOVERNMENTAL UNIT), (B) A FOREIGN GOVERNMENT, ANY INTERNATIONAL
ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING, (C) ANY
ORGANIZATION (OTHER THAN CERTAIN FARMERS' COOPERATIVES DESCRIBED IN SECTION 521
OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE
(INCLUDING THE TAX IMPOSED BY SECTION 511 OF THE CODE ON UNRELATED BUSINESS
TAXABLE INCOME), (D) RURAL ELECTRIC AND TELEPHONE COOPERATIVES DESCRIBED IN
SECTION 1381(A)(2)(C) OF THE CODE AND (E) ANY OTHER PERSON SO DESIGNATED BY THE
TRUSTEE BASED UPON AN OPINION OF COUNSEL THAT THE HOLDING OF AN OWNERSHIP
INTEREST IN A CLASS [R] CERTIFICATE BY SUCH PERSON MAY CAUSE THE TRUST FUND OR
ANY PERSON HAVING AN OWNERSHIP INTEREST IN ANY CLASS OF CERTIFICATES (OTHER THAN
SUCH PERSON) TO INCUR A LIABILITY FOR ANY FEDERAL TAX IMPOSED UNDER THE CODE
THAT WOULD NOT OTHERWISE BE IMPOSED BUT FOR THE TRANSFER OF AN OWNERSHIP
INTEREST IN A CLASS R CERTIFICATE TO SUCH PERSON (ANY SUCH PERSON DESCRIBED IN
THE FOREGOING CLAUSES (A), (B), (C), (D) OR (E) BEING HEREIN REFERRED TO AS A
"DISQUALIFIED ORGANIZATION") OR AN AGENT OF A DISQUALIFIED ORGANIZATION, (2) NO
PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR COLLECTION OF TAX AND
(3) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL CONDITIONS RELATING TO THE
FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE. THE TERMS "UNITED STATES,"
"STATE" AND "INTERNATIONAL ORGANIZATION" SHALL HAVE THE MEANINGS SET FORTH IN
SECTION 7701 OF THE CODE OR SUCCESSOR PROVISIONS. NOTWITHSTANDING THE
REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER, SALE OR OTHER
DISPOSITION OF THIS CERTIFICATE TO A DISQUALIFIED ORGANIZATION OR AN AGENT OF A
DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL
FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A
CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE
RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF THIS CERTIFICATE
<PAGE> 87
BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED TO THE
PROVISIONS OF THIS PARAGRAPH.
THIS CLASS R CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY
STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 4.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED
TO HEREIN.
2
<PAGE> 88
Certificate No.
------
Date of Pooling and Servicing Agreement:
_______________, 199__
First Distribution Date:
_______________, 199__
Percentage Interest:__%
ASSET BACKED CERTIFICATE,
SERIES 199__-__
evidencing a percentage interest in any distributions
allocable to the Class R Certificates with respect to a Trust
Fund consisting primarily of a pool of conventional one- to
four-family fixed rate first lien and second lien residential
mortgage loans sold by NationsBanc Asset Securities, Inc.
This certifies that ____________________________ is the
registered owner of the Percentage Interest evidenced by this Certificate in
certain distributions with respect to a Trust Fund consisting primarily of a
pool of conventional one- to four-family fixed rate first lien and second lien
residential mortgage loans (the "Mortgage Loans"), sold by NationsBanc Asset
Securities, Inc. (the "Company"). The Trust Fund was created pursuant to a
Pooling and Servicing Agreement dated as specified above (the "Agreement") among
the Company, ___________________________, as servicer (the "Servicer") and
_____________________________, as trustee (the "Trustee"), a summary of certain
of the pertinent provisions of which is set forth hereafter. To the extent not
defined herein, the capitalized terms used herein have the meanings assigned in
the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
This Certificate is payable solely from the assets of the
Trust Fund and does not represent an obligation of or interest in the Company,
the Servicer, the Trustee referred to below or any of their affiliates. Neither
this Certificate nor the underlying Mortgage Loans are guaranteed or insured by
any governmental agency or instrumentality or by the Company, the Servicer, the
Trustee or any of their affiliates. None of the Company, the Servicer, or any of
their affiliates will have any obligation with respect to any certificate or
other obligation secured by or payable from payments on the Certificates.
Pursuant to the terms of the Agreement, a distribution will be
made on the 25th day of each month or, if such 25th day is not a Business Day,
the Business Day immediately following (the "Distribution Date"), commencing as
described in the Agreement, to the Person in whose name this Certificate is
registered at the close of business on the last Business Day immediately
preceding the month of such Distribution Date (the "Record Date"), from the
Available Funds in an amount equal to the product of the Percentage Interest
evidenced by this Certificate and the amount (of interest and principal, if any)
required to be distributed to Holders of Class [R] Certificates on such
Distribution Date.
Each Holder of this Certificate will be deemed to have agreed
to be bound by the restrictions set forth in the Agreement to the effect that
(i) each person holding or acquiring any Ownership Interest in this Certificate
must be a United States Person and a Permitted Transferee, (ii) the transfer of
any Ownership Interest in this Certificate will be conditioned upon the delivery
to the Trustee of, among other things, an affidavit to the effect that it is a
United States Person and Permitted Transferee, (iii) any attempted or purported
transfer of any Ownership Interest in this Certificate in violation of such
restrictions will be absolutely null and void and will vest no rights in the
purported transferee, and (iv) if any person other than a United States Person
and a Permitted Transferee acquires any Ownership Interest in this Certificate
in violation of such restrictions, then the Company will have the right, in its
sole discretion and without notice to the Holder of this Certificate, to sell
this Certificate
3
<PAGE> 89
to a purchaser selected by the Company, which purchaser may be the Company, or
any affiliate of the Company, on such terms and conditions as the Company may
choose.
No transfer of any Class R Certificate shall be made unless
that transfer is made pursuant to an effective registration statement under the
1933 Act and effective registration or qualification under applicable state
securities laws, or is made in a transaction which does not require such
registration or qualification. In the event that a transfer is to be made
without such registration or qualification, (a) the Trustee and the Company
shall require the transferee to execute an investment letter, which investment
letter shall not be an expense of the Company, the Servicer or the Trustee and
(b) in the event that such a transfer is not made pursuant to Rule 144A under
the Act, the Trustee shall require an Opinion of Counsel satisfactory to the
Trustee and the Company that such transfer may be made without such registration
or qualification, which Opinion of Counsel shall not be an expense of the
Company, the Trustee or the Servicer. Neither the Company nor the Trustee is
obligated to register or qualify any of the Class [R] Certificates under the
1933 Act or any other securities law or to take any action not otherwise
required under the Agreement to permit the transfer of such Certificates without
registration or qualification. Any such Certificateholder desiring to effect
such transfer shall, and does hereby agree to, indemnify the Trustee, the
Company 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.
Notwithstanding the above, the final distribution on this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this Certificate at the office or
agency appointed by the Trustee for that purpose. The Percentage Interest this
Certificate is set forth above. Notwithstanding the fact this Certificate has no
Certificate Principal Balance, this Certificate will remain outstanding under
the Agreement and the Holder hereof may have additional obligations with respect
to this Certificate, including tax liabilities, and may be entitled to certain
additional distributions hereon, in accordance with the terms and provisions of
the Agreement.
This Certificate is one of a duly authorized issue of
Certificates issued in ____ Classes designated as Asset Backed Certificates of
the Series specified hereon (herein collectively called the "Certificates").
The Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. In the event that Master
Servicer funds are advanced with respect to any Mortgage Loan, such advance is
reimbursable to the Master Servicer, to the extent provided in the Agreement,
from related recoveries on such Mortgage Loan or from other cash that would have
been distributable to Certificateholders.
As provided in the Agreement, withdrawals from the Collection
Account and/or the Certificate Account created for the benefit of
Certificateholders may be made by the Servicer from time to time for purposes
other than distributions to Certificateholders, such purposes including without
limitation reimbursement to the Company and the Servicer of advances made, or
certain expenses incurred, by either of them.
The Agreement permits, with certain exceptions therein
provided, the amendment of the Agreement and the modification of the rights and
obligations of the Company, the Servicer and the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Company, the Servicer
and the Trustee with the consent of the Certificate Insurer and the Majority
Certificateholders. Any such consent by the Holder of this Certificate shall be
conclusive and binding on such Holder and upon all future holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon the Certificate. The Agreement also permits the amendment thereof in
certain circumstances without the consent of the Holders of any of the
Certificates and, in certain additional circumstances, without the consent of
the Holders of certain Classes of Certificates.
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies appointed by the Trustee in the City and
State of New York, duly endorsed by, or accompanied by an assignment in the form
below or other written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the Holder hereof or such
Holder's attorney duly
4
<PAGE> 90
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same Class and aggregate Percentage Interest will
be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Classes and in denominations specified in the Agreement. As
provided in the Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of authorized denominations
evidencing the same Class and aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Servicer, the Trustee and the Certificate
Registrar and any agent of the Company, the Servicer, the Trustee or the
Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Company, the
Master Servicer, the Trustee nor any such agent shall be affected by notice to
the contrary.
This Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
The obligations created by the Agreement in respect of the
Certificates and the Trust Fund created thereby shall terminate upon the payment
to Certificateholders of all amounts held by or on behalf of the Trustee and
required to be paid to them pursuant to the Agreement following the earlier of
(i) the maturity or other liquidation of the last Mortgage Loan subject thereto
or the disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan and (ii) the purchase by the Servicer from the
Trust Fund of all remaining Mortgage Loans, thereby effecting early retirement
of the Class R Certificates. The Agreement permits, but does not require, such
Class R Certificateholder, the Servicer or the Certificate Insurer, as
applicable, to purchase at a price determined as provided in the Agreement all
remaining Mortgage Loans; provided, that any such option may only be exercised
if the Pool Principal Balance as of the Distribution Date upon which the
proceeds of any such purchase are distributed is less than 10% of the Original
Pool Principal Balance.
Unless the certificate of authentication hereon has been
executed by the Certificate Registrar, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be valid for any
purpose.
5
<PAGE> 91
IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed.
Dated:____, 1996
--------------------------------------------,
as Trustee
By:
------------------------------------------
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Class [R] Certificates referred to in the
within-mentioned Agreement.
---------------------------------------------
as Certificate Registrar
By:
------------------------------------------
Authorized Signatory
6
<PAGE> 92
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto __________________________________________________________
_______________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and
Taxpayer Identification Number of assignee)
a Percentage Interest equal to ____% evidenced by the within
Asset Backed Certificate and hereby authorize(s) the registration of transfer of
such interest to assignee on the Certificate Register of the Trust Fund.
I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address:__________________________
_______________________________________________________________________________.
Dated:
---------------------------------------------
Signature by or on behalf of assignor
---------------------------------------------
Signature Guaranteed
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of
distribution:
Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________________________
_____________________________________________________________for the account of
_______________________________________________________________________________
_______________________________________________account number ________________,
or, if mailed by check, to ___________________________________________________.
Applicable statements should be mailed to _____________________________________.
This information is provided by _____________________, the assignee named above,
or _____________________________, as its agent.
<PAGE> 93
EXHIBIT C
Mortgage File
With respect to each Mortgage Loan, the Mortgage File shall
include each of the following items (copies to the extent the originals have
been delivered to the Trustee pursuant to Section 2.03 of the Agreement), all of
which shall be available for inspection by the Certificateholders, to the extent
required by applicable laws:
a. The original Mortgage Note bearing all intervening
endorsements showing a complete chain of endorsement, from the
originator of such Mortgage Loan to the Seller, endorsed by
the Seller without recourse in blank and signed in the name of
the Seller by an authorized officer;
b. The original Mortgage and any related power of attorney with
evidence of recording thereon;
c. An original assignment of the original Mortgage, in suitable
form for recordation in the jurisdiction in which the
Mortgaged Property is located, such assignment to be in blank
and signed in the name of the Seller by an authorized officer;
d. The original of all intervening assignments of the Mortgage
showing a complete chain of assignments from the originator of
such Mortgage Loan to the Seller with evidence of recording
indicated thereon;
e. Any assumption, modification (with evidence of recording
thereon), consolidation or extension agreements; and
f. The original policy of title insurance (or a commitment for
title insurance is being held by the title insurance company
pending recordation of the Mortgage) and the certificate of
primary mortgage guaranty insurance, if any, issued with
respect to the Mortgage Loan.
<PAGE> 94
EXHIBIT D
Mortgage Loan Schedule
<PAGE> 95
EXHIBIT E
TRUSTEE'S ACKNOWLEDGMENT OF RECEIPT
, 199
----------- --
NationsBanc Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, NC 28255
[Servicer]
[Certificate Issuer]
Re: Pooling and Servicing Agreement, dated as of _______,
199__ among NationsBanc Asset Securities Inc., as
Company, ______________________, as Servicer, and
______________________, as Trustee, Asset Backed
Certificates, Series 199__-__,
Ladies and Gentlemen:
In accordance with Section 2.04 of the above-captioned Pooling
and Servicing Agreement, the undersigned, as Trustee, hereby certifies: (1)
except as noted on the attachment hereto, if any (the "Loan Exception Report"),
it has received the original Mortgage Note (item (i) in Section 2.03(a)) with
respect to each Mortgage Loan listed in the Mortgage Loan Schedule and the
documents contained therein appear to bear original signatures or copies of
originals if the originals have not yet been delivered, and (2) it has received
the Certificate Insurance Policy.
The Trustee has made no independent examination of any such
documents beyond the review specifically required in the above-referenced
Pooling and Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any such
documents or any of the Mortgage Loans identified on the Mortgage Loan Schedule,
or (ii) the collectability, insurability, effectiveness or suitability of any
such Mortgage Loan.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement.
-------------------------------------------
as Trustee
By:
----------------------------------------
Name:
Title:
<PAGE> 96
EXHIBIT F
INITIAL CERTIFICATION OF TRUSTEE
______________, 199__
NationsBanc Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, NC 28255
[Servicer]
[Certificate Issuer]
Re: Pooling and Servicing Agreement, dated as of _______,
199__ among NationsBanc Asset Securities Inc., as
Company, ______________________, as Servicer, and
______________________, as Trustee, Asset Backed
Certificates, Series 199__-__,
Ladies and Gentlemen:
In accordance with the provisions of Section 2.04 of the
above-referenced Pooling and Servicing Agreement, the undersigned, as Trustee,
hereby certifies that as to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan listed
on the attachment hereto), it has reviewed the documents delivered to it
pursuant to Section 2.03 of the Pooling and Servicing Agreement and has
determined that (i) all documents required to be delivered to it pursuant to the
above-referenced Pooling and Servicing Agreement are in its possession, (ii)
such documents have been reviewed by it and appear regular on their face and
have not been mutilated, damaged, torn or otherwise physically altered and
relate to such Mortgage Loan, (iii) based on its examination and only as to the
foregoing documents, the information set forth in the Mortgage Loan Schedule
(described in items (i), (ii), (v), (vi), (x), (xi) and (xiii) of the definition
of Mortgage Loan Schedule) respecting such Mortgage Loan accurately reflects the
information set forth in the Trustee's Mortgage File and (iv) each Mortgage Note
has been endorsed as provided in Section 2.03 of the Pooling and Servicing
Agreement. The Trustee has made no independent examination of such documents
beyond the review specifically required in the above-referenced Pooling and
Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, enforceability or genuineness of any such documents
contained in each or any of the Mortgage Loans identified on the Mortgage Loan
Schedule, or (ii) the collectability, insurability, effectiveness or suitability
of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement.
-------------------------------------------
as Trustee
By:
----------------------------------------
Name:
Title:
<PAGE> 97
EXHIBIT G
FINAL CERTIFICATION OF THE TRUSTEE
______________, 199__
NationsBanc Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, NC 28255
[Servicer]
[Certificate Issuer]
Re: Pooling and Servicing Agreement, dated as of _______,
199__ among NationsBanc Asset Securities Inc., as
Company, ______________________, as Servicer, and
______________________, as Trustee, Asset Backed
Certificates, Series 199__-__,
Ladies and Gentlemen:
In accordance with Section 2.04 of the above-captioned Pooling
and Servicing Agreement, the undersigned, as Trustee, hereby certifies that,
except as noted on the attachment hereto, as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on
the attachment hereto) it has reviewed the documents delivered to it pursuant to
Section 2.03 of the Pooling and Servicing Agreement and has determined that (i)
all documents required to be delivered to it pursuant to the above-referenced
Pooling and Servicing Agreement are in its possession, (ii) such documents have
been reviewed by it and appear regular on their face and have not been
mutilated, damaged, torn or otherwise physically altered and relate to such
Mortgage Loan, and (iii) based on its examination, and only as to the foregoing
documents, the information set forth in the Mortgage Loan Schedule (described in
items (i), (ii), (v), (vi), (x), (xi) and (xiii) of the definition of Mortgage
Loan Schedule) respecting such Mortgage Loan accurately reflects the information
set forth in the Trustee's Mortgage File. The Trustee has made no independent
examination of such documents beyond the review specifically required in the
above-referenced Pooling and Servicing Agreement. The Trustee makes no
representations as to: (i) the validity, legality, enforceability or genuineness
of any such documents contained in each or any of the Mortgage Loans identified
on the Mortgage Loan Schedule, or (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement.
-------------------------------------------
as Trustee
By:
----------------------------------------
Name:
Title:
<PAGE> 98
EXHIBIT H
REQUEST FOR RELEASE OF DOCUMENTS
______________, 199____
To: [Trustee]
Re: NationsBanc Asset Securities, Inc., Asset Backed
Certificates, series 199__-__
In connection with the administration of the pool of Mortgage
Loans held by you as Trustee for the Certificateholders, we request the release,
and acknowledge receipt, of the (Trustee's Mortgage File/[specify document]) for
the Mortgage Loan described below, for the reason indicated.
MORTGAGOR'S NAME, ADDRESS & ZIP CODE:
- -----------------------------
MORTGAGE LOAN NUMBER:
- -----------------------------
REASON FOR REQUESTING DOCUMENTS (check one)
<TABLE>
<S> <C> <C>
_____ 1. Mortgage Loan Paid in Full (Servicer hereby certifies that all amounts received in
connection therewith have been credited to the Collection Account.)
_____ 2. Mortgage Loan Liquidated (Servicer hereby certifies that all proceeds of foreclosure,
insurance or other liquidation have been finally received and credited to the
Collection Account.)
_____ 3. Mortgage Loan in Foreclosure _____ 4. Mortgage Loan Repurchased Pursuant to Section
5.18 of the Pooling and Servicing Agreement.
_____ 5. Mortgage Loan Repurchased or Substituted pursuant to Article II or III of the Pooling
and Servicing Agreement (Servicer hereby certifies that the repurchase price or
Substitution Adjustment has been credited to the Certificate Account and that the
substituted mortgage loan is a Qualified Substitute Mortgage Loan.)
_____ 6. Other
(explain)_________________________________________
</TABLE>
If box 1 or 2 above is checked, and if all or part of the
Trustee's Mortgage File was previously released to us, please release to us our
previous receipt on file with you, as well as any additional documents in your
possession relating to the above specified Mortgage Loan.
If box 3, 4, 5 or 6 above is checked, upon our return of all
of the above documents to you as Trustee, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
<PAGE> 99
By:
--------------------------------------
Name:
Title:
Documents returned to Trustee:
- ---------------------------------------
Trustee
- ---------------------------------------
By:
- ---------------------------------------
Date:
2
<PAGE> 100
EXHIBIT I
FORM OF TRANSFER AFFIDAVIT AND AGREEMENT
State of ___________ )
) ss.:
County of __________ )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Owner] (record or
beneficial owner of the Asset Backed Certificates, Series 199__-__, Class R (the
"Owner")), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of __________________] [the United States], on
behalf of which he makes this affidavit and agreement.
2. That the Owner (i) is not and will not be a "disqualified
organization" as of [date of transfer] within the meaning of Section 860E(e)(5)
of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) will
endeavor to remain other than a disqualified organization for so long as it
retains its ownership interest in the Class R Certificates, and (iii) is
acquiring the Class R Certificates for its own account or for the account of
another Owner from which it has received an affidavit and agreement in
substantially the same form as this affidavit and agreement. (For this purpose,
a "disqualified organization" means the United States, any state or political
subdivision thereof, any agency or instrumentality of any of the foregoing
(other than an instrumentality all of the activities of which are subject to tax
and, except for the Federal Home Loan Mortgage Corporation, a majority of whose
board of directors is not selected by any such governmental entity) or any
foreign government, international organization or any agency or instrumentality
of such foreign government or organization, any rural electric or telephone
cooperative, or any organization (other than certain farmers' cooperatives) that
is generally exempt from federal income tax unless such organization is subject
to the tax on unrelated business taxable income).
3. That the Owner is aware (i) of the tax that would be
imposed on transfers of Class R Certificates to disqualified organizations under
the Code, that applies to all transfers of Class R Certificates after March 31,
1988; (ii) that such tax would be on the transferor, or, if such transfer is
through an agent (which person includes a broker, nominee or middleman) for a
disqualified organization, on the agent; (iii) that the person otherwise liable
for the tax shall be relieved of liability for the tax if the transferee
furnishes to such person an affidavit that the transferee is not a disqualified
organization and, at the time of transfer, such person does not have actual
knowledge that the affidavit is false; and (iv) that the Class [R] Certificates
may be "noneconomic residual interests" within the meaning of Treasury
regulations promulgated pursuant to the Code and that the transferor of a
noneconomic residual interest will remain liable for any taxes due with respect
to the income on such residual interest, unless no significant purpose of the
transfer was to impede the assessment or collection of tax.
4. That the Owner is aware that the Trustee will not register
the transfer of any Class R Certificates unless the transferee, or the
transferee's agent, delivers to it an affidavit and agreement, among other
things, in substantially the same form as this affidavit and agreement. The
Owner expressly agrees that it will not consummate any such transfer if it knows
or believes that any of the representations contained in such affidavit and
agreement are false.
5. That the Owner has reviewed the restrictions set forth on
the face of the Class R Certificates and the provisions of Section 4.02(i) of
the Pooling and Servicing Agreement under which the Class R Certificates were
issued (in particular, clause (g) and (h) of Section 4.02(i) which authorize the
Trustee to deliver payments to a person other than the Owner in the event the
Owner holds such Certificates in violation of Section 4.02(i)). The Owner
expressly agrees to be bound by and to comply with such restrictions and
provisions.
6. That the Owner consents to any additional restrictions or
arrangements that shall be deemed necessary upon advice of counsel to constitute
a reasonable arrangement to ensure that the Class R Certificates will only be
owned, directly or indirectly, by an Owner that is not a disqualified
organization.
<PAGE> 101
7. The Owner's Taxpayer Identification Number is ___________.
8. This affidavit and agreement relates only to the Class R
Certificates held by the Owner and not to any other holder of the Class R
Certificates. The Owner understands that the liabilities described herein relate
only to the Class R Certificates.
9. That no purpose of the Owner relating to the transfer of
any of the Class R Certificates by the Owner is or will be to impede the
assessment or collection of any tax.
10. That the Owner has no present knowledge or expectation
that it will be unable to pay any United States taxes owed by it so long as any
of the Certificates remain outstanding. In this regard, the Owner hereby
represents to and for the benefit of the person from whom it acquired the Class
R Certificate that the Owner intends to pay taxes associated with holding such
Class R Certificate as they become due, fully understanding that it may incur
tax liabilities in excess of any cash flows generated by the Class R
Certificate.
11. That the Owner has no present knowledge or expectation
that it will become insolvent or subject to a bankruptcy proceeding for so long
as any of the Class R Certificates remain outstanding.
12. The Owner is 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 is subject to United States federal income tax regardless of its
source, or a trust if a court within the United States is able to exercise
primary jurisdiction over the administration of such trust and one or more
persons described in this Paragraph 12 controls all substantial decisions of
such trust.
2
<PAGE> 102
IN WITNESS WHEREOF, the Owner has caused this instrument to be
executed on its behalf, pursuant to the authority of its Board of Directors, by
its [Title of Officer] and its corporate seal to be hereunto attached, attested
by its [Assistant] Secretary, this ____ day of _______________, 199__.
[NAME OF OWNER]
By:
------------------------
[Name of Officer]
[Title of Officer]
[Corporate Seal]
ATTEST:
- -----------------------------
[Assistant] Secretary
Personally appeared before me the above-named [Name of
Officer], known or proved to me to be the same person who executed the foregoing
instrument and to be the [Title of Officer] of the Owner, and acknowledged to me
that he executed the same as his free act and deed and the free act and deed of
the Owner.
Subscribed and sworn before me this ____ day of
________________, 199__.
---------------------------------
NOTARY PUBLIC
COUNTY OF
------------------------
STATE OF
-------------------------
My Commission expires the
____ day of ______________, 19__.
3
<PAGE> 103
EXHIBIT J
FORM OF TRANSFEROR CERTIFICATE
______________, 19__
NationsBanc Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, NC 28255
[Trustee]
Attention: NationsBanc Asset Securities, Inc. Series 199__-__
Re: ASSET BACKED CERTIFICATES, SERIES 199__-__
Ladies and Gentlemen:
This letter is delivered to you in connection with the
transfer by _______________________________ (the "Seller") to
_______________________________ (the "Purchaser") of a ____% Percentage
Interests of Asset Backed Certificates, Series 199__-__, Class R Certificates
(the "Certificates"), pursuant to Section 4.02 of the Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement"), dated as of __________,
199__, among NationsBanc Asset Securities, Inc., as seller (the "Company"),
______________________, as Servicer, and ______________________, as trustee (the
"Trustee"). All terms used herein and not otherwise defined shall have the
meanings set forth in the Pooling and Servicing Agreement. The Seller hereby
certifies, represents and warrants to, and covenants with, the Company and the
Trustee that:
1. No purpose of the Seller relating to the transfer of the
Certificates by the Seller to the Purchaser is or will be to impede the
assessment or collection of any tax.
2. The Seller understands that the Purchaser has delivered to
the Trustee and the Servicer a transfer affidavit and agreement in the form
attached to the Pooling and Servicing Agreement as Exhibit I. The Seller does
not know or believe that any representation contained therein is false.
3. The Seller has at the time of the transfer conducted a
reasonable investigation of the financial condition of the Purchaser as
contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result
of that investigation, the Seller has determined that the Purchaser has
historically paid its debts as they become due and has found no significant
evidence to indicate that the Purchaser will not continue to pay its debts as
they become due in the future. The Seller understands that the transfer of a
Class R Certificate may not be respected for United States income tax purposes
(and the Seller may continue to be liable for United States income taxes
associated therewith) unless the Seller has conducted such an investigation.
4. The Seller has no actual knowledge that the proposed
Purchaser is not both a United States Person and a Permitted Transferee.
Very truly yours,
--------------------------------------------
(Seller)
By:
-----------------------------------------
Name:
Title:
<PAGE> 104
EXHIBIT K
____________, 1996
[Trustee]
Re: NationsBanc Asset Securities, Inc. Asset Backed
Certificates, Series 199__-__, Class R
This letter is delivered to you in connection with the
transfer by _______________________ (the "Seller") to __________________ (the
"Purchaser") of Asset Backed Certificates Series 199__-__, Class [R] (the
"Certificates"), pursuant to Section 4.02 of the Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement"), dated as of _________, 199__ among
NationsBanc Asset Securities, Inc. as depositor (the "Company"),
_________________________, as Servicer, and ______________________________, as
Trustee (the "Trustee"). All terms used herein and not otherwise defined shall
have the meanings set forth in the Pooling and Servicing Agreement. The
Purchaser hereby certifies, represents and warrants to, and covenants with, the
Company and the Trustee that:
The Purchaser is not an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or other Internal Revenue Code of 1986, as amended
(the "Code"), nor a Person acting directly on behalf of any
such plan.
Very truly yours,
----------------------------------
(Purchaser)
By:
-------------------------------
Name:
Title:
<PAGE> 105
EXHIBIT L
[RESERVED]
<PAGE> 106
EXHIBIT M
CERTIFICATE RE: PREPAID LOANS
I, ______________, ________________ of NationsBanc Asset
Securities, Inc., as Company, hereby certify that between the "Cut-Off Date" (as
defined in the Pooling and Servicing Agreement dated as of ___________, 199__
among NationsBanc Asset Securities, Inc., ___________________________, as
servicer and __________________________, as trustee) and the "Startup Day" the
following schedule of "Mortgage Loans" (each as defined in the Pooling and
Servicing Agreement) have been prepaid in full.
Dated:
By:
----------------------------------
<PAGE> 107
EXHIBIT N
SUBSEQUENT TRANSFER INSTRUMENT
Pursuant to this Subsequent Transfer Instrument (the
"Instrument"), dated ___________, 199__, between NationsBanc Asset Securities,
Inc., as depositor (the "Company"), and ___________________________, as Trustee
of the NationsBanc Asset Securities, Inc. Asset Backed Certificates, Series
199__-__, as purchaser (the "Purchaser"), and pursuant to the Pooling and
Servicing Agreement, dated as of _________, 199__, among the Company,
___________________, as Servicer, and the Trustee (the "Pooling and Servicing
Agreement"), the Company and the Purchaser agree to the sale by the Company and
the purchase by the Purchaser of the Mortgage Loans listed on the attached
Schedule of Mortgage Loans (the "Subsequent Mortgage Loans").
Capitalized terms used and not defined herein have their
respective meanings as set forth in the Pooling and Servicing Agreement.
Section 1. CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS.
(a) The Company does hereby sell, transfer, assign, set over
and convey to the Purchaser, without recourse, all of its right, title and
interest in and to the Subsequent Mortgage Loans, and including all principal
received and interest accruing on the Subsequent Mortgage Loans on and after the
related Subsequent Cut-Off Date, and all items with respect to the Subsequent
Mortgage Loans to be delivered pursuant to Section 2.03 of the Pooling and
Servicing Agreement; provided, however, that the Company reserves and retains
all right, title and interest in and to principal (including Prepayments and
Curtailments) received and interest accruing on the Subsequent Mortgage Loans
prior to the related Subsequent Cut-off Date. The Company, contemporaneously
with the delivery of this Agreement, has delivered or caused to be delivered to
the Trustee each item set forth in Section 2.03 of the Pooling and Servicing
Agreement. The transfer to the Trustee by the Company of the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule shall be absolute and is intended
by the Company, the Master Servicer, the Trustee and the Certificateholders to
constitute and to be treated as a sale by the Company.
(b) The expenses and costs relating to the delivery of the
Subsequent Mortgage Loans, this Instrument and the Pooling and Servicing
Agreement shall be borne by the Company.
(c) Additional terms of the sale are set forth on Attachment A
hereto.
Section 2. REPRESENTATIONS AND WARRANTIES; CONDITIONS
PRECEDENT.
(a) The Company hereby affirms the representations and
warranties set forth in Section 3.03 of the Pooling and Servicing Agreement that
relate to the Subsequent Mortgage Loans as of the date hereof. The Company
hereby confirms that each of the conditions set forth in Section 2.08(b) of the
Pooling and Servicing Agreement are satisfied as of the date hereof.
(b) All terms and conditions of the Pooling and Servicing
Agreement are hereby ratified and confirmed; provided, however, that in the
event of any conflict the provisions of this Instrument shall control over the
conflicting provisions of the Pooling and Servicing Agreement.
Section 3. RECORDATION OF INSTRUMENT.
To the extent permitted by applicable law, this Instrument, or
a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of 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 the Certificateholders' expense on direction of the Majority
Certificateholders, but only when accompanied by an Opinion of Counsel to the
effect that such recordation materially and beneficially affects the interests
of the Certificateholders or is necessary for the administration or servicing of
the Mortgage Loans.
<PAGE> 108
Section 4. GOVERNING LAW.
This Instrument shall be construed in accordance with the laws
of the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws, without giving
effect to principles of conflicts of law.
Section 5. COUNTERPARTS.
This Instrument may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same instrument.
Section 6. SUCCESSORS AND ASSIGNS.
This Instrument shall inure to the benefit of and be binding
upon the Company and the Purchaser and their respective successors and assigns.
NATIONSBANC ASSET SECURITIES, INC.
By:
---------------------------------------------
Name:
Title:
NATIONSBANC ASSET SECURITIES, INC., ASSET BACKED
CERTIFICATES, SERIES 199__-__
By:
--------------------------------------------
as Trustee
By:
--------------------------------------------
Name:
Title:
ATTACHMENTS
A. Additional terms of the sale.
B. Schedule of Subsequent Mortgage Loans.
C. Opinions of Company's counsel (bankruptcy, corporate).
D. Company's Officer's certificate.
E. Trustee's Certificate.
F. Opinion of Trustee's Counsel.
2
<PAGE> 109
NATIONSBANC ASSET SECURITIES, INC.,
ASSET BACKED CERTIFICATES, SERIES 199__-__
ATTACHMENT A TO SUBSEQUENT TRANSFER INSTRUMENT
Series 199__-__
________, 199__
A.
1. Subsequent Cut-off Date:
1. Pricing Date:
2. Subsequent Transfer Date:
3. Aggregate Principal Balance of the Subsequent Mortgage Loans
as of the Subsequent Cut-off Date:
4. Purchase Price: 100.00%
B.
As to all the Subsequent Mortgage Loans the subject of this Instrument:
1. Longest stated term to maturity: _____ months
2. Minimum Mortgage Rate: _____ %
3. Maximum Mortgage Rate: _____ %
4. WAC of all Mortgage Loans: _____ %
5. WAM of all Mortgage Loans: _____ %
6. Balloon Loans: _____ %
7. Largest Principal Balance: $______
8. Non-owner occupied Mortgaged Properties: _____ %
9. California zip code concentration: _____ %
10. Condominiums: _____ %
11. Single-family: _____ %
12. Weighted average term since origination:
13. [199__] first payment date: _____ %
<PAGE> 110
EXHIBIT O
FORM OF INVESTOR REPRESENTATION LETTER
______________, 1996
[Trustee]
Re: NationsBanc Asset Securities, Inc. Asset Backed
Certificates, Series 199__-__
Ladies and Gentlemen:
_______________________(the "Purchaser") intends to purchase
from ____________________ (the "Seller"), a ____% Percentage Interest of Asset
Backed Certificates, Series 199__-__, Class _____ (the "Certificates"), issued
pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as of ____________, 199__ among NationsBanc Asset Securities,
Inc., as depositor (the "Company"), ______________________________, as servicer,
and _________________________, as trustee (the "Trustee"). All terms used herein
and not otherwise defined shall have the meanings set forth in the Pooling and
Servicing Agreement. The Purchaser hereby certifies, represents and warrants to,
and covenants with, the Company and the Trustee that:
1. The Purchaser understands that (a) the Certificates have
not been and will not be registered or qualified under the Securities
Act of 1933, as amended (the "Act") or any state securities law, (b)
the Company is not required to so register or qualify the Certificates,
(c) the Certificates may be resold only if registered and qualified
pursuant to the provisions of the Act or any state securities law, or
if an exemption from such registration and qualification is available,
(d) the Pooling and Servicing Agreement contains restrictions regarding
the transfer of the Certificates and (e) the Certificates will bear a
legend to the foregoing effect.
2. The Purchaser is acquiring the Certificates for its own
account for investment only and not with a view to or for sale in
connection with any distribution thereof in any manner that would
violate the Act or any applicable state securities laws.
3. The Purchaser is (a) a substantial, sophisticated
institutional investor having such knowledge and experience in
financial and business matters, and, in particular, in such matters
related to securities similar to the Certificates, such that it is
capable of evaluating the merits and risks of investment in the
Certificates, (b) able to bear the economic risks of such an investment
and (c) an "accredited investor" within the meaning of Rule 501(a)
promulgated pursuant to the Act.
4. The Purchaser has been furnished with, and has had an
opportunity to review a copy of the Pooling and Servicing Agreement and
such other information concerning the Certificates, the Mortgage Loans
and the Company as has been requested by the Purchaser from the Company
or the Seller and is relevant to the Purchaser's decision to purchase
the Certificates. The Purchaser has had any questions arising from such
review answered by the Company or the Seller to the satisfaction of the
Purchaser. If the Purchaser did not purchase the Certificates from the
Seller in connection with the initial distribution of the Certificates
and was provided with a copy of the Private Placement Memorandum (the
"Memorandum") relating to the original sale (the "Original Sale") of
the Certificates by the Company, the Purchaser acknowledges that such
Memorandum was provided to it by the Seller, that the Memorandum was
prepared by the Company solely for use in connection with the Original
Sale and the Company did not participate in or facilitate in any way
the purchase of the Certificates by the Purchaser from the Seller, and
the Purchaser agrees that it will look solely to the Seller and not to
the Company with respect to any damage, liability, claim or expense
arising out of, resulting from or in connection with (a) error or
omission, or alleged error or omission, contained in the
<PAGE> 111
Memorandum, or (b) any information, development or event arising after
the date of the Memorandum.
5. The Purchaser has not and will not nor has it authorized or
will it authorize any person to (a) offer, pledge, sell, dispose of or
otherwise transfer any Certificate, any interest in any Certificate or
any other similar security to any person in any manner, (b) solicit any
offer to buy or to accept a pledge, disposition of other transfer of
any Certificate, any interest in any Certificate or any other similar
security from any person in any manner, (c) otherwise approach or
negotiate with respect to any Certificate, any interest in any
Certificate or any other similar security with any person in any
manner, (d) make any general solicitation by means of general
advertising or in any other manner or (e) take any other action, that
(as to any of (a) through (e) above) would constitute a distribution of
any Certificate under the Act, that would render the disposition of any
Certificate a violation of Section 5 of the Act or any state securities
law, or that would require registration or qualification pursuant
thereto. The Purchaser will not sell or otherwise transfer any of the
Certificates, except in compliance with the provisions of the Pooling
and Servicing Agreement.
6. The Purchaser is not any employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Internal Revenue Code of 1986, (the "Code"), nor a
Person acting, directly or indirectly, on behalf of any such plan, and
understands that registration of transfer of any Certificate to any
such employee benefit plan, or to any person acting on behalf of such
plan, will not be made unless such employee benefit plan delivers an
opinion of its counsel, addressed and satisfactory to the Trustee, the
Company and the Master Servicer, to the effect that the purchase and
holding of a Certificate by or on behalf of such employee benefit plan
would not result in the assets of the Trust Estate being deemed to be
"plan assets" and subject to the fiduciary responsibility provisions of
ERISA or the prohibited transaction provisions of the Code (or
comparable provisions of any subsequent enactments), would not
constitute or result in a prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code, and would not subject the Company,
the Servicer or the Trustee to any obligation or liability (including
liabilities under ERISA or Section 4975 of the Code) in addition to
those undertaken in the Pooling and Servicing Agreement or any other
liability. The Purchaser understands that under current law such an
opinion cannot be rendered.
Very truly yours,
By:
---------------------------------------
Name:
Title:
2
<PAGE> 112
EXHIBIT P
Form of Transferor Representation Letter
______________, 199 ___
[Trustee]
Re: NationsBanc Asset Securities, Inc., Asset Backed
Certificates, Series 199__-__
Ladies and Gentlemen:
In connection with the sale by _____________ (the "Seller") to
__________________ (the "Purchaser") of $___________ Initial Certificate
Principal Balance of Asset Backed Certificates, Series 199__-__, Class ___ (the
"Certificates"), issued pursuant to the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as of __________, 199__ among
NationsBanc Asset Securities, Inc., as company (the "Company"),
_________________________, as servicer, and ______________________________, as
trustee (the "Trustee"). The Seller hereby certifies, represents and warrants
to, and covenants with, the Company and the Trustee that:
Neither the Seller nor anyone acting on its behalf has (a)
offered, pledged, sold, disposed of or otherwise transferred any Certificate,
any interest in any Certificate or any other similar security to any person in
any manner, (b) has solicited any offer to buy or to accept a pledge,
disposition or other transfer of any Certificate, any interest in any
Certificate or any other similar security from any person in any manner, (c) has
otherwise approached or negotiated with respect to any Certificate, any interest
in any Certificate or any other similar security with any person in any manner,
(d) has made any general solicitation by means of general advertising or in any
other manner, or (e) has taken any other action, that (as to any of (a) through
(e) above) would constitute a distribution of the Certificates under the
Securities Act of 1933 (the "Act"), that would render the disposition of any
Certificate a violation of Section 5 of the Act or any state securities law, or
that would require registration or qualification pursuant thereto. The Seller
will not act in any manner set forth in the foregoing sentence with respect to
any Certificate. The Seller has not and will not sell or otherwise transfer any
of the Certificates, except in compliance with the provisions of the Pooling and
Servicing Agreement.
Very truly yours,
-------------------------------------
(Seller)
By:
----------------------------------
Name:
Title:
<PAGE> 113
EXHIBIT Q
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
NationsBanc Asset Securities, Inc.
Asset Backed Certificates
Series 199__-__, Class ___, No. ___
The undersigned seller, as registered holder (the
"Transferor"), intends to transfer the Rule 144A Securities described above to
the undersigned buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the
Transferor hereby certifies the following facts: Neither the Transferor nor
anyone acting on its behalf has offered, transferred, pledged, sold or otherwise
disposed of the Rule 144A Securities, any interest in the Rule 144A Securities
or any other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, or otherwise
approached or negotiated with respect to the Rule 144A Securities, any interest
in the Rule 144A Securities or any other similar security with, any person in
any manner, or made any general solicitation by means of general advertising or
in any other manner, or taken any other action, which would constitute a
distribution of the Rule 144A Securities under the Securities Act of 1933, as
amended (the "1933 Act"), or which would render the disposition of the Rule 144A
Securities a violation of Section 5 of the 1933 Act or require registration
pursuant thereto, and that the Transferor has not offered the Rule 144A
Securities to any person other than the Buyer or another "qualified
institutional buyer" as defined in Rule 144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Transferor, the Trustee and the Servicer pursuant to Section 5.02 of the
Pooling and Servicing Agreement as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Transferor, the Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act. The Buyer is
aware that the sale to it is being made in reliance on Rule 144A. The
Buyer is acquiring the Rule 144A Securities for its own account or the
account of other qualified institutional buyers, understands that such
Rule 144A Securities may be resold, pledged or transferred only (i) to
a person reasonably believed to be a qualified institutional buyer that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale,
<PAGE> 114
pledge or transfer is being made in reliance on Rule 144A, or (ii)
pursuant to another exemption from registration under the 1933 Act.
3. The Buyer warrants and represents to, and covenants with,
the Transferor, the Servicer and the Company that either (1) the Buyer is not an
employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("Plan"), or a plan
within the meaning of Section 4975(e)(1) of the Internal Revenue Code of 1986
(the "Code") (also a "Plan"), and the Buyer is not directly or indirectly
purchasing the Rule 144A Securities on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with assets of a Plan, or (2) the Buyer's
purchase of the Rule 144A Securities will not result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code.
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
2
<PAGE> 115
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
<TABLE>
<S> <C>
- ------------------------------------------------- -------------------------------------------------
Print Name of Transferor Print Name of Buyer
By: By:
---------------------------------------------- ----------------------------------------------
Name: Name:
Title Title
Taxpayer Identification: Taxpayer Identification:
No. No.
--------------------------------------------- ---------------------------------------------
Date: Date:
-------------------------------------------- --------------------------------------------
</TABLE>
3
<PAGE> 116
EXHIBIT R
PREMIUM EXHIBIT
For the purposes of the Pooling and Servicing Agreement dated
as of ___________, 199__ (the "Agreement") by and among NationsBanc Asset
Securities, Inc., as company, _______________________________, as servicer, and
__________________________________ as trustee, "Premium Percentage" means, with
respect to any Mortgage Loan, ____%
Terms used in this exhibit and not defined in this exhibit
have the meanings ascribed thereto in the Agreement.
<PAGE> 1
EXHIBIT 4.2
================================================================================
[TRUST]
Issuer
and
--------------
Trustee
INDENTURE
Dated __________, 199_
Relating to
Asset Backed Notes
Series 199_-__
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRELIMINARY STATEMENT.............................................................................................1
GRANTING CLAUSES..................................................................................................1
ARTICLE I
DEFINITIONS
SECTION 1.01. General Definitions...............................................................................1
ARTICLE II
THE NOTES
SECTION 2.01. Forms Generally...................................................................................1
SECTION 2.02. Forms of Notes and Certificate of Authentication..................................................1
SECTION 2.03. Notes; General Provisions with Respect to Principal and Interest Payments.........................1
SECTION 2.04. Denominations.....................................................................................2
SECTION 2.05. Execution, Authentication, Delivery and Dating....................................................2
SECTION 2.06. Temporary Notes...................................................................................3
SECTION 2.07. Registration, Registration of Transfer and Exchange...............................................3
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Notes........................................................5
SECTION 2.09. Payments of Principal and Interest................................................................6
SECTION 2.10. Persons Deemed Owners.............................................................................8
SECTION 2.11. Cancellation......................................................................................8
SECTION 2.12. Authentication and Delivery of Notes..............................................................8
ARTICLE III
COVENANTS; REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Payment of Notes..................................................................................1
SECTION 3.02. Maintenance of Office or Agency...................................................................1
SECTION 3.03. Money for Note Payments to Be Held in Trust.......................................................1
SECTION 3.04. Existence of Issuer...............................................................................3
SECTION 3.05. Protection of Trust Fund..........................................................................3
SECTION 3.06. Opinions as to Trust Fund.........................................................................4
SECTION 3.07. Performance of Obligations; Servicing Agreement...................................................5
SECTION 3.08. Negative Covenants................................................................................6
SECTION 3.09. Annual Statement as to Compliance.................................................................7
SECTION 3.10. Recording of Assignments..........................................................................7
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.11. Representations and Warranties Concerning the Accounts............................................7
SECTION 3.12. Trustee's Review of Account Documents............................................................10
SECTION 3.13. Trust Fund; Account Documents....................................................................12
SECTION 3.14. Amendments to Servicing Agreement................................................................13
SECTION 3.15. Servicer as Agent and Bailee of Trustee..........................................................13
SECTION 3.16. Investment Company Act...........................................................................14
SECTION 3.17. Business Activity................................................................................14
SECTION 3.18. Liability of Owner Trustee.......................................................................15
SECTION 3.19. Exculpation of the Trustee.......................................................................15
SECTION 3.20. Owner Trustee Agrees Not to File for Bankruptcy of the Issuer....................................15
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture...........................................................1
SECTION 4.02. Application of Trust Money........................................................................2
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01. Event of Default..................................................................................1
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment................................................2
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee...................................3
SECTION 5.04. Remedies..........................................................................................5
SECTION 5.05. Preservation of Trust Fund........................................................................5
SECTION 5.06. Trustee May File Proofs of Claim..................................................................6
SECTION 5.07. Trustee May Enforce Claims Without Possession of Notes............................................7
SECTION 5.08. Application of Money Collected....................................................................8
SECTION 5.09. Limitation on Suits..............................................................................10
SECTION 5.10. Unconditional Rights of Noteholders to Receive Principal and Interest............................11
SECTION 5.11. Restoration of Rights and Remedies...............................................................11
SECTION 5.12. Rights and Remedies Cumulative...................................................................11
SECTION 5.13. Delay or Omission Not Waiver.....................................................................12
SECTION 5.14. Control by the Noteholders.......................................................................12
SECTION 5.15. Waiver of Past Defaults..........................................................................13
SECTION 5.16. Undertaking for Costs............................................................................13
SECTION 5.17. Waiver of Stay or Extension Laws.................................................................13
SECTION 5.18. Sale of Trust Fund...............................................................................14
SECTION 5.19. Action on Notes..................................................................................16
SECTION 5.20. Allocation of Realized Loss Amount...............................................................16
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Duties of Trustee.................................................................................1
SECTION 6.02. Notice of Default.................................................................................2
SECTION 6.03. Rights of Trustee.................................................................................3
SECTION 6.04. Not Responsible for Recitals or Issuance of Notes.................................................3
SECTION 6.05. May Hold Notes....................................................................................3
SECTION 6.06. Money Held in Trust...............................................................................3
SECTION 6.07. Compensation and Reimbursement....................................................................4
SECTION 6.08. Eligibility; Disqualification.....................................................................5
SECTION 6.09. Trustee's Capital and Surplus.....................................................................5
SECTION 6.10. Resignation and Removal; Appointment of Successor.................................................5
SECTION 6.11. Acceptance of Appointment by Successor............................................................6
SECTION 6.12. Merger; Conversion, Consolidation or Succession to Business of Trustee............................7
SECTION 6.13. Preferential Collection of Claims Against Issuer..................................................7
SECTION 6.14. Co-trustees and Separate Trustees.................................................................7
SECTION 6.15. Authenticating Agents.............................................................................9
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. Issuer to Furnish Trustee Names and Addresses of Noteholders......................................1
SECTION 7.02. Preservation of Information; Communications to Noteholders........................................1
SECTION 7.03. Reports by Trustee................................................................................1
SECTION 7.04. Reports by Issuer.................................................................................2
ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01. Collection of Moneys..............................................................................1
SECTION 8.02. Collection Account................................................................................1
SECTION 8.03. Class A-4 Reserve Account.........................................................................5
SECTION 8.04. General Provisions Regarding the Collection Account...............................................6
SECTION 8.05. Reports by Trustee to Noteholders.................................................................8
SECTION 8.06. Reports by Trustee................................................................................8
SECTION 8.07. Reports by Independent Accountants................................................................8
SECTION 8.08. Reports by the Servicer...........................................................................9
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures without Consent of Noteholders............................................1
SECTION 9.02. Supplemental Indentures with Consent of Noteholders...............................................1
SECTION 9.03. Execution of Supplemental Indentures..............................................................3
SECTION 9.04. Effect of Supplemental Indentures.................................................................3
SECTION 9.05. Conformity with Trust Indenture Act...............................................................3
SECTION 9.06. Reference in Notes to Supplemental Indentures.....................................................3
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Optional Redemption of Notes.....................................................................1
SECTION 10.02. Form of Redemption Notice........................................................................1
SECTION 10.03. Notes Payable on Redemption Date.................................................................2
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Compliance Certificates and Opinions.............................................................1
SECTION 11.02. Form of Documents Delivered to Trustee...........................................................1
SECTION 11.03. Acts of Noteholders..............................................................................2
SECTION 11.04. Notices, etc., to Trustee and Issuer.............................................................3
SECTION 11.05. Notices and Reports to Noteholders; Waiver of Notices............................................4
SECTION 11.06. Rules by Trustee and Agents......................................................................4
SECTION 11.07. Conflict with Trust Indenture Act................................................................4
SECTION 11.08. Effect of Headings and Table of Contents.........................................................4
SECTION 11.09. Successors and Assigns...........................................................................5
SECTION 11.10. Separability.....................................................................................5
SECTION 11.11. Benefits of Indenture............................................................................5
SECTION 11.12. Legal Holidays...................................................................................5
SECTION 11.13. Governing Law....................................................................................5
SECTION 11.14. Counterparts.....................................................................................5
SECTION 11.15. Recording of Indenture...........................................................................5
SECTION 11.16. Issuer Obligations...............................................................................6
SECTION 11.17. Inspection.......................................................................................6
</TABLE>
<PAGE> 6
INDENTURE, dated ________, 199_ (herein, as amended or
supplemented from time to time as permitted hereby, called this "Indenture"),
between [Trust] (the "Issuer"), a ________________ trust and
_____________________, as trustee (herein, together with its permitted
successors in the trusts hereunder, called the "Trustee"").
PRELIMINARY STATEMENT
The Issuer is a business trust created by a Trust Agreement
dated ________ 1, 199_ between ___________________ (in its capacity as Trustee
thereunder, the "Owner Trustee"), and NationsBanc Asset Securities, Inc., as
Grantor. The Issuer will act at all times through the Owner Trustee. The Issuer
has duly authorized the execution and delivery of this Indenture to provide for
the issuance of its ____% Asset Backed Notes, Class A-1 (the "Class A-1 Notes"),
_____% Asset Backed Notes, Class A-2 (the "Class A-2 Notes"), _____%, Asset
Backed Notes, Class A-3 (the "Class A-3 Notes") and _____% Asset Backed Notes,
Class A-4 (the "Class A-4 Notes", and together with the Class A-1 Notes, Class
A-2 Notes and Class A-3 Notes, the "Notes") issuable as provided in this
Indenture. All covenants and agreements made by the Issuer herein are for the
benefit and security of the Holders of the Notes and for the benefit and
security of the Trustee in its individual capacity, to the extent of its
interest. The Issuer is entering into this Indenture, and the Trustee is
accepting the trusts created hereby, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged.
All things necessary to make this Indenture a valid agreement
of the Issuer in accordance with its terms have been done.
GRANTING CLAUSES
The Issuer hereby Grants to the Trustee, for the exclusive
benefit of the Holders of the Notes, all of the Issuer's right, title and
interest in and to (a) the Accounts listed in the Schedule of Accounts delivered
to the Trustee pursuant to this Indenture and property acquired in respect
thereof, including the related Account Documents and all Monthly Payments that
have not been received prior to the Cut-Off Date hereof regardless of the Due
Date for such Monthly Payment, (b) the Servicing Agreement, (c) the Purchase and
Sale Agreement, (d) all cash, instruments or other property held or required to
be deposited in the Collection Account and the Holding Account, including all
investments made with funds in the Collection Account and the Holding Account
and all income from investments made with funds in the Collection Account and
the Holding Account, (e) all new Accounts originated in connection with the sale
of property acquired in respect of Accounts and (f) all proceeds in any way
derived from any of the foregoing, including all proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or other assets,
including, without limitation, all insurance proceeds and condemnation awards.
Additionally, the Issuer hereby Grants to Trustee, for the exclusive benefit of
the Holders of the Class A-4 Notes, all of the Issuer's right, title and
interest in and to all cash, instruments or other property held or required to
be deposited in the Class A-4 Reserve Account, including all investments made
with funds in the Class A-4 Reserve Account and all income from investments made
with funds in the Class A-4 Reserve
<PAGE> 7
Account and all proceeds in any way derived from any of the foregoing. Such
Grants are made, however, in trust to secure the Notes equally and ratably
without priority or discrimination, except as provided in this Indenture,
between any Note and any other Note by reason of difference in time of issuance
or otherwise, and to secure (i) the payment of all amounts due on the Notes in
accordance with their terms, (ii) the payment of all other sums payable under
this Indenture and (iii) compliance with the provisions of this Indenture, all
as provided in this Indenture. (All terms used in the foregoing Granting Clauses
that are defined in Section 1.01 are used with the meanings given in said
Section.)
The Trustee acknowledges such Grant, accepts the trusts
hereunder in accordance with the provisions of this Indenture and agrees to
perform the duties herein required to the end that the interests of the Holders
of the Notes may be adequately and effectively protected.
-2-
<PAGE> 8
ARTICLE I
DEFINITIONS
SECTION 1.01. General Definitions.
Except as otherwise specified or as the context may otherwise
require, the following terms have the respective meanings set forth below for
all purposes of this Indenture, and the definitions of such terms are applicable
to the singular as well as to the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms. The term
"including" shall mean "including without limitation". All other terms used
herein that are defined in the Trust Indenture Act (as hereinafter defined),
either directly or by reference herein, have the meanings assigned to them
therein.
"Account": (i) an installment sale contract together with the
related Account Note and Mortgage and (ii) any new Account with a related
Account Note and Mortgage entered into in connection with the liquidation of the
items specified in (i) and the sale of property acquired in respect thereof. The
term "Outstanding Accounts" as of any date means the Accounts other than those
which, as of or prior to such date as indicated in any report of the Servicer
delivered to the Trustee pursuant to Section 3.01 of the Servicing Agreement,
have been the subject of a Full Prepayment or as to which the Servicer has
determined that no further amounts can be recovered.
"Account Documents": With respect to each Account (i) the
installment sale contract relating to such Account, (ii) the Account Note,
endorsed to the order of the Issuer, without recourse, and endorsed by the
Issuer in blank or to the order of the Trustee, without recourse, (iii) the
original of the recorded Mortgage and the originals of all other documents, if
any, securing said Account Note, (iv) unrecorded Assignments in recordable form
to the Trustee, together with originals or certified copies (to the extent
provided below) of any recorded assignments) from the originator of such Account
to the Grantor and from the Grantor to the Issuer, (v) the originals of any
assumption agreement, written assurance or substitution agreement required to be
delivered to the Trustee pursuant to Section 2.10 of the Servicing Agreement,
(vi) all insurance policies, including without limitation fire and extended
hazard insurance policies, related to the Accounts, naming the Servicer as the
loss payee of such policies, and (vii) any and all other documents or
instruments in the possession of the Grantor relating to the Accounts, which
evidence, or were created in connection with the origination of, or necessary
for the administration of the Accounts, including without limitation any credit
reports, copies of deeds, completion certificates, title search reports and loan
applications; if the original copy of any document described in clause (iii),
(iv) or (v) has been retained by the recording office in which such document was
recorded, then a copy thereof certified as true and correct by a duly authorized
representative of such recording office shall be included as part of the Account
Documents for the related Account. Notwithstanding any provision contained
herein, the Trustee shall have no duty to review, maintain custody of or take
any action with respect to the documents set forth in clauses (vi) and (vii)
above.
I-1
<PAGE> 9
"Account Note": The original installment sale contract or
other evidence of indebtedness executed by an obligor that evidences the
indebtedness of such Obligor under an Account.
"Account Number": With respect to any Account, the number
assigned to such Account by the Issuer.
"Accountant": A Person engaged in the practice of accounting
who (except when this Indenture provides that an Accountant must be Independent)
may be employed by or affiliated with the Issuer or an Affiliate of the Issuer.
"Accrual Date": The date upon which interest begins accruing
on the Notes, which date is ______ 1, 199_.
"Act": With respect to any Noteholder, as defined in Section
11.03.
"Affiliate": With respect to any Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent": Any Note Registrar, Paying Agent or Authenticating
Agent.
"Aggregate Economic Balance": With respect to the Accounts,
the aggregate of the Economic Balances of all such Accounts at the time of
determination.
"Aggregate Outstanding Principal Balance": As of any
Distribution Date, an amount equal to the sum of the Outstanding Principal
Balances as of such Distribution Date.
"Asset Seller": _____________________, or its successor.
"Assignments": Collectively, (i) the original instrument of
assignment of such Mortgage, Account Note and other documents made by the
Grantor to the Issuer and (ii) the original instrument of assignment of such
Mortgage, Account Note and other documents made by the Issuer to the Trustee
(which in either case may to the extent permitted by the laws of the state in
which the related Mortgaged Property is located be a blanket instrument of
assignment covering other mortgages and Account Notes as well and which may
also, to the extent permitted by the laws of the state in which the related
Mortgaged Property is located, be an instrument of assignment running directly
from the mortgagee of record under the related Mortgage to the Trustee).
"Authenticating Agent": The Person, if any, appointed as
Authenticating Agent by the Trustee at the request of the Issuer pursuant to
Section 6.15, until any successor
I-2
<PAGE> 10
Authenticating Agent is named, and thereafter "Authenticating Agent" shall mean
such successor.
"Authorized Officer": In the case of the owner Trustee, the
President, any Vice-President, Financial Services Officer or Trust Officer or
any other officer of the Owner Trustee who is authorized to act for the Owner
Trustee in respect of the Issuer.
"Available Funds": With respect to any Distribution Date, the
sum of (i) the amount of collections on the Accounts on deposit in the
Collection Account at the close of business on the last Business Day of the
related Due Period, plus (ii) net reinvestment income earned on funds in the
Collection Account from the date ___ Business Days prior to the preceding
Distribution Date to the date ___ Business Days prior to such Distribution Date
plus (iii) net reinvestment income on funds in the Holding Account from the
preceding Distribution Date through the day immediately preceding the
Distribution Date. Available Funds will be net of any Issuer Expenses.
"Available Funds Allocation": The allocation of Available
Funds pursuant to Section 8.02(c) hereof.
"Bank": _________________________, a _________________
corporation, in its individual capacity and not as Owner Trustee pursuant to the
Trust Agreement, or any successor in its individual capacity.
"Business Day": Any day that is not a Saturday, Sunday or
other day on which commercial banking institutions in the City of New York or in
the city in which the Corporate Trust Office is located are authorized or
obligated by law or executive order to be closed.
"Class" Any one of the classes of Notes issued pursuant to
this Indenture.
"Class A-1 Initial Principal Balance": $
"Class A-1 Optimal Principal Amount": On any Distribution
Date, an amount equal to the product of (i) the Optimal Principal Amount for
such Distribution Date and (ii) a fraction, the numerator of which is the Class
A-1 Outstanding Principal Balance for such Distribution Date and the denominator
of which is the Aggregate Outstanding Principal Balance for such Distribution
Date; such amount not to exceed the Class A-1 Outstanding Principal Balance.
"Class A-1 Outstanding Principal Balance": As of any
Distribution Date, the Class A-1 Initial Principal Balance reduced by (i) all
payments, if any, made on the Class A-1 Notes in reduction of principal balance
made on all prior Distribution Dates and (ii) all Class A-1 Realized Loss
Amounts with respect to prior Distribution Dates.
"Class A-1 Realized Loss Amount": With respect to any
Distribution Date, an amount equal to the excess of (i) the Class A-1
Outstanding Principal Balance as of such Distribution Date (after application of
the Class A-1 Optimal Principal Amount, but prior to
I-3
<PAGE> 11
the application of losses on such Distribution Date) over (ii) the Aggregate
Economic Balance of the Accounts immediately following the Due Period related to
such Distribution Date, not to exceed the Class A-1 Outstanding Principal
Balance.
"Class A-2 Initial Principal Balance": $
"Class A-2 Optimal Principal Amount": On any Distribution
Date, an amount equal to the product of (i) the Optimal Principal Amount for
such Distribution Date and (ii) a fraction, the numerator of which is the Class
A-2 Outstanding Principal Balance for such Distribution Date and the denominator
of which is the Aggregate Outstanding Principal Balance for such Distribution
Date; such amount not to exceed the Class A-2 Outstanding Principal Balance.
"Class A-2 Outstanding Principal Balance": As of any
Distribution Date, the Class A-2 Initial Principal Balance reduced by (i) all
payments, if any, made on the Class A-2 Notes in reduction of principal balance
made on all prior Distribution Dates and (ii) all Class A-2 Realized Loss
Amounts with respect to prior Distribution Dates.
"Class A-2 Realized Loss Amount": With respect to any
Distribution Date, an amount equal to the excess of (i) the sum of (a) the Class
A-1 Outstanding Principal Balance as of such Distribution Date (after
application of the Class A-1 Optimal Principal Amount, but prior to the
application of losses on such Distribution Date) and (b) the Class A-2
Outstanding Principal Balance as of such Distribution Date (after application of
the Class A-2 Optimal Principal Amount, but prior to the application of losses
on such Distribution Date) over (ii) the Aggregate Economic Balance of the
Accounts immediately following the Due Period related to such Distribution Date,
not to exceed the Class A-2 Outstanding Principal Balance.
"Class A-3 Initial Principal Balance": $
"Class A-3 Optimal Principal Amount": On any Distribution
Date, an amount equal to the product of (i) the Optimal Principal Amount for
such Distribution Date and (ii) a fraction, the numerator of which is the Class
A-3 Outstanding Principal Balance for such Distribution Date and the denominator
of which is the Aggregate Outstanding Principal Balance for such Distribution
Date; such amount not to exceed the Class A-3 Outstanding Principal Balance.
"Class A-3 Outstanding Principal Balance": As of any
Distribution Date, the Class A-3 Initial Principal Balance reduced by (i) all
payments, if any, made on the Class A-3 Notes in reduction of principal balance
made on all prior Distribution Dates and (ii) all Class A-3 Realized Loss
Amounts with respect to prior Distribution Dates.
"Class A-3 Realized Loss Amount": With respect to any
Distribution Date, an amount equal to the excess of (i) the sum of (a) the Class
A-1 Outstanding Principal Balance as of such Distribution Date (after
application of the Class A-1 Optimal Principal Amount, but prior to the
application of losses on such Distribution Date), (b) the Class A-2 Outstanding
Principal Balance as of such Distribution Date (after application of the Class
A-2 Optimal
I-4
<PAGE> 12
Principal Amount, but prior to the application of losses on such Distribution
Date) and (c) the Class A-3 Outstanding Principal Balance as of such
Distribution Date (after application of the Class A-3 Optimal Principal Amount,
but prior to the application of losses on such Distribution Date) over (ii) the
Aggregate Economic Balance of the Accounts immediately following the Due Period
related to such Distribution Date, not to exceed the Class A-3 Outstanding
Principal Balance.
"Class A-4 Initial Principal Balance: $
"Class A-4 Maximum Reserve Amount": On any Distribution Date,
an amount equal to the greater of (i) one year of interest at the applicable
Note Interest Rate on the Class A-4 Outstanding Principal Balance following
payments on the Notes and allocations of losses on such Distribution Date and
(ii) one half of the Class A-4 Reserve Initial Deposit.
"Class A-4 Optimal Principal Amount": On any Distribution
Date, an amount equal to the product of (i) the Optimal Principal Amount for
such Distribution Date and (ii) a fraction, the numerator of which is the Class
A-4 Outstanding Principal Balance for such Distribution Date and the denominator
of which is the Aggregate Outstanding Principal Balance for such Distribution
Date; such amount not to exceed the Class A-4 Outstanding Principal Balance.
"Class A-4 Outstanding Principal Balance": As of any
Distribution Date, the Class A-4 Initial Principal Balance reduced by (i) all
payments, if any, made on the Class A-4 Notes in reduction of principal balance
made on all prior Distribution Dates and (ii) all Class A-4 Realized Loss
Amounts with respect to prior Distribution Dates.
"Class A-4 Realized Loss Amount": With respect to any
Distribution Date, an amount equal to the excess of (i) the sum of (a) the Class
A-1 Outstanding Principal Balance as of such Distribution Date (after
application of the Class A-1 Optimal Principal Amount, but prior to the
application of losses on such Distribution Date), (b) the Class A-2 Outstanding
Principal Balance as of such Distribution Date (after application of the Class
A-2 Optimal Principal Amount, but prior to the application of losses on such
Distribution Date), (c) the Class A-3 Outstanding Principal Balance as of such
Distribution Date (after application of the Class A-3 Optimal Principal Amount,
but prior to the application of losses on such Distribution Date) and (d) the
Class A-4 Outstanding Principal Balance as of such Distribution Date (after
application of the Class A-4 Optimal Principal Amount, but prior to the
application of losses on such Distribution Date) over (ii) the Aggregate
Economic Balance of the Accounts immediately following the Due Period related to
such Distribution Date, not to exceed the Class A-4 Outstanding Principal
Balance.
"Class A-4 Reserve Account": The trust account created and
maintained pursuant to Section 8.03.
"Class A-4 Reserve Initial Deposit": $
I-5
<PAGE> 13
"Class A-4 Reserve Withdrawal Amount": Any amount withdrawn
from the Class A-4 Reserve Account in accordance with Section 8.03.
"Class Interest Shortfall": With respect to a Class of Notes
on any Distribution Date, an amount equal to the excess, if any, of the Interest
Accrual Amount for such Class of Notes over Available Funds (less any interest
paid on such Distribution Date on each Class of Notes senior to such Class of
Notes); provided, however, that such amount shall not include interest due and
payable with respect to unreimbursed Realized Loss Amounts.
"Class Optimal Principal Amount": Any of the Class A-1 Optimal
Principal Amount, the Class A-2 Optimal Principal Amount, the Class A-3 Optimal
Principal Amount and the Class A-4 Optimal Principal Amount, as applicable.
"Closing Date": The date on which the Notes are first
executed, authenticated and delivered pursuant to Section 2.12.
"Collection Account": The trust account or accounts created
and maintained pursuant to Section 8.02.
"Commission": The Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or if at any time such Commission is not existing and performing the
duties now assigned under the Trust Indenture Act, then the body performing such
duties at such time under the Trust Indenture Act or similar legislation
replacing the Trust Indenture Act.
"Contract Sale Agreement": The Contract Sale Agreement, dated
______, 199_, between the Asset Seller and the Grantor, which provides for,
among other things, the purchase by the Grantor of all interest of the Asset
Seller in the Accounts.
"Corporate Trust Office": The designated corporate trust
office of the Trustee located at ______________________________________ or at
such other address as the Trustee may designate from time to time by notice to
the Noteholders and the Issuer, or the principal corporate trust office of any
successor Trustee.
"Cumulative Actual Net Economic Losses": With respect to any
Distribution Date, the cumulative excess as of the end of the related Due Period
of (A) the Economic Balance of all Accounts that have been repossessed or that
have been charged off, written off or otherwise reduced, in whole or in part,
without any repossession over (3) the Net Liquidation Proceeds, if any, of such
Accounts, any new Account that is part of such Net Liquidation Proceeds being
valued for this purpose at its Economic Balance, and the remaining Outstanding
Economic Balance of any Account that has been charged off, written-off or
reduced for any reason, in part but not in whole.
"Cut-Off Date": ____________, 199_.
["DCR": Duff & Phelps Credit Rating Co., or its successor in
interest.]
I-6
<PAGE> 14
"Debt Service Requirement Determination Date": The date prior
to each Distribution Date as of which the Trustee is required to compute the
amount due and payable on the Notes on such Distribution Date; such date is the
fifth Business Day prior to a Distribution Date.
"Default": Any occurrence which is, or with notice or the
lapse of time or both would become, an Event of Default.
"Defective Account": The meaning specified in Section 3.11(b)
and Section 3.12(b).
"Deleted Account": The meaning specified in Section 3.11 (b)
and Section 3.12(b).
"Delinquency Ratio": The ratio (expressed as a percentage),
computed for any Distribution Date of (i) the average Aggregate Economic Balance
of Accounts for the related Due Period for which the Monthly Payment thereon
remains unpaid for 60 days or more after the Due Date thereof to (ii) the
average Aggregate Economic Balance for such Due Period.
"Distribution Date": Any date which is an Interest
Distribution Date or Principal Distribution Date for the Notes.
"Distribution Date Statement": As defined in Section 2.09(d).
"Due Date": With respect to any Account, the date each month
on which the Monthly Payment is payable.
"Due Period": With respect to a Distribution Date, the
three-month period beginning immediately following the end of the preceding Due
Period (or, in the case of the Due Period which is applicable to the first
Distribution Date, beginning on the day after the Cut-off Date) and ending at
the close of business on the last Business Day in the second month prior to the
month in which such Distribution Date occurs.
"Economic Balance": With respect to any Account, the present
value of all remaining Monthly Payments from the date of determination
discounted monthly at a rate equal to the Effective Financing Rate; provided,
however, that Accounts with any of the following characteristics on the Cut-Off
Date shall be deemed to have an Economic Balance of zero:
(i) the sum of all Monthly Payments and all other amounts
due under such Account is $ or less.
(ii) an Economic Balance determined in the manner provided
above of zero or less than zero.
(iii) an Effective Financing Rate of below % per annum or
above % per annum.
I-7
<PAGE> 15
(iv) a total number of Monthly Payments greater than 360.
(v) secured by Mortgaged Properties that are not located
in _____________.
"Effective Financing Rate": A discount rate which, when
applied in a present value calculation with respect to any Account using monthly
compounding, results in the present value of all originally scheduled Monthly
Payments on such Account being equal to the amount financed stated on the
related installment sale contract or other applicable instrument prior to any
Monthly Payments having been made on such Account.
"Eligible Account": (a) A segregated account or accounts
maintained with a depository institution or trust company whose long-term
unsecured debt obligations are rated at least "___" by [S&P] [Fitch] [DCR]
[Moody's] at the time of any deposit therein or whose short-term unsecured debt
obligations are rated at least by [S&P] [Fitch] [DCR] or (b) a segregated trust
account or accounts maintained with a federal or state chartered depository
institution subject to regulations regarding fiduciary funds on deposit
substantially similar to 12 C.F.R. Section 9.10(b).
"Eligible Investments": Any one or more of the following
obligations or securities:
(a)(i) direct obligations of, and obligations fully guaranteed
as to timely payment by, the United States of America or any agency or
instrumentality of the United States of America, the obligations of
which are backed by the full faith and credit of the United States of
America and (ii) direct obligations of, and obligations guaranteed as
to timely payment by, Federal National Mortgage Association or Federal
Home Loan Mortgage Corporation only if, at the time of investment, they
are assigned the Highest Credit Rating by the Rating Agencies;
(b) demand and time deposits in, certificates of deposit of,
or banker's acceptances issued by any depository institution or trust
company incorporated under the laws of the United States of America
(including the Trustee or any agent of the Trustee acting in their
respective commercial capacities) or any State and subject to
supervision and examination by federal and/or State banking
authorities; provided that (1) the commercial paper and/or the debt
obligations of such depository institution (or, in the case of the
principal depository institution in a holding company system, the
commercial paper or debt obligations of such holding company) at the
time of such investment or contractual commitment providing for such
investment is assigned the Highest Credit Rating by the Rating Agencies
or (2) the long-term debt securities of such depository institutions
are rated "___" or better by the Rating Agencies;
(c) repurchase obligations pursuant to a written agreement
with respect to (i) any security described in clause (a) above or (ii)
any other security issued or guaranteed by an agency or instrumentality
of the United States of America, in either case entered into with an
entity whose debt obligations are assigned the Highest Credit Rating by
the Rating Agencies (including, if applicable, the Trustee or any agent
of the
I-8
<PAGE> 16
Trustee acting in their respective commercial capacities) and in each
case where the Trustee has taken delivery of such security;
(d) securities bearing interest or sold at a discount issued
by any corporation incorporated under the laws of the United States of
America or any State whose debt obligations are assigned the Highest
Credit Rating by the Rating Agencies at the time of such investment or
contractual commitment providing for such investment; provided,
however, that securities issued by any particular corporation will not
be Eligible Investments to the extent that such an investment therein
will cause the then outstanding principal amount of securities issued
by such corporation and held as part of the Trust Fund for the Notes to
exceed ___% of the Trust Fund for the Notes;
(e) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on demand
or on a specified date not more than one year after the date of
issuance thereof) which have been assigned the Highest Credit Rating by
the Rating Agencies at the time of such investment;
(f) certificates or receipts representing ownership interests
in future interest or principal payments on obligations described in
clause (a) above which are held by a custodian on behalf of the holders
of such certificates or receipts;
(g) any other demand or time deposit, obligation, security or
investment provided that the Issuer shall have given prior written
notice of such other investment to the Rating Agencies, and the Trustee
shall have received written confirmation from each of the Rating
Agencies that no reduction, withdrawal or qualification in the rating
on the Notes by either such Rating Agency will result from the addition
of such Eligible Investment; and
(h) Eurodollar denominated certificates of deposit or time
deposits issued by a foreign depository institution or a depository
institution organized under the laws of the United States or any state
thereof so long as at the time of such investment or contractual
commitment providing for such investment (1) the commercial paper or
other short-term debt obligations of such depository institution (or,
in the case of a depository institution which is the principal
subsidiary of a holding company, the commercial paper or other
short-term debt obligations of such holding company) have the Highest
Credit Ratings available from the Rating Agencies; or (2) the long-term
debt securities of such depository institution are rated "___" or
better by the Rating Agencies.
"Eligible Moneys": Any moneys on deposit in trust with the
Trustee for the benefit of the Noteholders with respect to which the Trustee has
received an unqualified opinion of counsel nationally recognized as expert in
bankruptcy acceptable to the Trustee that payment of such amounts to the
Noteholders would not constitute avoidable preferences under Section 547 of the
United States Bankruptcy Code or similar state laws with avoidable preference
provisions in the event of the filing of a petition for relief under the United
States Bankruptcy Code or similar state laws with avoidable preference
provisions by or against the
I-9
<PAGE> 17
Issuer or any borrower or the person from whom the money is received, if other
than the Issuer or the borrower.
"Event of Default": The meaning specified in Section 5.01.
"FHLMC": Federal Home Loan Mortgage Corporation, or any
successor thereto.
["Fitch": Fitch Investors Service, L.P., or its successor in
interest]
"FNMA": Fannie Mae, or any successor thereto.
"Full Prepayment": Payment to the Servicer, whether by the
obligor or through Insurance Proceeds, of an amount with respect to an Account
such that the full amount due with respect to such Account has been paid.
"Grant": To mortgage, pledge, assign and grant a security
interest in. A Grant of an Account and the related Account Documents, an
Eligible Investment, a Servicing Agreement or any other instrument shall include
all rights, powers and options (but none of the obligations) of the Granting
party thereunder, including without limitation the immediate and continuing
right to claim collect, receive and receipt for payments in respect of the
Account or Eligible Investment, insurance proceeds, condemnation awards,
purchase prices and all other moneys payable thereunder and all proceeds
thereof, to give and receive notices and other communications, to make waivers
or other agreements, to exercise all rights and options, to bring Proceedings in
the name of the Granting party or otherwise, and generally to do and receive
anything which the Granting party is or may be entitled to do or receive
thereunder or with respect thereto.
"Grantor": NationsBanc Asset Securities, Inc., a Delaware
corporation, in its capacity as grantor of the Trust, and as otherwise defined
in the Trust Agreement.
"Hazard Insurance Policy": With respect to each Account, the
policy of fire and extended coverage insurance required to be maintained for the
related Mortgaged Property, as provided in Section 2.13 of the Servicing
Agreement, and which, as provided in said Section 2.13, may be a blanket
mortgage impairment policy maintained by the Servicer in accordance with the
terms and conditions of said Section 2.13.
"Hazard Insurer": The named insurer in any Hazard Insurance
Policy.
"Highest Credit Rating": With respect to [S&P] [Fitch] [DCR]
[Moody's], ___________________.
"Holding Account": The account created and maintained pursuant
to the Holding Account Agreement.
I-10
<PAGE> 18
"Holding Account Agreement": The Holding Account Agreement
dated ______ __, 199_ among ________________________, as custodian for the
Trustee, the Servicer and the Issuer.
"Indenture" or "this Indenture": This instrument as originally
executed and, if from time to time supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof, as so supplemented or amended. All references in this
instrument to designated "Articles", "Sections", "Subsections" and other
subdivisions are to the designated Articles, Sections, Subsections and other
subdivisions of this instrument as originally executed. The words "herein",
"hereof", "hereunder" and other words of similar import refer to this Indenture
as a whole and not to any particular Article, Section, Subsection or other
subdivision.
"Indenture Maturity Date": ________, 20__.
"Independent": When used with respect to any specified Person
means such a Person who (1) is in fact independent of the Issuer, any Affiliate
of the Issuer, any other obligor upon the Notes and any Affiliate of any such
other obligor, (2) does not have any direct financial interest or any material
indirect financial interest in the Issuer or in any such other obligor or in an
Affiliate of the Issuer or such other obligor, and (3) is not connected with the
Issuer, any Affiliate of the Issuer, any such other obligor or any Affiliate of
any such other obligor as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions. Whenever it is herein
provided that any Independent Person's opinion or certificate shall be furnished
to the Trustee, such Person shall be appointed by an Issuer Order and approved
by the Trustee in the exercise of reasonable care and such opinion or
certificate shall state that the signer has read this definition and that the
signer is Independent within the meaning thereof.
"Individual Note": A Note of an initial principal amount of
$_______; a Note of an original principal amount in excess of $_____ shall be
deemed to be a number of Individual Notes equal to the quotient obtained by
dividing such initial principal amount by $_____.
"Insurance Proceeds": Amounts paid by a Hazard Insurer with
respect to a particular Mortgaged Property pursuant to any related Hazard
Insurance Policy or paid by any other insurer with respect to a particular
Mortgaged Property pursuant to any other related insurance policy.
"Insured Expenses": Expenses incurred by the Servicer in
connection with an Account under which the mortgagor is in default which are
covered by any related Hazard Insurance Policy and are paid by the Hazard
Insurer under any such policy.
"Interest Accrual Amount": As to any Class of Notes for any
Distribution Date, an amount equal to the interest accrued on the Outstanding
Principal Balance of such Class of Notes (after giving effect to payments and
allocations of losses on the preceding Distribution Date) during the Interest
Accrual Period ending on the day prior to the
I-11
<PAGE> 19
Distribution Date at the applicable Note Interest Rate for such Class of Notes;
provided, however, that such amount shall not include interest due and payable
with respect to unreimbursed Realized Loss Amounts.
"Interest Accrual Period": The three-month period ending on
the day prior to such Distribution Date.
"Interest Distribution Date": Each ____________, ____________,
____________ and _______________ commencing ____________, 199_.
"Issuer": _____________________, a _______________ business
trust created pursuant to the Trust Agreement, until a successor Person shall
have become the Issuer pursuant to the applicable provisions of this Indenture,
and thereafter "Issuer" shall mean such successor Person.
"Issuer Expenses": All operating expenses of the Issuer
(exclusive of interest on the Notes, but including the fees and expenses of the
Owner Trustee and the Trustee (including, without limitation, amounts to which
the Trustee is entitled under Section 5.04)) and the Servicing Fee.
"Issuer Order" and "Issuer Request": A written order or
request signed in the name of the Issuer by an Authorized Officer, and delivered
to the Trustee.
"Liquidation Expenses": Expenses incurred by the Servicer in
connection with the liquidation of any Account which is in default and the sale
of any property acquired in respect thereof which are not recoverable as Insured
Expenses and are otherwise reimbursable to the Servicer in accordance with
Sections 2.07(c), 2.11 and 2.15 of the Servicing Agreement.
"Liquidation Proceeds": Cash and new Account Notes with
related security instruments received by the Servicer (before reimbursement of
the Servicer for Liquidation Expenses) in connection with the liquidation of any
Account which is in default and the sale of any property acquired in respect
thereof, whether as Insurance Proceeds or through trustee's sale, foreclosure
sale or otherwise.
"Maturity": With respect to the Notes, the date on which the
entire unpaid principal amount of the Notes becomes due and payable as therein
or herein provided, whether at the date specified therefor in the Notes or, if
earlier, by declaration of acceleration, call for redemption or otherwise.
"Maturity Date": With respect to any Account, the date on
which the last payment of principal of such Account shall be due and payable.
"Minimum Target Overcollateralization Amount": For any
Distribution Date, [describe amount].
I-12
<PAGE> 20
"Month of Closing": The month in which the Closing Date
occurs.
"Monthly Cut-Off Date": As defined in the Servicing Agreement.
"Monthly Payment": With respect to any Account, the scheduled
monthly payment payable to the holder of such Account in accordance with the
terms of the related Account Note.
["Moody's": Moody's Investors Service, Inc., or its successor
in interest.]
"Mortgage": With respect to an Account, the original mortgage,
deed of trust, mechanic's lien contract or other security instrument executed by
an obligor which creates a lien on real property and improvements thereon
securing an Account Note, or any Trust Mortgage.
"Mortgaged Property": The real property and improvements
thereon that are subject to a Mortgage.
"Net Liquidation Proceeds": With respect to any Account, the
amount derived by subtracting from the Liquidation Proceeds of such Account the
related Liquidation Expenses.
"Note Interest Rate": With respect to each Class, the annual
rate at which interest accrues on such Class of Notes, as specified in such
Class of Notes and in Section 2.03.
"Note Register" and "Note Registrar": As defined in Section
2.07.
"Notes": Any notes authorized by, and authenticated and
delivered under, this Indenture.
"Noteholder" or "Holder": The Person in whose name a Note is
registered in the Note Register.
"Obligor": Each Person who is indebted under an Account Note
or who has acquired real property subject to the Mortgage securing an Account
Note.
"Officer's Certificate": A Certificate signed by an Authorized
officer.
"Opinion of Counsel": A written opinion of counsel who may,
except as otherwise expressly provided in this Indenture, be counsel for the
Issuer and who shall be satisfactory to the Trustee.
"Optimal Principal Amount": An amount equal to (A) on any
Distribution Date (i) on or prior to the Target Overcollateralization Date or
(ii) after the Target Overcollateralization Date and on which there exists an
uncured Trigger Event, the Remaining Available Funds; and (B) on any
Distribution Date after the Target Overcollateralization Date
I-13
<PAGE> 21
on which there does not exist an uncured Trigger Event, the amount which, when
paid as principal on the Notes, will result in achieving or maintaining the
Target Overcollateralization Level; provided that in no event will the Optimal
Principal Amount for any Distribution Date exceed the Remaining Available Funds
for such Distribution Date or the Aggregate Outstanding Principal Balance.
"Outstanding": As of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof for whose payment or
redemption money (complying with Section 4.01) in the necessary amount
has been theretofore deposited with the Trustee or any Paying Agent
(other than the Issuer) in trust for the Holders of such Notes;
provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision therefor, satisfactory to the Trustee, has been made; and
(iii) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Trustee is presented that any such Notes are
held by a Holder in due course;
provided, however, that in determining whether the Holders of the requisite
percentage of the Voting Rights or of the Aggregate Outstanding Principal
Balance of the Outstanding Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Notes owned by the Issuer, any
other obligor upon the Notes or any Affiliate of the Issuer or such other
obligor shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent, or waiver, only
Notes which the Trustee knows to be so owned shall be so disregarded. Notes so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Issuer, any
other obligor upon the Notes or any Affiliate of the Issuer or such other
obligor.
"Outstanding Principal Balance": Any of the Class A-1
Outstanding Principal Balance, Class A-2 Outstanding Principal Balance, Class
A-3 Outstanding Principal Balance and Class A-4 Outstanding Principal Balance,
as applicable.
"Overcollateralization Amount": With respect to a Distribution
Date, the amount equal to (a) the Aggregate Economic Balance of the Accounts on
the first day of the month preceding the month of such Distribution Date less
(b) the sum of the Aggregate Outstanding Principal Balance and all unreimbursed
Realized Loss Amounts, in each case after giving effect to the payments made but
prior to the allocation of losses thereon on such Distribution Date.
I-14
<PAGE> 22
"Overcollateralization Percentage": A fraction expressed as a
percentage the numerator of which is equal to the excess of (i) the Aggregate
Economic Balance of the Accounts as of the first day of the month preceding the
month in which the Target Overcollateralization Date occurs over (ii) the
Aggregate Outstanding Principal Balance of all Classes of Notes and all
unreimbursed Realized Loss Amounts with respect to all Classes of Notes on the
Target Overcollateralization Date (after giving effect to payments and
allocations of losses on the Target Overcollateralization Date) and the
denominator of which is the Aggregate Economic Balance of the Accounts as of the
first day of the month preceding the month in which the Target
Overcollateralization Date occurs.
"Owner Trustee": ________________________, acting not in its
individual capacity but solely as owner trustee with respect to the Issuer, or
such successor person as shall become owner trustee pursuant to applicable
provisions of this Indenture and shall be owner trustee under, or become owner
trustee pursuant to applicable provisions of the Trust Agreement.
"Paying Agent": The Trustee or any other depository
institution or trust company that is authorized by the Issuer pursuant to
Section 3.03 to pay the principal of, or interest on, any Notes on behalf of the
Issuer.
"Person": Any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Predecessor Notes": With respect to any particular Note,
every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.08 in lieu of a lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the lost, destroyed
or stolen Note.
"Principal Distribution Date": one of the fixed dates on which
an installment of principal is due and payable on the Notes; such dates are each
________, _________, ________ and __________ beginning _________, 199_.
"Proceeding": Any suit in equity, action at law or other
judicial or administrative Proceeding.
"Purchase and Sale Agreement": The Purchase and Sale
Agreement, dated __________, 199_, between the Grantor and the Trust which
provides for, among other things, the purchase by the Trust of all interest of
the Grantor in the Accounts.
"Qualified Substitute Account": Means an account substituted
by the Issuer for a Deleted Account which must, on the date of such
substitution, (i) have an outstanding Economic Balance, after deduction of all
scheduled payments due in the month of substitution, not less than the Economic
Balance of the Deleted Account (unless the amount of any shortfall will be
deposited into the Collection Account by the Issuer, pursuant to Section 3.11
(b), for
I-15
<PAGE> 23
distribution to Noteholders in the month following the month of substitution),
(ii) have an Effective Financing Rate not less than the Effective Financing Rate
of the Deleted Account, (iii) comply with each representation and warranty set
forth in Section 3.11 (a), (iv) generally be of like quality and type as the
Deleted Account and (v) have an original term to maturity which shall not exceed
_______, 20__. In the event that either one account is substituted for more than
one Deleted Account, or more than one account is substituted for one or more
Deleted Accounts, then the amount described in clause (i) hereof shall be
determined on the basis of aggregate Economic Balances.
"Rating Agencies": Each of [S&P] [Fitch] [DCR] [and]
[Moody's].
"Realized Loss Amount": Any of the Class A-1 Realized Loss
Amount, Class A-2 Realized Loss Amount, Class A-3 Realized Loss Amount and Class
A-4 Realized Loss Amount, as applicable.
"Record Date": With respect to any Distribution Date, the date
on which the Persons entitled to receive any payment of principal of or interest
on any Notes (or notice of a payment in full of principal) due and payable on
such Distribution Date are determined; such date shall be the 15th day of the
month preceding the month of such Distribution Date.
"Redemption Date": Any Principal Distribution Date on which
Notes are to be redeemed at the option of the Issuer pursuant to Article X.
"Redemption Price": With respect to any Note to be redeemed
pursuant to Article X hereof, an amount equal to 100% of the Outstanding
Principal Balance of the Note to be so redeemed (prior to allocations of any
Realized Loss Amounts), together with interest on such amount and interest on
any unpaid interest or unreimbursed Realized Loss Amounts at the applicable Note
Interest Rate from the latest date to which interest has been paid to the
applicable Redemption Date.
"Remaining Available Funds": With respect to any Distribution
Date, an amount (which shall not be less than zero) equal to (i) the Available
Funds for such Distribution Date reduced by (ii) the amount of interest due and
payable on the unpaid principal Balance of the Notes on such Distribution Date
(excluding interest on any Realized Loss Amounts).
"Remittance": With respect to any one or more Accounts for any
particular date or period, the net amount with respect to collections or
receipts on such Account or Accounts for such date or period that is required to
be remitted by the Servicer to the Trustee for deposit in the Collection
Account.
"Remittance Date": The first Business Day of each week,
beginning with the week after the Closing Date and the first Business Day
following the end of each Due Period.
"Responsible Officer": With respect to the Trustee, the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee
I-16
<PAGE> 24
of the board of directors, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any trust officer or assistant trust officer, the
controller, any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
["S&P": Standard & Poor's, and its successor in interest.]
"Sale": As defined in Section 5.18.
"Schedule of Accounts": Collectively, the list of Accounts
being Granted to the Trustee as part of the Trust Fund on the Closing Date
appearing on a magnetic tape delivered to the Trustee on the Closing Date which
list shall set forth the following information as of the Cut-Off Date with
respect to each such Account in numbered columns:
Column Number Information
1 Account Number
2 Zip Code
3 First Distribution Date
4 Total number of payments to be made
5 Monthly Payment
6 original amount of the note
7 Total finance charge over the term of
the note
8 Paid-through date
9 Status code
10 Resale or original
11 Amount of late charges due
12 Date of last payment received
13 Account balance
14 Taxes due
15 Insurance due
16 Late charges due
17 Other charges due
18 Rebate method
"Servicer": _________________________, a ________________
corporation, as servicer under the Servicing Agreement, and its permitted
successors and assigns thereunder, including any successor servicer appointed
pursuant to Section 3.07(d).
"Servicer Reporting Date": The date each month on which the
Servicer is required pursuant to Section 3.01 of the Servicing Agreement to
report to the Issuer, the Accountants and the Trustee information concerning the
Accounts, including all collections on
I-17
<PAGE> 25
the Accounts received by it during the related Remittance Period (as defined in
the Servicing Agreement), which date shall be the 20th day of each month
following such Remittance Period or, if such day is not a Business Day, the next
preceding Business Day.
"Servicing Account": As defined in Section 2.08(b) of the
Servicing Agreement.
"Servicing Agreement": The Servicing Agreement, dated
_____________, 199_, among the Issuer, the Servicer and the Trustee, providing,
among other things, for the servicing of the Accounts, as said agreement may be
amended or supplemented from time to time as permitted hereby and thereby. Such
term shall also include any servicing agreement entered into with a successor
servicer pursuant to Section 3.07(d) hereof.
"Servicing Default": Any default by the Servicer under the
Servicing Agreement that is an "Event of Default" under the Servicing Agreement,
as specified in Section 5.01 thereof.
"Servicing Fee": With respect to any Account, other than an
Account with respect to which (i) the related Mortgaged Property has been
repossessed or (ii) the related Economic Balance is zero pursuant to the proviso
of the definition of "Economic Balance", the fee payable to the Servicer under
the Servicing Agreement.
"Servicing Officer": Any officer of the Servicer involved in,
or responsible for, the administration and servicing of the Accounts whose name
appears on a list of servicing officers furnished to the Issuer and the Trustee
by the Servicer, as such list may be amended or supplemented from time to time.
"Stated Maturity Date": _____________, 20__.
"Successor Servicer": The Person appointed, or required to act
as, Successor Servicer pursuant to Section 3.07 hereof.
"Target Overcollateralization Date": The Distribution Date
occurring in _____ 20__.
"Target Overcollateralization Level": As of any Distribution
Date, the level of overcollateralization that would exist if the
overcollateralization Amount were equal to the greater of (i) the product of (x)
the Overcollateralization Percentage and (y) the Aggregate Economic Balance of
the Accounts as of the first day of the month preceding the month of such
Distribution Date and (ii) the Minimum Target Overcollateralization Amount.
"Trigger Event": Any one of the following events:
(a) the Issuer fails to make a payment due hereunder and
such failure continues for two Business Days;
I-18
<PAGE> 26
(b) the Servicer fails to make a required payment or
deposit due under the Servicing Agreement and such
failure continues for four Business Days;
(c) An Event of Default (as defined in the Servicing
Agreement) occurs under Section ____________________
of the Servicing Agreement;
(d) a breach of any covenant of the Servicer in the
Servicing Agreement which may have a materially
adverse effect on the Servicer or its performance
under the Servicing Agreement is not cured within 60
days after the Servicer becomes aware thereof or
after notice thereof from any Person;
(e) there shall occur the entry of a decree or order for
relief by a court having jurisdiction in respect of
the Issuer in an involuntary case under the federal
bankruptcy laws, as now or hereafter in effect, or
any other present or future federal or state
bankruptcy, insolvency or similar law, or appointing
a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer
or of any substantial part of its property, or
ordering the winding up or liquidation of the affairs
of the Issuer and the continuance of any such decree
or order unstayed and in effect for a period of 60
consecutive days;
(f) there shall occur the commencement by the Issuer of a
voluntary case under the federal bankruptcy laws, as
now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency or
similar law, or the consent by the Issuer to the
appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer
or of any substantial part of its property or the
making by the Issuer of an assignment for the benefit
of creditors or the failure by the Issuer generally
to pay its debts as such debts become due or the
taking of corporate action by the Issuer in
furtherance of any of the foregoing;
(g) the Contract Sale Agreement, the Purchase and Sale
Agreement, the Servicing Agreement or this Indenture
ceases to be in full force and effect; or
(h) the lien of the Indenture ceases to be effective or
ceases to be of a first priority.
"Trust": The trust established by the Trust Agreement.
"Trust Agreement": The trust agreement, dated as of ________,
199_ between the Bank and the Grantor.
I-19
<PAGE> 27
"Trust Fund": All money, instruments and other property
subject or intended to be subject to the lien of this Indenture for the benefit
of the Holders of the Notes as of any particular time (including all property
and interests Granted to the Trustee in the Granting Clauses of this Indenture),
including all proceeds thereof, and all right, title and interest of the Trustee
in, to and under the Servicing Agreement and all money and property received by
the Trustee pursuant thereto in respect of the Accounts.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of
1939, as amended, as in force at the Closing Date, unless otherwise specifically
provided.
"Trust Mortgage": Any mortgage, deed of trust or similar
security instrument from the Issuer to the Trustee encumbering a Mortgaged
Property owned by the Issuer whether as part of an Account transferred on the
Closing Date or pursuant to a foreclosure or repossession of Mortgaged Property.
"Trustee": _________________________________________, until a
successor Person shall have become the Trustee pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee,, shall mean such
successor Person.
"Vice President": With respect to the Trustee, any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president".
"Voting Rights": With respect to a Class of Notes, a fraction,
expressed as a percentage, the numerator of which is equal to the Outstanding
Principal Balance of such Class of Notes and the denominator of which is equal
to the Aggregate Outstanding Principal Balance of all Classes of Notes.
I-20
<PAGE> 28
ARTICLE II
THE NOTES
SECTION 2.01. Forms Generally.
The Notes and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange on which the
Notes may be listed, or as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution thereof. Any
portion of the text of any Note may be set forth on the reverse thereof with an
appropriate reference on the face of the Notes.
The definitive Notes shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Notes may be listed, all as determined by the officers
executing such Notes, as evidenced by their execution thereof.
SECTION 2.02. Forms of Notes and Certificate of
Authentication.
(a) The form of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 Notes shall be as set forth respectively as
Exhibits A, B, C and D hereto.
SECTION 2.03. Notes; General Provisions with Respect to
Principal and Interest.
(a) The aggregate principal amount of Notes that may be
authenticated and delivered under the Indenture is limited to
$_____________________, except for Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Sections 2.06, 2.07, 2.08 or 9.06 of this Indenture.
The Notes shall be divided into four Classes having
designations, original principal amounts, Note Interest Rates and Indenture
Maturity Dates as follows:
<TABLE>
<CAPTION>
Initial Indenture
Principal Note Interest Maturity
Designation Balance Rate Date
- ----------- ------- ---- ----
<S> <C> <C> <C>
Class A-1 Notes $ %
Class A-2 Notes $ %
Class A-3 Notes $ %
Class A-4 Notes $ %
</TABLE>
II-1
<PAGE> 29
The principal of each Note shall be payable in installments
ending no later than the Maturity of the final installment of the principal
thereof unless the unpaid principal of such Note becomes due and payable at an
earlier date by declaration of acceleration or call for redemption or otherwise.
Interest on the Notes of each Class shall be payable on each
Interest Distribution Date in the amount of the sum of (i) the Interest Accrual
Amount for such Class of Notes and (ii) all Class Interest Shortfalls for such
Class of Notes that have not previously been paid, together with accrued
interest on such Class Interest Shortfalls at the related Note Interest Rate to
the extent permitted by law. All payments made with respect to any Note shall be
applied first to the interest then due and payable on the current principal
amount outstanding on such Note and then to the principal thereof. All
computations of interest accrued on any Note shall be made as if each year
consisted of twelve months of thirty days each.
All payments of principal of and interest on any Note shall be
made in the manner specified in Section 2.09 and in the amounts prescribed in
Section 5.08 or 8.02(c), as the case may be.
Notwithstanding any of the foregoing provisions with respect
to payments of principal of and interest on the Notes, if the Notes have become
or been declared due and payable following an Event of Default and such
acceleration of Maturity and its consequences have not been rescinded and
annulled and the provisions of Section 5.05(a) are not applicable, then payments
of principal of and interest on the Notes shall be made in accordance with
Section 5.08.
All Notes of the same Class shall be identical in all respects
except for the denominations, Note numbers and dates thereof. All Notes of the
same Class issued under this Indenture shall be in all respects equally and
ratably entitled to the benefits hereof without preference, priority or
distinction on account of the actual time or times of authentication and
delivery, all in accordance with the terms and provisions of this Indenture.
SECTION 2.04. Denominations.
The Notes shall be issuable only as registered Notes in
minimum denominations of $______.
SECTION 2.05. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Issuer by its
Authorized Officer. The signature of any of these officers on the Notes may be
manual or facsimile.
Notes bearing the manual or facsimile signature of individuals
who were at any time Authorized Officers shall bind the Issuer, notwithstanding
that such individuals or any of them have ceased to hold such offices prior to
the authentication and delivery of such Notes or did not hold such offices at
the date of such Notes.
II-2
<PAGE> 30
The Notes which are authenticated and delivered by the Trustee
to or upon the order of the Issuer on the Closing Date shall be dated the
Closing Date. All other Notes which are authenticated after the Closing Date for
any other purpose hereunder shall be dated the date of their authentication.
The Notes may be authenticated by the Trustee either at the
Corporate Trust Office or at the Trustee's office or agency in the
_______________________.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for in the
related exhibit hereto executed by the Trustee or by any Authenticating Agent by
the manual signature of one of its authorized officers ` employees or
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 2.06. Temporary Notes.
Pending the preparation of definitive Notes, the Issuer may
execute, and upon Issuer Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they may be so issued and with such
variations as the officers executing such Notes may determine, as evidenced by
their execution of such Notes.
If temporary Notes are issued, the Issuer will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Issuer to be maintained as provided in Section 3.02, without charge to
the Holder. Upon surrender or cancellation of any one or more temporary Notes,
the Issuer shall execute and the Trustee shall authenticate and deliver and
exchange therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.07. Registration, Registration of Transfer and
Exchange.
The Issuer shall cause to be kept a register (the "Note
Register") in which, subject to such reasonable regulations as it may prescribe,
the Issuer shall provide for the registration of Notes and the registration of
transfers of Notes. The Trustee is hereby initially appointed "Note Registrar"
for the purpose of registering Notes and transfers of Notes as herein provided.
` Upon any resignation of any Note Registrar appointed by the Issuer, the Issuer
shall promptly appoint a successor or, in the absence of such appointment, shall
assume the duties of Note Registrar.
At any time at which the Trustee is not also the Note
Registrar, the Trustee shall be a co-Note Registrar. The Trustee, if it shall
ever be serving as co-Note Registrar,
II-3
<PAGE> 31
shall furnish the Note Registrar promptly after each authentication of a Note by
the Trustee appropriate information with respect thereto for entry by the Note
Registrar into the Note Register. If the Trustee shall at any time not be
authorized to keep and maintain the Note Register, the Trustee shall have the
right to inspect such Note Register at all reasonable times and to rely
conclusively upon a certificate of the Person in charge of the Note Register as
to the names and addresses of the holders of the Notes and the principal amounts
and numbers of such Notes so held.
Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.02, the
Issuer shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of any
authorized denominations, and of the same Class and a like aggregate principal
amount.
At the option of the Holder, Notes may be exchanged for other
Notes of the same Class of any authorized denominations and of a like aggregate
initial principal amount, upon surrender of the Notes to be exchanged at such
office or agency. Whenever any Notes are so surrendered for exchange, the Issuer
shall execute, and the Trustee shall authenticate and deliver, the Notes which
the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge as may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.08 not involving any transfer.
The Notes will initially be represented by certificated Notes
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"). No person acquiring a beneficial interest in a Note will be entitled to
receive a certificated Note, except as described in the next paragraph of this
Section 2.07.
The Notes will be issued to and registered in the Note
Register in the name of a person acquiring a beneficial interest in such Notes
only if the Trustee receives a written notice from the Issuer that (i) DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the Notes and the Issuer is unable to locate a qualified
successor or (ii) the Issuer, at its option, elects to terminate the book-entry
system through DTC. Upon the occurrence of either event described in clauses (i)
and (ii) above, the Trustee shall notify DTC of the occurrence of either such
event. Upon surrender by DTC of
II-4
<PAGE> 32
the certificated Notes and satisfaction of the conditions set forth in this
Section 2.07 of the Indenture for the registration of transfer and receipt by
the Trustee of a list of the names and addresses of the beneficial owners of the
Notes in whose name the Notes are to be registered, new Notes shall be delivered
pursuant to this Section 2.07.
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Notes.
If (1) any mutilated Note is surrendered to the Trustee or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, and (2) there is delivered to the Trustee such security or
indemnity as may be required by the Trustee to save each of the Trustee and the
Issuer harmless, then, in the absence of notice to the Issuer or the Trustee
that such Note has been acquired by a bona fide purchaser, the Issuer shall
execute and upon its direction the Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
new Note or Notes of the same Class, tenor and aggregate initial principal
amount bearing a number not contemporaneously outstanding; provided, however,
that if any such mutilated, destroyed, lost or stolen Note shall have become or
shall be about to become due and payable, or shall have become subject to
redemption in full, instead of issuing a new Note, the Issuer may pay such Note
without surrender thereof, except that any mutilated Note shall be surrendered.
If, after the delivery of such new Note or payment of a destroyed, lost or
stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such new Note was issued
presents for payment such original Note, the Issuer and the Trustee shall be
entitled to recover such new Note (or such payment) from the Person to whom it
was delivered or any Person taking such new Note from such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Trustee in connection therewith.
Upon the issuance of any new Note under this Section, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee) connected
therewith.
Except to the extent provided in the first paragraph of this
Section 2.08, every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately, to the extent
provided herein, with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
II-5
<PAGE> 33
SECTION 2.09. Payments of Principal and Interest.
(a) Any installment of interest or principal payable on any
Note which is punctually paid or duly provided for by the Issuer on the
applicable Distribution Date shall be paid to the Person in whose name such Note
(or one or more Predecessor Notes) is registered at the close of business on the
Record Date for such Distribution Date by check mailed to such Person's address
as it appears in the Note Register on such Record Date, except that with respect
to a Note registered in the name of the nominee of a clearing agency (initially,
such nominee to be Cede & Co.) payments will be made by wire transfer in
immediately available funds to the account designated by such nominee in writing
at least two Business Days prior to such Distribution Date and except for the
final installment of principal payable with respect to such Note (or the
Redemption Price for any Note called for redemption), which shall be payable as
provided in subsection (b) of this Section 2.09.
(b) All reductions in the principal amount of a Note (or one
or more Predecessor Notes) effected by means of an allocation of the Realized
Loss Amount or by payments of installments of principal made on any Distribution
Date shall be binding upon all Holders of such Note and of any Note issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Note. The final installment of
principal of each Note (including the Redemption Price of any Note called for
redemption pursuant to Section 10.01) shall be payable only upon presentation
and surrender thereof on or after the Distribution Date or Redemption Date
therefor at the Corporate Trust Office or at the office or agency of the Issuer
maintained by it for such purpose set forth in Section 3.02.
Whenever, on the basis of Remittances on the Accounts received
and expected to be received during the related Due Periods or on the related
Distribution Date, as applicable, the Issuer expects that the entire remaining
unpaid principal amount of the Notes will become due and payable on the next
Principal Distribution Date, it shall, no later than ten days prior to such
Principal Distribution Date, mail or cause to be mailed to each Person in whose
name a Note to be so retired is registered at the close of business on the
Record Date that would otherwise be applicable to such Principal Distribution
Date a notice to the effect that:
(i) the Issuer expects that funds sufficient to pay such
final installment will be available in the Collection Account on such
Principal Distribution Date, and
(ii) if such funds are available, (A) such final
installment will be payable on such Distribution Date, but only upon
presentation and surrender of such Note at the Corporate Trust office
or at the office or agency of the Issuer maintained for such purpose
pursuant to Section 3.02 (the addresses of which shall be set forth in
such notice), and (B) no interest shall accrue on such Note after such
Principal Distribution Date.
Notices in connection with redemptions of Notes shall contain the information
set forth in, and be mailed in accordance with, Section 10.02.
II-6
<PAGE> 34
(c) Subject to the foregoing provisions of this Section, each
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to unpaid
principal and interest that were carried by such other Note. Any checks mailed
pursuant to subsection (a) of this Section 2.09 and returned undelivered shall
be held in accordance with Section 3.03.
(d) Not later than each Debt Service Requirement Determination
Date, the Trustee shall prepare and deliver to the Issuer a statement with
respect to the following Distribution Date (a "Distribution Date Statement")
setting forth:
(i) the amount of Issuer Expenses paid or due to be paid
in respect of the related Due Period;
(ii) the amount of the Available Funds for such
Distribution Date;
(iii) the amount of interest then due and payable on the
Notes then Outstanding (stated separately as to each Class);
(iv) the optimal Principal Amount for each Class;
(v) whether the Available Funds for such Distribution
Date will be sufficient to pay on such Distribution Date all amounts
specified in clause (iii) and, if not, the percentages of such amount
which may be paid in accordance with the priorities set forth in
Section 8.02(c) from the amounts expected to be available in the
Collection Account;
(vi) the Class Interest Shortfall (stated separately as to
each Class);
(vii) the amounts included in such statement pursuant to
clauses (iii) and (iv), expressed in each case per Individual Note, to
be paid on such Distribution Date;
(viii) the amount, if any, to be released to the Issuer
pursuant to clause twenty-second of Section 8.02(c);
(ix) the total Realized Loss Amount and amount allocated
to each Class of Notes and interest thereon;
(x) the unpaid principal amount of each Class of Notes
which will remain after giving effect to the payments to be made on
such Distribution Date expressed both on an aggregate basis and per
Individual Note;
(xi) the Cumulative Actual Net Economic Losses as of the
end of the related Due Period;
(xii) the Economic Balance as of the end of the related Due
Period of Accounts with respect to which there is a material breach of
any representation or
II-7
<PAGE> 35
warranty made in Section 3.11 or as to which there is a material defect
in the related Account Documents in accordance with Section 3.12 (b);
(xiii) the Minimum Target Overcollateralization Amount;
(xiv) cumulative unreimbursed Realized Loss Amounts;
(xv) the Aggregate Economic Balance of the Accounts at
immediately following the end of the related Due Period; and
(xvi) the number and Aggregate Economic Balance of all
Accounts 30, 60 and 90 or more days past due and in repossession,
foreclosure or bankruptcy.
Each Distribution Date Statement shall be delivered by the
Trustee to the Issuer, each designee of the Issuer specified in writing to the
Trustee, Lehman Brothers Inc., S&P, Moody's, the firm of Independent Accountants
appointed by the Issuer pursuant to Section 8.07(a) and, upon request, to the
beneficial owners of the Notes.
SECTION 2.10. Persons Deemed Owners.
Prior to due presentment for registration of transfer of any
Note, the Issuer, the Trustee, any Agent and any other agent of the Issuer or
the Trustee may treat the Person in whose name any Note is registered as the
absolute owner of such Note for all purposes whatsoever, whether or not such
Note is overdue, and neither the Issuer, the Trustee, any Agent nor any other
agent of the Issuer or the Trustee shall be affected by notice to the contrary.
SECTION 2.11. Cancellation.
All Notes surrendered for payment, registration of transfer,
exchange or redemption shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee, and such Notes, together with all such
Notes so surrendered directly to the Trustee, shall be promptly cancelled by it.
The Issuer may at any time deliver to the Trustee for cancellation any Note
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
shall be held by the Trustee in accordance with its standard retention policy,
unless the Issuer shall direct by an Issuer Order that they be destroyed or
returned to it.
SECTION 2.12. Authentication and Delivery of Notes.
The Notes may be executed by the Issuer and delivered to the
Trustee for authentication, and thereupon the same shall be authenticated and
delivered by the Trustee, upon Issuer Request and upon receipt by the Trustee of
the following items required to be
II-8
<PAGE> 36
delivered to the Trustee in connection with the initial authentication and
delivery of the Notes on the Closing Date:
(a) an Issuer Order authorizing the authentication and
delivery of the Notes;
(b) an Officers' Certificate of the Issuer, complying with the
requirements of Section 11.01, stating that:
(i) the Issuer is not in Default under this
Indenture and the issuance of the Notes will not result in any
breach of any of the terms, conditions or provisions of, or
constitute a default under, the Trust Agreement or any other
constituent documents of the Issuer, or any indenture,
mortgage, deed of trust or other agreement or instrument to
which the Issuer is a party or by which it is bound, or any
order of any court or administrative agency entered in any
proceeding to which the Issuer is a party or by which it may
be bound or to which it may be subject, and all conditions
precedent provided in this Indenture relating to the
authentication and delivery of the Notes have been complied
with;
(ii) the Issuer is the owner of and has good
title to each Account, has not assigned any interest or
participation in any such Account (or, if any such interest or
participation has been assigned, it has been released) and has
the right to Grant each such Account to the Trustee, and no
other Person has any lien on, security interest in or other
rights to any such Account;
(iii) the Issuer has Granted to the Trustee all of
its right, title, and interest in each Account Granted to the
Trustee by it to secure the Notes;
(iv) the information set forth in the Schedule of
Accounts to this Indenture is correct;
(v) attached thereto are true and correct copies
of letters signed by the Rating Agencies confirming that the
Class A-1 Notes have been rated ___ by the Rating Agencies,
the Class A-2 Notes have been rated at least ___ by the Rating
Agencies, the Class A-3 Notes have been rated at least __ by
the Rating Agencies and the Class A-4 Notes have been rated at
least ___ by the Rating Agencies; and
(vi) each of the Accounts satisfies the
requirements of subsection (c) below;
(c) all of the Accounts and all Account Documents (except that
(A) in lieu of delivering the Account Documents for any Account which
has been the subject of a Full Prepayment received by the Servicer
after the Cut-Off Date but no later than five Business Days prior to
the Closing Date, the Issuer may deliver, or cause to be delivered, as
indicated in the Officers, Certificate from the Servicer delivered
pursuant
II-9
<PAGE> 37
to subsection (e) of this Section 2.12, the cash proceeds of such Full
Prepayment, (B) in lieu of delivering the Account Documents for any
Account with respect to which foreclosure proceedings have been
commenced and such Account Documents are required in connection with
the prosecution of such proceedings, the Issuer may deliver a trust
receipt pursuant to Section 3.13 (c) of this Indenture and (C) the
Trustee's review of such Account Documents pursuant to Section 3.12
need not be completed until 90 days following the Closing Date), which
Accounts:
shall have an aggregate Economic Balance at least
equal to $______________ as of the Cut-Off Date, and
shall satisfy each of the representations and
warranties with respect to such Accounts set forth in Section
3.11 of this Indenture;
(d) an executed counterpart of the Servicing Agreement;
(e) an Officer's Certificate from the Servicer, dated as of
the Closing Date, certifying that all Monthly Payments (net of the
Servicing Fee) on the Accounts due after the Cut-Off Date and received
more than five Business Days prior to the Closing Date plus the
proceeds of each Full Prepayment of any such Account (including any
related payment of interest) received by the Servicer after the Cut-Off
Date but more than five Business Days prior to the Closing Date have
been remitted to the Trustee for deposit in the Collection Account in
accordance with Section 2.08 of the Servicing Agreement and setting
forth the aggregate amount so remitted representing a Full Prepayment
received by the Servicer after the Cut-Off Date but more than five
Business Days prior to the Closing Date;
(f) a letter, addressed to the Trustee, of a firm of
Independent Accountants of recognized national reputation to the effect
that:
(1) they have performed the following procedures
(which need not constitute an examination in accordance with
generally accepted auditing standards):
(A) they have randomly selected a sample of
the Accounts, and compared the Account number, the
total number of Monthly Payments to be made under the
Account during its term, the total finance charge
over the term of the related Account Note, Monthly
Payment, amount financed and the original principal
balance set forth in the related Account Documents to
the corresponding item in the Schedule of Accounts;
and
(B) they recalculated the Economic Balance
for each Account and compared the Economic Balance
calculated by the Issuer to the Economic Balances
calculated by them for each Account and compared the
aggregate Economic Balance for all Accounts
calculated by them to
II-10
<PAGE> 38
the aggregate initial principal amount of the Notes
proposed to be authenticated and delivered; and
(2) based upon the above-specified procedures, such
firm has determined that:
(A) they are 95% confident that the
particular attributes of the Accounts tested by them
as described in paragraph (1) (A) above will not vary
from the corresponding information set forth on the
Schedule of Accounts for more than ___% of all of the
Accounts; and
(B) the Economic Balance calculated by the
Issuer for the Accounts (specifically,
$_________________) does not exceed the Economic
Balance for the Accounts as calculated by them in
accordance with the definition of the term "Economic
Balance" and the aggregate of the Economic Balances
calculated by them for all Accounts is not less than
____% of the aggregate initial principal amount of
the Notes proposed to be authenticated and delivered;
(g) cash in the amount equal to the amount, if any, required
to be remitted to the Trustee pursuant to Section 2.08 of the Servicing
Agreement (as indicated by the officers, Certificate from the Servicer
delivered pursuant to subsection (e) of this Section 2.12) and
deposited in the Collection Account and held by the Trustee and applied
in accordance with Section 8.02;
(h) an executed copy of the Contract Sale Agreement and the
Purchase and Sale Agreement;
(i) an executed copy of the Trust Agreement;
(j) an executed copy of the Holding Account Agreement; and
(k) a copy of the fidelity bond required pursuant to Section
4.05 of the Servicing Agreement; and
(1) an opinion of Independent Counsel either stating that, in
the opinion of such counsel, such action has been taken and is necessary to
perfect and maintain the security interest created by this Indenture with
respect to the Trust Estate and reciting the details of such action or stating
that in the opinion of such counsel no such action is necessary to maintain such
lien and security interest.
II-11
<PAGE> 39
ARTICLE III
COVENANTS; REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Payment of Notes.
The Issuer will pay or cause to be duly and punctually paid
the principal of and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
SECTION 3.02. Maintenance of Office or Agency.
The Issuer will maintain in the Borough of Manhattan, the City
of New York, the State of New York and in the city where the Corporate Trust
Office is located an office or agency where Notes may be presented or
surrendered for payment or may be surrendered for registration of transfer or
exchange, and where notices and demands to or upon the Issuer in respect of the
Notes and this Indenture may be served. The Issuer will give prompt written
notice to the Trustee of the location and any change in the location of such
office or agency. Until written notice of any change in the location of such
office or agency is delivered to the Trustee or if at any time the Issuer shall
fail to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, Notes may be so presented or surrendered, and
such notices and demands may be made or served, at the office of
________________________________________ and at the Corporate Trust Office.
The Issuer may also from time to time designate one or more
other offices or agencies (in or outside the City of New York or the city where
the Corporate Trust Office is located) where the Notes may be presented or
surrendered for any or all such purposes and where notices and demands may be
served and may from time to time rescind such designations; provided, however,
that (i) no such designation or rescission shall in any manner relieve the
Issuer of its obligation to maintain an office or agency in the City of New
York, for the purposes set forth in the preceding paragraph and (ii) any
designation of an office or agency for payment of Notes shall be subject to
Section 3.03. The Issuer will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other off ice or agency.
SECTION 3.03. Money for Note Payments to Be Held in Trust.
All payments of amounts due and payable with respect to any
Notes which are to be made from amounts withdrawn from the Collection Account
pursuant to Section 8.02(c) or Section 5.08 shall be made on behalf of the
Issuer by the Trustee or by another Paying Agent, and no amounts so withdrawn
from the Collection Account for payments of Notes shall be paid over to the
Issuer under any circumstances except as provided in this Section 3.03 or in
Section 5.08 or 8.02.
If the Issuer shall have a Paying Agent that is not also the
Note Registrar, it shall furnish, or cause the Note Registrar to furnish no
later than the fifth Business Day after
III-1
<PAGE> 40
each Record Date, a list, in such form as such Paying Agent may reasonably
require, of the names and addresses of the Holders of Notes and of the number of
Individual Notes held by each such Holder.
Whenever the Issuer shall have a Paying Agent other than the
Trustee, it will, on or before the Business Day next preceding each Distribution
Date, direct the Trustee to deposit with such Paying Agent an aggregate sum
sufficient to pay all amounts then becoming due (to the extent funds are then
available for such purpose in the Collection Account), such sum to be held in
trust for the benefit of the Persons entitled thereto. Any moneys deposited with
a Paying Agent in excess of an amount sufficient to pay the amounts then
becoming due on the Notes with respect to which such deposit was made shall,
upon Issuer Order, be paid over by such Paying Agent to the Trustee for
application in accordance with Article VIII.
Any Paying Agent other than the Trustee shall be appointed by
Issuer Order, and the Trustee is hereby appointed, and the Trustee hereby
accepts such appointment, as initial Paying Agent. The Issuer shall not appoint
any Paying Agent which is not, at the time of such appointment, a depository
institution or trust company. The Issuer will cause each Paying Agent other than
the Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee (and if the Trustee acts as Paying
Agent, it hereby so agrees), subject to the provisions of this Section, that
such Paying Agent will:
(1) allocate all sums received for payment to the Holders of
Notes on each Distribution Date among such Holders in the proportion
specified in the Distribution Date Statement, to the extent permitted
by applicable law;
(2) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(3) if such Paying Agent is not the Trustee, immediately
resign as a Paying Agent and forthwith pay to the Trustee all sums held
by it in trust for the payment of Notes if at any time it ceases to
meet the standards set forth above required to be met by a Paying Agent
at the time of its appointment;
(4) if such Paying Agent is not the Trustee, give the Trustee
notice of any Default by the Issuer (or any other obligor upon the
Notes) in the making of any payment required to be made with respect to
any Notes;
(5) if such Paying Agent is not the Trustee, at any time
during the continuance of any such Default, upon the written request of
the Trustee, forthwith pay to the Trustee all sums so held in trust by
such Paying Agent; and
(6) comply with all requirements of the Internal Revenue Code
of 1986, as amended (or any successor or amendatory statutes), and all
regulations thereunder,
III-2
<PAGE> 41
with respect to the withholding from any payments made by it on any
Notes of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection
therewith; provided, however, that with respect to withholding and
reporting requirements applicable to original issue discount (if any)
on the Notes, the Issuer has provided the calculations pertaining
thereto to the Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent, if other than the Trustee, to pay to the Trustee
all sums held in trust by such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by such Paying
Agent; and upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Any money held by the Trustee or any Paying Agent in trust for
the payment of any amount due with respect to any Note and remaining unclaimed
for two years after such amount has become due and payable to the Holder of such
Note shall be discharged from such trust and paid to the Issuer; and the Holder
of such Note shall thereafter, as an unsecured general creditor, look only to
the Issuer for payment thereof (but only to the extent of the amounts so paid to
the Issuer), and all liability of the Trustee or such Paying Agent with respect
to such trust money shall cease upon such payment. The Trustee may adopt and
employ, at the expense of the Issuer, any reasonable means of notification of
such repayment (including, but not limited to, mailing notice of such repayment
to Holders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Trustee or any Agent, at the
last address of record for each such Holder).
SECTION 3.04. Existence of Issuer.
The Issuer will keep in full effect its existence, rights and
franchises as a statutory business trust under the laws of the State of
__________ (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other State or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Trust Fund and each instrument
or agreement included in the Trust Fund.
SECTION 3.05. Protection of Trust Fund.
(a) The Issuer will from time to time execute and deliver all
such supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance, and other
instruments, and will take such other action as may be necessary or advisable to
(i) Grant more effectively all or any portion of the Trust
Fund.
III-3
<PAGE> 42
(ii) maintain or preserve the lien of this Indenture or
carry out more effectively the purposes hereof,
(iii) perfect, publish notice of, or protect the validity
of, any Grant made or to be made by this Indenture,
(iv) enforce any of the Account Documents,
(v) preserve and defend title to the Trust Fund and the
rights of the Trustee and of the Noteholders in the Account Documents
and the other property held as part of the Trust Fund against the
claims of all persons and parties, or
(vi) pay all taxes or assessments levied or assessed upon
the Trust Fund when due.
The Issuer hereby designates the Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required pursuant to this Section 3.05; provided, however, that
such designation shall not be deemed to create a duty in the Trustee to monitor
the compliance of the Issuer with the foregoing covenants and provided, further,
that the duty of the Trustee to execute any instrument required pursuant to this
Section 3.05 shall arise only if the Trustee has knowledge of any failure of the
Issuer to comply with provisions of this Section 3.05. The Issuer shall execute
a power of attorney coupled with an interest which shall be irrevocable, and the
Issuer hereby ratifies and confirms all that the Trustee may do by virtue
thereof.
(b) Except as otherwise provided herein and in the Servicing
Agreement, the Trustee shall not remove any portion of the Trust Fund that
consists of money or is evidenced by an instrument, certificate or other writing
from the jurisdiction in which it was held at the date of the most recent
Opinion of Independent Counsel delivered pursuant to Section 3.06 (or from the
jurisdiction in which it was held as described in the Opinion of Counsel
delivered at the Closing Date pursuant to Section 2.12(l), if no Opinion of
Independent Counsel has yet been delivered pursuant to Section 3.06) unless the
Trustee shall have first received an Opinion of Independent Counsel to the
effect that the lien and security interest created by this Indenture with
respect to such property will continue to be maintained after giving effect to
such action or actions.
SECTION 3.06. Opinions as to Trust Fund.
On or before ______________ in each calendar year, beginning
in 199_, the Issuer shall furnish to the Trustee an opinion of Independent
Counsel either stating that, in the opinion of such counsel, such action has
been taken as is necessary to perfect and to maintain the lien and security
interest created by this Indenture with respect to the Trust Fund and reciting
the details of such action or stating that in the opinion of such counsel no
such action is necessary to maintain such lien and security interest. Such
opinion of Counsel shall also address any other matter reasonably requested by
the Trustee with respect to the Trust Fund and describe all such action, if any,
that will, in the opinion of such counsel, be required to be
III-4
<PAGE> 43
taken to maintain the lien and security interest of this Indenture with respect
to the Trust Fund until May 15 in the following calendar year. The Issuer shall
be required to take whatever action set forth in the Opinion of Independent
Counsel to perfect or maintain the lien and security interest in the Trust Fund
created by this Indenture.
SECTION 3.07. Performance of Obligations; Servicing Agreement.
(a) The Issuer will punctually perform and observe all of its
obligations and agreements contained in the Servicing Agreement.
(b) The Issuer will not take any action or permit any action
to be taken by others which would release any Person from any of such Person's
covenants or obligations under any of the Account Documents or under any
instrument included in the Trust Fund, or which would result in the amendment,
hypothecation, subordination, termination or discharge Of, or impair the
validity or effectiveness of, any of the Account Documents, or any such
instrument, except for such actions that are expressly provided for in the
Servicing Agreement.
(c) If the Issuer shall have knowledge of the occurrence a
Servicing Default, the Issuer shall promptly notify the Trustee thereof, and
shall specify in such notice the action, if any, the Issuer is taking in respect
of such Servicing Default. If any Servicing Default arises from the failure of
the Servicer to perform any of its duties or obligations under the Servicing
Agreement with respect to the Accounts, the Issuer may remedy such failure,
provided that if any Servicing Default arises from the failure by the Servicer
to comply with requirements imposed upon it under Section 2.12 of the Servicing
Agreement regarding advances for taxes, assessments and other charges against
the Mortgaged Property or under Section 2.13 of the Servicing Agreement with
respect to hazard insurance for the Mortgaged Properties securing the Mortgage
Loans, the Issuer shall promptly pay such taxes, assessments or other charges or
such premiums or obtain substitute insurance coverage meeting the requirements
of said Section 2.13. So long as any Servicing Default shall be continuing, the
Trustee may, and upon the direction of the Holders of Notes entitled to more
than 50% of the aggregate Voting Rights of all Classes voting together as a
single class the Trustee shall, terminate all of the rights and powers of the
Servicer under the Servicing Agreement pursuant to Section 5.01 of the Servicing
Agreement or take any other action with respect to such Servicing Default as is
permitted under said Section 5.01. Unless granted or permitted by the Holders of
Notes to the extent provided above, the Issuer may not waive any such Servicing
Default or terminate the rights and powers of the Servicer under the Servicing
Agreement.
(d) Upon any termination of the Servicer's rights and powers
pursuant to Section 5.01 of the Servicing Agreement, the Trustee shall appoint,
or shall petition a court of competent jurisdiction to appoint, a successor
servicer or upon the occurrence of a Trigger Event, the Trustee may appoint such
successor servicer (the "Successor Servicer"). The Trustee may appoint itself
Successor Servicer. Pending the appointment of a Successor Servicer as provided
above, the Trustee shall be the Successor Servicer. Upon any termination of the
Servicer's rights and powers pursuant to Section 5.01 of the Servicing Agreement
or upon the occurrence of a Trigger Event, all rights, powers, duties and
III-5
<PAGE> 44
responsibilities of the Servicer with respect to the Accounts shall vest in and
be assumed by the Successor Servicer, and the Successor Servicer shall be the
successor in all respects to the Servicer in its capacity as servicer with
respect to the Accounts under the Servicing Agreement. Upon any such
termination, the successor Servicer, or if the Trustee so elects upon a Trigger
Event, the Trustee, is hereby authorized to mail a notice to each Obligor
directing each such Obligor to mail all Monthly Payments to the Successor
Servicer or its agent at the address specified in such notice. In connection
with any such appointment, the Trustee may make such arrangements for the
compensation of such successor as it and such successor shall agree, and the
Issuer shall enter into an agreement with such successor for the servicing of
the Accounts, such agreement to be substantially similar to the Servicing
Agreement or otherwise acceptable to the Trustee; provided that any such
compensation of the Successor Servicer shall not be in excess of 100% of the
Servicing Fee payable to the Servicer under the Servicing Agreement.
(e) The Issuer may enter into contracts with other Persons for
the performance of the Issuer's obligations hereunder, and performance of such
obligations by such Persons shall be deemed to be performance of such
obligations by the Issuer.
SECTION 3.08. Negative Covenants.
The Issuer will not:
(i) sell, transfer, exchange or otherwise dispose of any
portion of the Trust Fund except as expressly permitted by this
Indenture;
(ii) obtain or carry insurance relating to the Accounts
separate from that required by the Servicing Agreement, unless the
Trustee shall have the same rights with respect thereto as it has with
respect to the insurance required by the Servicing Agreement;
(iii) claim any credit on, or make any deduction from, the
principal of, or interest on, any of the Notes by reason of the payment
of any taxes levied or assessed upon any portion of the Trust Fund;
(iv) engage in any business or activity other than in
connection with, or relating to, the issuance of the Notes or the
preservation of the Trust Fund and the release of assets therefrom
pursuant to this Indenture and the Trust Agreement;
(v) dissolve or liquidate in whole or in part;
(vi) (1) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations
under this Indenture, except as may be expressly permitted hereby, (2)
permit any lien, charge, security interest, mortgage or other
encumbrance (other than the lien of this Indenture) to be created on or
extend to or otherwise arise upon or
III-6
<PAGE> 45
burden the Trust Fund or any part thereof or any interest therein or
the proceeds thereof, or (3) except as permitted hereby, permit the
lien of this Indenture not to constitute a valid and perfected first
priority security interest in the Trust Fund;
(vii) cause or permit any Affiliate to petition or
otherwise invoke the process of any court or government authority for
the purpose of commencing or sustaining a case against the Issuer under
any Federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian,
sequester or other similar official of the Issuer or any substantial
part of its property, or ordering the winding up or liquidation of the
affairs of the Issuer; or
(viii) amend the Trust Agreement without the consent of the
Trustee.
SECTION 3.09. Annual Statement as to Compliance.
On or before 120 days after the first anniversary of the
Closing Date and each subsequent anniversary date of the Closing Date, the
Issuer shall deliver to the Trustee a written statement, signed by two
Authorized Officers, stating, as to each signer thereof, that
(1) a review of the fulfillment by the Issuer during such year
of its obligations under this Indenture has been made under such
officer's supervision; and
(2) to the best of such officer's knowledge, based on such
review, the Issuer has fulfilled all its obligations under this
Indenture throughout such year or, if there has been a Default in the
fulfillment of any such obligation, specifying each such Default known
to such officer and the nature and status thereof.
SECTION 3.10. Recording of Assignments.
The Issuer shall use reasonable best efforts to record
substantially all Assignments and Trust Mortgages within 21 days of the Closing
Date and in any event all Assignments and Trust Mortgages shall be duly recorded
not later than 90 days after the date of the Grant of the related Account.
SECTION 3.11. Representations and Warranties Concerning the
Accounts.
(a) The Issuer represents and warrants to the Trustee, with
respect to each Account, that as of the Closing Date (and the Issuer shall be
deemed to have made such representations and warranties at the time of the
transfer thereof to the Trustee with respect to each new Account originated in
connection with the sale of property acquired in respect of an Account):
(i) the information set forth with respect to such
Account in the Schedule of Accounts attached hereto is true and correct
as of the date as of which such information is given;
III-7
<PAGE> 46
(ii) the related installment sale contract has been duly
executed by the parties thereto and the duties to be performed
thereunder prior to the date the first payment in connection with such
contract is due have been performed;
(iii) the Account Documents have been duly executed by the
related Obligor and the Mortgage has been duly executed by the Obligor
and, to the extent required under local law for recordation or
enforcement, properly acknowledged;
(iv) the Mortgage has been properly recorded as required
by law. The Mortgage constitutes a valid first priority lien upon and
secure title to the real property and improvements thereon described
therein, which include a single family detached dwelling, and such
Mortgage and the Account Note secured thereby are fully enforceable in
accordance with their terms except as enforceability thereof may be
limited by bankruptcy, insolvency, moratorium and other laws affecting
creditors, rights generally and by general principles of equity
(whether applied in a proceeding in law or at equity);
(v) the Issuer is the sole owner of each Account and has
good title to such Account and full right and authority to transfer
such Account and to Grant such Account to the Trustee and, upon
delivery of the related Account Documents to the Trustee, the Trustee
will have a valid and perfected lien or security interest in such
Account;
(vi) all costs, fees, intangible, documentary and
recording taxes and expenses incurred in making, closing, and recording
each Account and in connection with the issuance of the Notes have been
paid;
(vii) no part of the Mortgaged Property purporting to
secure any Account Note has been, or shall have been, released from the
lien or security title of the Mortgage securing such Account Note
except for Mortgaged Property securing Account Notes which have been
prepaid in full between the Cut-Off Date and the Closing Date, the
amount of such prepayments received more than five days prior to the
Closing Date to be deposited in the Collection Account on or before the
Closing Date;
(viii) except to the extent permitted by the Servicing
Agreement, no term or provision of any Account has been or will be
altered, changed or modified in any way by the Servicer or the Issuer
without the consent of the Trustee;
(ix) the Grantor and the Issuer acquired title to the
Accounts in good faith, for value and without notice of any adverse
claim;
(x) the Account Notes evidence accounts bearing a fixed
finance charge rate and fully amortizing level monthly payments. Each
Account Note has an original term to maturity not in excess of 30
years;
III-8
<PAGE> 47
(xi) as of the Closing Date, there is no right of
rescission, setoff, defense or counterclaim to any Account Note or
Mortgage, including both the obligation of the Obligor to pay the
unpaid cash price or finance charge on such Account Note and the
defense of usury; furthermore, neither the operation of any of the
terms of the Account Note and the Mortgage nor the exercise of any
right thereunder will render the Account Note or the Mortgage
unenforceable, in whole or in part, or subject such Account Note or
Mortgage to any right of rescission, setoff, counterclaim or defense,
including the defense of usury, and no such right of rescission,
setoff, counterclaim or defense has been asserted with respect thereto;
(xii) there are no mechanics, liens or claims for work,
labor or material (and to the best of the Issuer's knowledge, no rights
or claims are outstanding that under law could give rise to such lien)
affecting any Mortgaged Property which are or may be a lien prior to,
or equal with, the lien of such Mortgage;
(xiii) each Account Note at origination complied in all
material respects with applicable local, state and federal laws,
including, without limitation, usury, equal credit opportunity, real
estate settlement procedures, truth-in-lending and disclosure laws, and
consummation of the transactions contemplated by the Purchase and Sale
Agreement and hereby will not involve the violation of any such laws;
(xiv) with respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as such,
is properly designated, serving and named in such Mortgage;
(xv) there has been no fraud, dishonesty,
misrepresentation or negligence on the part of the originator in
connection with the origination of any Account Note or in connection
with the sale of the related Account; and
(xvi) to the best knowledge of the Issuer, except Mortgaged
Properties for which Insurance Proceeds are available, each Mortgaged
Property is in good condition and free of damage which materially and
adversely affects the value thereof.
(b) If any of the representations, warranties or covenants
with respect to any Account set forth in this Section 3.11 are found to be
incorrect as of the time made in any respect which materially and adversely
affects the interest of the Trustee or the Noteholders in the Account, the
Issuer or the Servicer shall notify the Trustee immediately after obtaining
knowledge thereof, and the Issuer shall use its best efforts to eliminate or
otherwise cure the circumstances or conditions in respect of which such
representation, warranty or covenant was incorrect as of the time made within 90
days of such notice to the Trustee. If such breach is not or cannot be cured
within such 90-day period or, with the prior written consent of a Responsible
Officer of the Trustee, such longer period as specified in such consent, the
Issuer shall either (i) deposit in the Collection Account an amount equal to
100% of the then current Economic Balance of the affected Account (a "Defective
Account"), at which time the Defective Account shall be released from the lien
of the Indenture or (ii) remove such Account from the Trust Fund and substitute
one or more Qualified Substitute Accounts (in which case
III-9
<PAGE> 48
the removed Account shall become a "Deleted Account"). The Issuer shall promptly
reimburse the Servicer and the Trustee for any reasonable expenses (including
without limitation reasonable attorney's fees) incurred by the Servicer and the
Trustee, respectively, in respect of any such breach.
As to any Deleted Account for which the Issuer substitutes a
Qualified Substitute Account or Qualified Substitute Accounts, the Issuer shall
effect such substitution by delivery to the Trustee of the Account Notes for
such Qualified Substitute Account or Qualified Substitute Accounts and such
other Account Documents related thereto, with each such Account Note endorsed to
the order of the Issuer, without recourse, and endorsed by the Issuer in blank
or to the order of the Trustee, without recourse. Monthly Payments due with
respect to Qualified Substitute Accounts in the month of substitution are not
part of the Trust Fund and will be retained by the Issuer. Available Funds will
include the Monthly Payment due on any Deleted Account in the month of
substitution, and the Issuer shall deposit such amount in the Collection Account
if received by it subsequent to the month of substitution. The Issuer shall be
entitled to receive all amounts due subsequent to the month of substitution in
respect of such Deleted Account. The Issuer shall give or cause to be given
written notice to the Trustee and the Rating Agencies that such substitution has
taken place. Upon such substitution, such Qualified Substitute Account or
Qualified Substitute Accounts shall be subject to the terms of this Indenture in
all respects, and the Issuer shall be deemed to have made with respect to such
Qualified Substitute Account or Qualified Substitute Accounts, as of the date of
substitution, the representations and warranties set forth in this Section 3.11.
The Trustee shall at the direction of the Issuer immediately effect the release
of the lien of this Indenture with respect to such Deleted Account, the form of
the instruments effecting such release being specified in such direction.
For any month in which the Issuer substitutes one or more
Qualified Substitute Accounts for one or more Deleted Accounts, the Issuer will
determine the amount (if any) by which the aggregate outstanding Economic
Balance of all such Qualified Substitute Accounts as of the date of substitution
is less than the aggregate outstanding Economic Balance of all such Deleted
Accounts. On the date of such substitution, the Issuer will deposit from its own
funds into the Collection Account an amount equal to the amount of such
shortfall, if any, without reimbursement therefor.
It is understood and agreed that the obligations of the Issuer
set forth in this Section 3.11(b) to cure, substitute for or deposit funds in
the Collection Account in connection with an Account constitute the sole
remedies available to the Noteholders or to the Trustee on their behalf
respecting a breach of the representations and warranties set forth in Section
3.11(a).
SECTION 3.12. Trustee's Review of Account Documents.
(a) The Trustee agrees, for the benefit of the holders of the
Notes, to review within 90 days after the Closing Date (or other date of
transfer to the Trust of an Account or substitution of a Qualified Substitute
Account), the Account Documents delivered to it on or
III-10
<PAGE> 49
prior to the Closing Date (or other date of transfer to the Trust of an Account
or substitution of a Qualified Substitute Account) in connection with the Grant
of the Accounts listed on the Schedule of Accounts as security for the Notes.
Such review shall be limited to a determination that all documents referred to
in the definition of the term Account Documents have been delivered with respect
to each such Account (other than the documents related to (i) any Account so
listed which has been subject to a Full Prepayment, the proceeds of which have
been deposited in the Collection Account in lieu of delivery of the applicable
Account Documents and (ii) any Account with respect to which the related
Mortgaged Property was foreclosed, repossessed or otherwise converted subsequent
to the Cut-Off Date and prior to the Closing Date or with respect to which
foreclosure proceedings have been commenced and the related Account Documents
are required in connection with the prosecution of such foreclosure proceedings
and the Issuer has delivered a trust receipt called for by Section 3.13 (c) ),
that all such documents have been executed, and that all such documents relate
to the Accounts listed on the Schedule of Accounts; provided, however, that with
respect to the review made of the Accounts in connection with the Closing Date,
assumption or substitution agreements shall not be considered Account Documents.
In performing such review, the Trustee may rely upon the purported genuineness
and due execution of any such document and on the purported genuineness of any
signature thereon.
(b) If any Account Document is defective in any material
respect which may materially and adversely affect the value of the related
Account, the priority of the related Mortgage or the interest of the Trustee or
the Noteholders in such Account or if any document required to be delivered to
the Trustee has not been delivered or if any documents so delivered does not
relate to an Account listed on the Schedule of Accounts, the Trustee shall
notify the Issuer and the Servicer immediately after obtaining knowledge
thereof. Within 90 days of the earlier of discovery by or notice to the Issuer
that any Account Document is missing or defective and such omission or defect
materially and adversely affects the interest of the Noteholders in an Account,
the Issuer is required to use its best efforts to cure such omission or defect.
If such omission or defect is not or cannot be cured within such 90-day period
or, with the prior written consent of a Responsible Officer of the Trustee, such
longer period as specified in such consent, the Issuer shall either (i) deposit
in the Collection Account an amount equal to 100% of the then current Economic
Balance of the affected Account (a "Defective Account"), at which time the
Defective Account shall be released from the lien of the Indenture or (ii)
remove such Account from the Trust Fund and substitute one or more Qualified
Substitute Accounts (in which case the removed Account shall become a "Deleted
Account"). The Issuer shall promptly reimburse the Servicer and the Trustee for
any reasonable expenses (including without limitation reasonable attorney's
fees) incurred by the Servicer and the Trustee, respectively, in respect of any
such defect or omission; provided, however, except for the review by the Trustee
pursuant to Section 3.12(a), the foregoing shall not impose an obligation on the
Trustee to discover defects in the Account Documents or to ascertain the
priority of the related Mortgage.
As to any Deleted Account for which the Issuer substitutes a
Qualified Substitute Account or Qualified Substitute Accounts, the Issuer shall
effect such substitution by delivery to the Trustee of the Account Note(s) for
such Qualified Substitute Account or
III-11
<PAGE> 50
Qualified Substitute Accounts and such other Account Documents related thereto,
with each such Account Note endorsed to the order of the Issuer, without
recourse, and endorsed by the Issuer in blank or to the order of the Trustee,
without recourse. Monthly Payments due with respect to Qualified Substitute
Accounts in the month of substitution are not part of the Trust Fund and will be
retained by the Issuer. Available Funds will include the Monthly Payment due on
any Deleted Account in the month of substitution, and the Issuer shall deposit
such amount in the Collection Account if received by it subsequent to the month
of substitution. The Issuer shall be entitled to receive all amounts due
subsequent to the month of substitution in respect of such Deleted Account. The
Issuer shall give or cause to be given written notice to the Trustee and the
Rating Agencies that such substitution has taken place. Upon such substitution,
such Qualified Substitute Account or Qualified Substitute Accounts shall be
subject to the terms of this Indenture in all respects, and the Issuer shall be
deemed to have made with respect to such Qualified Substitute Account or
Qualified Substitute Accounts, as of the date of substitution, the
representations and warranties set forth in Section 3.11. The Trustee shall at
the direction of the Issuer immediately effect the release of the lien of this
Indenture with respect to such Deleted Account, the form of the instruments
effecting such release being specified in such direction.
For any month in which the Issuer substitutes one or more
Qualified Substitute Accounts for one or more Deleted Accounts, the Issuer will
determine the amount (if any) by which the aggregate outstanding Economic
Balance of all such Qualified Substitute Accounts as of the date of substitution
is less than the aggregate outstanding Economic Balance of all such Deleted
Accounts. On the date of such substitution, the Issuer will deposit from its own
funds into the Collection Account an amount equal to the amount of such
shortfall, if any, without reimbursement therefor.
It is understood and agreed that the obligations of the Issuer
set forth in this Section 3.12(b) to cure, substitute for or deposit funds in
the Collection Account in connection with an Account constitute the sole
remedies available to the Noteholders or to the Trustee on their behalf
respecting an omission or defect set forth in Section 3.12(a).
SECTION 3.13. Trust Fund; Account Documents.
(a) When required by the provisions of this Indenture, the
Trustee shall execute instruments to release property from the lien of this
Indenture, or convey the Trustee's interest in the same, in a manner and under
circumstances which are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Trustee as provided in this
Article III shall be bound to ascertain the Trustee's authority, inquire into
the satisfaction of any conditions precedent or see to the application of any
moneys.
(b) In order to facilitate the servicing of the Accounts by
the Servicer, the Servicer is hereby authorized in the name and on behalf of the
Trustee and the Issuer, to execute assumption agreements, substitution
agreements, and instruments of satisfaction or cancellation, or of partial or
full release or discharge, and other comparable instruments with respect to the
Accounts and with respect to the Mortgaged Properties subject to the mortgages
III-12
<PAGE> 51
(and the Trustee shall execute any such documents on request of the Servicer),
subject to the obligations of the Servicer under the Servicing Agreement. If
from time to time the Servicer shall deliver to the Trustee copies of any
written assurance, assumption agreement or substitution agreement or other
similar agreement pursuant to Section 2.10 of the Servicing Agreement, the
Trustee shall check that each of such documents purports to be an original
executed copy and, if so, shall file such documents with the related Account
Documents. If any such documents submitted by the Servicer do not meet the above
qualifications, such documents shall promptly be returned by the Trustee to the
Servicer, with a direction to the Servicer to forward the correct documentation.
(c) Upon Issuer Request accompanied by an Officers'
Certificate of the Servicer pursuant to Section 2.15 of the Servicing Agreement
to the effect that an Account has been the subject of a Full Prepayment or that
all Liquidation Proceeds which have been determined by the Servicer in its
reasonable judgment to be finally recoverable, have been recovered and upon
deposit to the Holding Account of such final Monthly Payment, an amount that
satisfies the definition of Full Prepayment with respect to such Account or, if
applicable, Liquidation Proceeds, the Trustee shall promptly release the related
Account Documents to or upon the order of the Issuer, along with such documents
as the Servicer or the Obligor may request to evidence satisfaction and
discharge of such Account. If from time to time and as appropriate for the
servicing or foreclosure of any Account, the Servicer requests the Trustee to
release the related Account Documents and delivers to the Trustee a trust
receipt reasonably satisfactory to the Trustee and signed by a Servicing
Officer, the Trustee shall release the related Account Documents to the
Servicer. If such Account shall be liquidated and the Trustee receives a
certificate from the Servicer as provided above, then, upon request of the
Issuer, the Trustee shall release the trust receipt to or upon the order of the
Issuer.
(d) The Trustee shall, at such time as there are no Notes
outstanding, release all of the Trust Fund to the Issuer (other than any cash
held for the payment of the Notes pursuant to Section 3.03 or 4.01), subject,
however, to the rights of the Trustee under Section 6.07.
SECTION 3.14. Amendments to Servicing Agreement.
The Trustee may enter into any amendment or supplement to the
Servicing Agreement only in accordance with Section ____ of the Servicing
Agreement; provided, however, at any time, the Trustee may, without the consent
of the Noteholders, enter into an amendment to the Servicing Agreement modifying
the repossession, foreclosure and liquidation procedures if such modifications
are likely to minimize payments in connection with any filing or recording
required in any jurisdiction where any Mortgaged Properties are located. The
Trustee may, in its discretion, decline to enter into or consent to any such
supplement or amendment if its own rights, duties or immunities shall be
adversely affected.
SECTION 3.15. Servicer as Agent and Bailee of Trustee.
In order to facilitate the servicing of the Accounts by the
Servicer, the Servicer shall retain, in accordance with the provisions of the
Servicing Agreement and this Indenture,
III-13
<PAGE> 52
the moneys to be deposited in each Servicing Account. Solely for purposes of
perfection under Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Servicer, the Trustee hereby acknowledges
that the Servicer is acting as agent and bailee of the Trustee in holding such
moneys pursuant to Section ____ of the Servicing Agreement, as well as its agent
and bailee in holding any Account Documents released to the Servicer pursuant to
Section 3.13 (c), and any other items constituting a part of the Trust Fund
which from time to time come into the possession of the Servicer. It is intended
that, by the Servicer's acceptance of such agency pursuant to Section ____ of
the Servicing Agreement, the Trustee, as a secured party, will be deemed to have
possession of such Account Documents, such moneys and such other items for
purposes of Section 9-305 of the Uniform Commercial Code of the state in which
such property is held by the Servicer.
SECTION 3.16. Investment Company Act.
The Issuer shall not become an "investment company" as defined
in the Investment Company Act of 1940, as amended (or any successor or
amendatory statute), and the rules and regulations thereunder (taking into
account not only the general definition of the term "investment company" but
also any available exceptions to such general definition); provided, however,
that the Issuer shall be in compliance with this Section 3.16 if it shall have
obtained an order exempting it from regulation as an "investment company" so
long as it is in compliance with the conditions imposed in such order.
SECTION 3.17. Business Activity.
(a) The Issuer shall furnish to the Trustee copies of the form
of each proposed amendment to the Trust Agreement at least 60 days prior to the
proposed date of adoption of any such proposed amendment.
(b) The Issuer will at all times hold itself out to the
public, including creditors of any entity owning more than a 50% undivided
interest in the Issuer (hereinafter referred to as a Majority Owner" of the
Issuer), under the Issuer' s own name and as a separate and distinct entity from
the Grantor or any of its Affiliates.
(c) The Issuer will at all times be responsible for the
payment of all its obligations and indebtedness, will at all times maintain a
business office, records, books of account, and funds separate from its Majority
Owner and will observe all customary formalities of independent existence.
(d) To the extent such compliance involves questions of law,
the Issuer shall be deemed in compliance with the requirements of any provision
of this Section 3.17 if it is acting in accordance with an opinion of Counsel as
to such requirements.
(e) The Issuer represents, warrants and covenants that its
chief executive office is and shall be located in the State of Delaware.
III-14
<PAGE> 53
SECTION 3.18. Liability of Owner Trustee.
It is expressly understood and agreed by the parties hereto
that (a) this Indenture is executed and delivered by _______________________,
not individually or personally but solely as owner Trustee under the Trust
Agreement, in the exercise of the powers and authority conferred and vested in
it as the Owner Trustee, (b) each of the representations, undertakings and
agreements herein made on the part of the Issuer is made and intended not as
personal representations, undertakings and agreements by
________________________ but is made and intended for the purpose for binding
only the Trust Fund, (c) nothing herein contained shall be construed as creating
any liability on ________________________, individually or personally, to
perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the Trustee and the Noteholders and
by any Person claiming by, through or under the Trustee and the Noteholders and
(d) under no circumstances shall _______________________ be personally liable
for the payment of any indebtedness or expenses of the Issuer or be liable for
the breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Issuer under this Indenture.
SECTION 3.19. Exculpation of the Trustee.
By entering into this Indenture and agreeing to perform the
duties of the Trustee as set forth herein, the Trustee makes no implied or
express representation or warranty to the Noteholders with respect to the
sufficiency or the adequacy in any respect whatsoever of the terms of this
Indenture and the documents executed in connection herewith. Under no
circumstances shall the Trustee have any liability of any kind whatsoever for
the failure of any Noteholder adequately to review and evaluate to the full
satisfaction of such Noteholder the terms and provisions of this Indenture, the
Notes, the Servicing Agreement, and the other documents executed in connection
with this Indenture. The Trustee shall in no way be liable for the decision of
any Noteholder to purchase any Notes.
SECTION 3.20. Owner Trustee Agrees Not to File for Bankruptcy
of the Issuer.
Prior to one year after payment in full of all the Notes, the
Owner Trustee will not cause or consent to the filing of a petition in
bankruptcy against the Issuer for any reason without the written consent of all
the Noteholders.
III-15
<PAGE> 54
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture.
(a) Whenever the following conditions shall have been
satisfied:
(1) either
(A) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 2.08, and (ii) Notes for whose payment money has
theretofore been deposited in trust and thereafter repaid to
the Issuer, as provided in Section 3.03) have been delivered
to the Trustee for cancellation; or
(B) all Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at the
Maturity of the final installment of the principal
thereof within one year, or
(iii) are to be called for redemption
within one year under irrevocable arrangements
satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the
expense of the Issuer,
and the Issuer, in the case of clauses (i) (ii) or (iii)
above, has deposited or caused to be deposited with the
Trustee, in trust for such purpose, an amount of cash (which
cash, in the case of clauses (ii) and (iii) above must
constitute Eligible Moneys) sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal and
interest to the Maturity of their entire unpaid principal
amount or the applicable Redemption Date, as the case may be;
(2) the Issuer has paid or caused to be paid all
other sums payable hereunder by the Issuer; and
(3) the Issuer has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating
that all conditions precedent herein provided for the
satisfaction and discharge of this Indenture have been
complied with and covering such other matters as the Trustee
may reasonably request;
then, upon Issuer Request this Indenture and the lien, rights and interests
created hereby and thereby shall cease to be of further effect, and the Trustee
and each co-trustee and separate
IV-1
<PAGE> 55
trustee, if any, then acting as such hereunder shall, at the expense of the
Issuer, execute and deliver all such instruments as may be necessary to
acknowledge the satisfaction and discharge of this Indenture and shall pay, or
assign or transfer and deliver, to the Issuer or upon Issuer Order all cash,
securities and other property held by it as part of the Trust Fund remaining
after satisfaction of the conditions set forth in clauses (1) and (2) above.
(b) Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Issuer to the Trustee under Section 6.07, the
obligations of the Trustee to the Issuer and to the Holders of Notes under
Section 3.03, the obligations of the Trustee to the Holders of Notes under
Section 4.02 and the provisions of Article II with respect to lost, stolen,
destroyed or mutilated Notes, registration of transfers of Notes, and rights to
receive payments of principal of and interest on the Notes shall survive and the
provisions of Section 5.06 as they relate to clause (a) of Section 5.06 shall
continue for one year after such satisfaction and discharge.
SECTION 4.02. Application of Trust Money.
All money deposited with the Trustee pursuant to Sections 3.03
and 4.01 shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Paying Agent, as the Trustee may determine, to the Persons entitled
thereto, of the principal and interest for whose payment such money has been
deposited with the Trustee.
IV-2
<PAGE> 56
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01. Event of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) (i) there shall occur a default in the payment of any
amount due under the Notes by the Indenture Maturity Date or (ii) there
shall occur a failure to apply funds in the Collection Account in
accordance with Section 8.02 (c) and such failure shall continue for a
period of two days or (iii) there shall occur a default in the payment
when due of interest or principal on any Class of Notes and such
default shall continue for a period of 30 days (provided that neither
the reimbursement of any Realized Loss Amounts nor interest on any
Realized Loss Amounts in respect of any Class of Notes will be deemed
due unless there exist Available Funds sufficient to pay such amount
and all prior amounts under the Available Funds Allocation) or (iv)
there shall occur a failure to pay the Outstanding Principal Balance of
each Class of Notes on the Indenture Maturity Date;
(2) any representation or warranty of the Asset Seller in the
Contract Sale Agreement assigned by the Grantor in the Purchase and
Sale Agreement, or any representation or warranty by the Issuer herein,
is incorrect and such breach may have a material adverse effect on the
Issuer or the Noteholders and is not cured, a Qualified Substitute
Account is not substituted for the related Account or the related
Account is not repurchased by the Asset Seller and in either case
released from the lien of this Indenture, within 60 days after there
shall have been given, by registered or certified mail to the Grantor
or the Issuer by the Trustee or to the Grantor, the Issuer and the
Trustee by the Holders of Notes entitled to at least 25% of the
aggregate Voting Rights of all Classes voting together as a single
class, a written notice specifying such Default and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder;
(3) the Grantor or the Issuer shall breach, or default in the
due observance or performance of, any of its other covenants in this
Indenture, such Default shall continue for a period of 60 days after
there shall have been given, by registered or certified mail, to the
Grantor or the Issuer by the Trustee or to the Grantor, the Issuer and
the Trustee by the Holders of Notes entitled to at least 25% of the
aggregate Voting Rights of all Classes voting together as a single
class, a written notice specifying such Default and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder;
V-1
<PAGE> 57
(4) there shall occur the entry of a decree or order for
relief by a court having jurisdiction in respect of the Issuer in an
involuntary case under the federal bankruptcy laws, as now or hereafter
in effect, or any other present or future federal or state bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of
the Issuer or of any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Issuer and the
continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(5) there shall occur the commencement by the Issuer of a
voluntary case under the federal bankruptcy laws, as now or hereafter
in effect, or any other present or future federal or state bankruptcy,
insolvency or similar law, or the consent by the Issuer to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of
the Issuer or of any substantial part of its property or the making by
the Issuer of an assignment for the benefit of creditors or the failure
by the Issuer generally to pay its debts as such debts become due or
the taking of corporate action by the Issuer in furtherance of any of
the foregoing.
Notwithstanding the foregoing, on or prior to the Indenture
Maturity Date, any of the events described in this Section 5.01 will not be an
Event of Default (i) in respect of the Class A-2 Notes until the Class A-1 Notes
have been paid in full, (ii) in respect of the Class A-3 Notes until the Class
A-1 Notes and Class A-2 Notes have been paid in full and (iii) in respect of the
Class A-4 Notes until the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes
have been paid in full.
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment.
Prior to the Indenture Maturity Date, upon the occurrence of
an Event of Default, the Trustee or the Holders entitled to not less than a
majority of the Voting Rights of all Classes of Notes voting together as a
single class may declare the principal of the Notes to be immediately due and
payable by a notice in writing to the Issuer (and to the Trustee if given by
such Noteholders).
On or after the Indenture Maturity Date, if an Event of
Default occurs or shall have occurred, the Trustee shall declare the principal
of the Notes to be immediately due and payable by a notice in writing to the
Issuer. Upon such declaration, the Trustee may, or at the direction or with the
consent of the Holders entitled to at least a majority of the Voting Rights of
all Classes of Notes voting together as a single class shall pursue one or more
remedies subject to, and in accordance with the terms hereof, including without
limitation, selling the Accounts at one or more public or private sales.
Notwithstanding the acceleration of the Maturity of the Notes and subject to
Section 5.05(a), the Trustee may refrain from selling the Accounts and continue
to apply all amounts received on the Accounts to payments due on the Notes in
accordance with their terms if the Trustee determines that anticipated
collections on the Accounts would be sufficient to pay all the Classes of Notes
then Outstanding. In such
V-2
<PAGE> 58
case, the Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking firm of national reputation as to the feasibility
of such proposed action and as to the value of such Trust Estate which opinion
shall be conclusive evidence as to such value in any proceeding seeking to
recover a deficiency from the Issuer.
Notwithstanding the foregoing, the Trustee may not declare the
Notes to be due and payable pursuant to this Section 5.02 as a result of an
Event of Default arising solely from the Issuer's failure to perform any of its
agreements set forth in Section 6.07.
At any time after such a declaration of acceleration of
Maturity of the Notes has been made and before a judgment or decree for payment
of the money due has been obtained by the Trustee as hereinafter in this Article
provided, the Holders entitled to at least a majority of the aggregate Voting
Rights of all Classes of Notes voting together as a single class (in the event
of the occurrence of an Event of Default on or after the Indenture Maturity
Date), as the case may be, by written notice to the Issuer and the Trustee, may
rescind and annul such declaration and its consequences if
(1) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all payments of principal of and interest on all
Notes and all other amounts which would then be due hereunder
or upon such Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of the
principal of Notes which have become due solely by such acceleration,
have been cured or waived as provided in Section 5.15.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Issuer covenants that if an Event of Default shall occur
and be continuing, the Issuer will pay to the Trustee for the benefit of the
Holders of the Notes:
(1) (A) if the Notes have not been declared due and payable,
the whole amount then due and payable on the Notes in respect of
principal, including Realized Loss Amounts; or
(B) if the Notes have been declared due and payable and such
declaration and its consequences have not been rescinded and annulled,
the principal balance of all Outstanding Notes, including Realized Loss
Amounts;
V-3
<PAGE> 59
(2) (A) if the Notes have not been declared due and payable,
the whole amount then due and payable on the Notes in respect of
interest, including interest on any overdue installments of principal
at the applicable Note Interest Rate, and, to the extent payment of
such interest on interest shall be legally enforceable, interest on any
overdue installments of interest at the applicable Note Interest Rate
and interest due and payable with respect to unreimbursed Realized Loss
Amounts; or
(B) if the Notes have been declared due and payable and such
declaration and its consequences have not been rescinded and annulled,
(i) with respect to the period prior to the date of such declaration,
accrued interest to the date of such declaration, at the applicable
Note Interest Rate, on the Outstanding Principal Balance of each Note
and interest to the date of such declaration at the applicable Note
Interest Rate, on any installment of interest on each Note that was not
paid when due, but only to the extent that payment of such interest on
interest shall be legally enforceable and interest to the date of such
declaration at the applicable Note Interest Rate, on any previously
unreimbursed Realized Loss Amounts and (ii) with respect to the period
from and including the date of such declaration, interest to the date
such payment is made, at the applicable Note Interest Rate, on the
Outstanding Principal Balance of each Note and on any installment of
interest on such Note that was not paid when due, but only to the
extent that payment of such interest on interest shall be legally
enforceable and on any previously unreimbursed Realized Loss Amounts;
and
(3) in addition thereto, such further amounts as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agent and counsel.
If the Issuer fails to pay such amounts forthwith upon such
demand, or in any event if an Event of Default under clause (1) of Section 5.01
shall have occurred, the Trustee, in its own name and as trustee of an express
trust, may institute a Proceeding for the collection of the sums so due and
unpaid, and may prosecute such Proceeding to judgment or final decree, and may
enforce the same against the Issuer or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Noteholders by such appropriate Proceedings as the Trustee shall deem
most effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or enforce any other proper remedy,
including, without limitation, instituting a Proceeding prior to any declaration
of acceleration of the Maturity of the Notes for the collection of all amounts
then due and unpaid on the Notes, prosecuting such Proceeding to final judgment
or decree, enforcing the same against the Trust Fund and collecting out of the
property, wherever situated, of the Issuer the moneys adjudged or decreed to be
payable in the manner provided by law, provided, however, that neither the
Trustee nor any owner of any equity interest in the Issuer, nor any of their
V-4
<PAGE> 60
respective partners, beneficiaries, agents, officers, directors, employees or
successors or assigns shall be personally liable for any amounts payable under
the Notes or this Indenture.
SECTION 5.04. Remedies.
If an Event of Default shall have occurred and be continuing
and the Notes have been declared due and payable and such declaration and its
consequences have not been rescinded and annulled, the Trustee may (subject to
Sections 5.02, 5.05 and 5.18, to the extent applicable) do one or more of the
following:
(a) institute Proceedings for the collection of all amounts
then payable on the Notes, or under this Indenture in respect of Notes,
whether such amounts have become due and payable by declaration of
acceleration or otherwise and all amounts payable under the Servicing
Agreement, enforce any judgment obtained, and collect from the Issuer
moneys adjudged due;
(b) sell the Trust Fund or any portion thereof or rights or
interest therein, at one or more public or private Sales called and
conducted in any manner permitted by law;
(c) file or record all Assignments that have not previously
been recorded;
(d) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture; and
(e) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Trustee or the Holders of the
Notes hereunder.
In the event the Trustee takes any of the foregoing actions to
protect the Noteholder's rights or interests under the Indenture, the Trustee
shall be indemnified from the Trust Fund against any loss, liability or expense
arising out of or in connection with any such actions.
SECTION 5.05. Preservation of Trust Fund.
(a) If the Notes have been declared due and payable following
an Event of Default other than an Event of Default specified in Section
5.01(1)(iii), and such declaration and its consequences have not been rescinded
and annulled, the Trustee shall apply all Remittances and other amounts
receivable with respect to the Trust Fund, first, to the Issuer Expenses that
consist of the fees and expenses of, and other amounts payable to, the Owner
Trustee, the Trustee and the Successor Servicer and the Servicing Fee and then
to the payment of the principal of and interest on the Notes as and when such
principal and interest would have become due pursuant to the terms hereof and of
the Notes and to such other purposes as are specified in this Indenture, with
all such Remittances and other amounts being applied as if there had not been a
declaration of acceleration of the Maturity of the Notes, unless:
V-5
<PAGE> 61
(i) the Trustee shall have determined that the proceeds
of the sale or liquidation of the Trust Fund are sufficient to provide
the funds required to pay the principal of and accrued interest on the
Classes of Notes;
(ii) all the Holders of the Notes shall have directed the
Trustee to sell the Trust Fund securing such Notes; or
(iii) the Trustee shall have determined that the
Remittances and other amounts receivable with respect to the Trust
Estate are not sufficient to provide the funds required to pay the
principal of and interest on the Classes of Notes and the Trustee
obtains the consent of at least 66 2/3% of the Voting Rights of all
Classes of Notes voting together as a single class to the sale.
(b) The Trustee may in its sole discretion rely upon an
opinion of an Independent investment banking firm of national reputation as to
the feasibility of any action proposed to be taken in accordance with subsection
(a) of this Section 5.05 and as to the sufficiency of the Remittances and other
amounts receivable with respect to the Trust Fund to make the required payments
of principal of and interest on the Notes, which opinion shall be conclusive
evidence as to such feasibility or sufficiency. Such an opinion may, but need
not, be obtained by the Trustee in its sole discretion or may be delivered to
the Trustee by an Independent investment banking firm of national reputation
engaged by the Issuer to prepare and deliver such opinion.
(c) Pending determination by the Trustee as to whether the
criteria set forth in subsection (a) of this Section 5.05 are satisfied, all
Remittances and other amounts receivable with respect to the Trust Fund shall be
applied first to payment of Issuer Expenses that consist of the fees and
expenses of, and other amounts payable to, the Owner Trustee, the Trustee and
the Successor Servicer, and the Servicing Fee and then pursuant to Section
8.02(c) to the payment of the principal of and interest on the Notes as and when
such principal and interest would have become due pursuant to the terms hereof
and of the Notes if there had not been a declaration of acceleration of the
Maturity of the Notes. The Trustee shall make its determination whether the
criteria set forth in subsection (a) of this Section 5.05 can be satisfied as
promptly as practicable following any declaration of acceleration of the
Maturity of the Notes.
(d) If the Trustee determines that the criteria set forth in
subsection (a) of this Section 5.05 are not or cannot be satisfied, then all
amounts collected by the Trustee pursuant to this Section 5.05 or otherwise
shall be applied in accordance with Section 5.08.
SECTION 5.06. Trustee May File Proofs of Claim.
(a) The Trustee shall promptly notify the Noteholders of (i)
the commencement of any of the events or proceedings (individually, an
"Insolvency Proceeding") described in Section 5.01(4) or (5) hereof with respect
to the Issuer and (ii) the making of any claim in connection with any Insolvency
Proceeding seeking the avoidance as a preferential transfer (a "Preference
Claim") of any payment of principal of, or interest on, the Notes. The
V-6
<PAGE> 62
obligation of the Trustee to notify the Noteholders of any Insolvency Proceeding
or Preference Claims is expressly limited to such matters of which the Trustee
has actual knowledge. The Trustee, on its behalf and on behalf of the Holders,
may, at any time during the continuation of an Insolvency Proceeding, direct all
matters relating to such Insolvency Proceeding, including, without limitation,
(i) all matters relating to any Preference Claim, (ii) the direction of any
appeal of any order relating to any Preference Claim and (iii) the posting of
any surety, supersedeas or performance bond pending any such appeal.
(b) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, composition or other
judicial Proceeding relative to the Issuer or any other obligor upon any of the
Notes or the property of the Issuer or of such other obligor or their creditors,
the Trustee (irrespective of whether the Notes shall then be due and payable as
therein expressed or by declaration or otherwise) shall be entitled and
empowered, by intervention in such Proceeding or otherwise, to
(i) file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Noteholders allowed in such
Proceeding, and
(ii) collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same,
and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such Proceeding is hereby authorized by each Noteholder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment, or composition
affecting any of the Notes or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Noteholder in any such
Proceeding.
SECTION 5.07. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture or any of
the Notes may be prosecuted and enforced by the Trustee without the possession
of any of the Notes or the production thereof in any Proceeding relating
thereto, and any such Proceeding instituted by the Trustee in accordance with
Section 5.03 shall be brought in its own name as trustee of an express trust,
and any recovery of judgment shall be for the benefit of the Holders of the
Notes in the priority specified herein. Any surplus shall be available, in
accordance with
V-7
<PAGE> 63
Section 5.08, for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 5.08. Application of Money Collected.
If the Notes have been declared due and payable following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, any money collected by the Trustee with respect to the
Notes pursuant to this Article or otherwise and any moneys which may then be
held or thereafter received by the Trustee as security for the Notes shall
(unless such money is being applied in accordance with Section 5.05(a)) be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of the entire amount due on account of principal of
and interest on any Notes, upon presentation and surrender thereof:
First: To the payment of Issuer Expenses that consist of the
fees and expenses of, and other amounts payable to, the Owner Trustee,
the Trustee and the Successor Servicer and the Servicing Fee;
Second: To the holders of the Class A-1 Notes, in an amount up
to the Interest Accrual Amount thereof;
Third: To the holders of the Class A-1 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto, together
with accrued interest thereon;
Fourth: To the holders of the Class A-2 Notes, in an amount up
to the Interest Accrual Amount thereof;
Fifth: To the holders of the Class A-2 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto, together
with accrued interest thereon;
Sixth: To the holders of the Class A-3 Notes, in an amount up
to the Interest Accrual Amount thereof;
Seventh: To the holders of the Class A-3 Notes, in an amount
up to all unreimbursed Class Interest Shortfalls related thereto,
together with accrued interest thereon;
Eighth: To the holders of the Class A-4 Notes, in an amount up
to the Interest Accrual Amount thereof;
Ninth: To the holders of the Class A-4 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto, together
with accrued interest thereon;
V-8
<PAGE> 64
Tenth: To the holders of the Class A-1 Notes, in an amount up
to the aggregate Class A-1 Outstanding Principal Balance of the Class
A-1 Notes, based upon their respective Class A-1 Outstanding Principal
Balances, ratably, without preference or priority of any kind;
Eleventh: To the holders of the Class A-1 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-1 Realized Loss Amounts previously allocated to
the Class A-1 Notes (provided that any such amount will not be due and
payable unless there are available monies collected, held or received
by the Trustee sufficient to pay such amount and all prior amounts
under this Section 5.08);
Twelfth: To the holders of the Class A-1 Notes, in an amount
up to the amount of any unreimbursed Class A-1 Realized Loss Amounts
previously allocated thereto (provided that any such amount will not be
due and payable unless there are available monies collected, held or
received by the Trustee sufficient to pay such amount and all prior
amounts under this Section 5.08);
Thirteenth: To the holders of the Class A-2 Notes, in an
amount up to the aggregate Class A-2 Outstanding Principal Balance of
the Class A-2 Notes, based upon their respective Class A-2 Outstanding
Principal Balances, ratably, without preference or priority of any
kind;
Fourteenth: To the holders of the Class A-2 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-2 Realized Loss Amounts previously allocated to
the Class A-2 Notes (provided that any such amount will not be due and
payable unless there are available monies collected, held or received
by the Trustee sufficient to pay such amount and all prior amounts
under this Section 5.08);
Fifteenth: To the holders of the Class A-2 Notes, in an amount
up to the amount of any unreimbursed Class A-2 Realized Loss Amounts
previously allocated thereto (provided that any such amount will not be
due and payable unless there are available monies collected, held or
received by the Trustee sufficient to pay such amount and all prior
amounts under this Section 5.08);
Sixteenth: To the holders of the Class A-3 Notes, in an amount
up to the aggregate Class A-3 Outstanding Principal Balance of the
Class A-3 Notes, based upon their respective Class A-3 Outstanding
Principal Balances, ratably, without preference or priority of any
kind;
Seventeenth: To the holders of the Class A-3 Notes, accrued
and unpaid interest at the related Note Interest Rate on the amount of
any unreimbursed Class A-3 Realized Loss Amounts previously allocated
to the Class A-3 Notes (provided that any such amount will not be due
and payable unless there are available monies collected,
V-9
<PAGE> 65
held or received by the Trustee sufficient to pay such amount and all
prior amounts under this Section 5.08);
Eighteenth: To the holders of the Class A-3 Notes, in an
amount up to the amount of any unreimbursed Class A-3 Realized Loss
Amounts previously allocated thereto (provided that any such amount
will not be due and payable unless there are available monies
collected, held or received by the Trustee sufficient to pay such
amount and all prior amounts under this Section 5.08);
Nineteenth: To the holders of the Class A-4 Notes, in an
amount up to the aggregate Class A-4 Outstanding Principal Balance of
the Class A-4 Notes, based upon their respective Class A-4 Outstanding
Principal Balances, ratably, without preference or priority of any
kind;
Twentieth: To the holders of the Class A-4 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-4 Realized Loss Amounts previously allocated to
the Class A-4 Notes (provided that any such amount will not be due and
payable unless there are available monies collected, held or received
by the Trustee sufficient to pay such amount and all prior amounts
under this Section 5.08);
Twenty-First: To the holders of the Class A-4 Notes, in an
amount up to the amount of any unreimbursed Class A-4 Realized Loss
Amounts previously allocated thereto (provided that any such amount
will not be due and payable unless there are available monies
collected, held or received by the Trustee sufficient to pay such
amount and all prior amounts under this Section 5.08); and
Twenty-Second: To the payment of the remainder, if any, to the
Issuer or any other Person legally entitled thereto.
SECTION 5.09. Limitation on Suits.
No Holder of a Note shall have any right to institute any
Proceedings, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of Notes entitled to at least 40% of the
aggregate Voting Rights of all Classes voting together as a single
class (or, if there has been a declaration that the Notes are
immediately due and payable, or a sale or foreclosure with respect to
the Accounts, the required holders of the applicable Class or Classes
of Notes as set forth in Section 5.02 hereof) shall have made written
request to the Trustee to institute Proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
V-10
<PAGE> 66
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
Proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
Notes entitled to more than 50% of the Voting Rights; it being
understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights
of any other Holders of Notes or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the
equal and benefit of all the Holders of Notes in the priority specified
herein.
SECTION 5.10. Unconditional Rights of Noteholders to Receive
Principal and Interest.
To the extent permitted by applicable law, the Holder of any
Note shall have the right, which right is absolute and unconditional except to
the extent restricted by applicable law, to receive payment of each installment
of interest when due and payable on such Note on the respective Distribution
Dates of such installments of interest and to receive payment of each
installment of principal of such Note when due (or in the case of any Note
called for redemption, on the date fixed for such redemption) and to institute
suit for the enforcement of any such payment, and except as otherwise set forth
in this Indenture, such right shall not be impaired without the consent of such
Holder.
SECTION 5.11. Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any Proceeding
to enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case the Issuer, the
Trustee and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such Proceeding had been instituted.
SECTION 5.12. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Noteholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or
V-11
<PAGE> 67
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 5.13. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Noteholders, as the case may be.
SECTION 5.14. Control by the Noteholders.
Prior to the Indenture Maturity Date the Holders of Notes
entitled to at least 662/3% of the Voting Rights of the Class of Notes with the
lowest numerical class designation then Outstanding, and on or after the
Indenture Maturity Date, the Holders of Notes entitled to at least a majority of
the aggregate Voting Rights of all Classes voting together as a single class
shall have the right to direct the time, method and place of conducting any
Proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) any direction to the Trustee to undertake a Sale of the
Trust Fund shall be by the Holders of Notes entitled to the percentage
of the Voting Rights specified in Section 5.18(b)(1) or (2), whichever
is applicable,
(3) if the conditions to retention of the Trust Fund set forth
in Section 5.05(a) have been satisfied, then any direction by less than
all of the Noteholders to the Trustee to undertake a Sale of the Trust
Fund shall be of no force and effect, and
(4) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided,
however, that, subject to Section 6.01, the Trustee need not take
action which it determines might involve it in liability or expense or
be unjustly prejudicial to the Noteholders not consenting.
Notwithstanding anything herein to the contrary, any direction
to the Trustee to declare the Notes due and payable shall be made by those
Classes of Notes as specified in Section 5.02 hereof.
V-12
<PAGE> 68
SECTION 5.15. Waiver of Past Defaults.
The Holders of such Class or Classes of Notes entitled to the
Voting Rights specified in Section 5.02 hereof may, on behalf of the Holders of
all the Notes, waive any past Default hereunder and its consequences, except a
Default
(1) in the payment of any installment of principal of, or
interest on, any Note; or
(2) in respect of a covenant or provision hereof which under
Section 9.02 cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 5.16. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Note by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate Notes representing more than 10%. of the Voting Rights,
or to any suit instituted by any Noteholder for the enforcement of the payment
of any installment of interest on any Note on or after the maturity thereof
expressed in such Note or for the enforcement of the payment of any installment
of principal of any Note when due (or, in the case of a Note called for
redemption, on or after the applicable redemption date) or for the enforcement
of the payment of any installment of principal of any Note when due as indicated
in the Distribution Date Statement prepared and delivered by the Trustee
pursuant to Section 2.09(d).
SECTION 5.17. Waiver of Stay or Extension Laws.
The Issuer covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants in, or the performance of, this Indenture; and the Issuer (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any
V-13
<PAGE> 69
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.18. Sale of Trust Fund.
(a) The power to effect any sale or other disposition (a
"Sale") of any portion of the Trust Fund pursuant to Section 5.04 is expressly
subject to the provisions of Section 5.05 and this Section 5.18. The power to
effect any such Sale shall not be exhausted by any one or more Sales as to any
portion of the Trust Fund remaining unsold, but shall continue unimpaired until
the entire Trust Fund shall have been sold or all amounts payable on the Notes
and under this Indenture shall have been paid. To the fullest extent permitted
by law, the Trustee hereby expressly waives its right to any amount fixed by law
as compensation for any Sale.
(b) The Trustee shall not in any private or public Sale sell
the Trust Fund, or any portion thereof, unless
(1) prior to the Indenture Maturity Date, the Holders of Notes
entitled to at least 66 2/3% of the Voting Rights of the Class of Notes
with the lowest numerical Class designation then Outstanding, and on or
after the Indenture Maturity Pate, the Holders of Notes entitled to at
least a majority of the aggregate Voting Rights of all Classes voting
together as a single class, consent to or direct the Trustee to make,
such Sale, or
(2) the Trustee determines, in its sole discretion, that the
conditions for retention of the Trust Fund set forth in Section 5.05(a)
(i), (iii) or (iv) cannot be satisfied (in making any such
determination, the Trustee may rely upon an opinion of an Independent
investment banking firm obtained and delivered as provided in Section
5.05(b) unless a contrary opinion is delivered by an Independent
investment banking firm engaged by the Issuer pursuant to Section
5.05(b), in which event the Trustee shall not be protected in relying
solely upon either such opinion but may nevertheless in its discretion
make a determination as to whether the conditions for retention of the
Trust Fund set forth in Section 5.05(a) (i) and (v) can or cannot be
satisfied), and prior to the Indenture Maturity Date, the Holders of
Notes entitled to at least 66 2/3% of the Voting Rights of the Class of
Notes with the lowest numerical Class designation then Outstanding, and
on or after the Indenture Maturity Date, the Holders of Notes entitled
to at least a majority of the aggregate Voting Rights of all Classes
voting together as a single class, consent to such Sale.
The purchase by the Trustee of all or any portion of the Trust Fund at a private
Sale shall not be deemed a Sale or other disposition thereof for purposes of
this Section 5.18(b).
(c) Unless prior to the Indenture Maturity Date, the Holders
of Notes entitled to at least 66 2/3% of the Voting Rights of the Class of Notes
with the lowest numerical Class designation then outstanding, and on or after
the Indenture Maturity Date, the Holders of Notes entitled to at least a
majority of the aggregate Voting Rights of all Classes
V-14
<PAGE> 70
voting together as a single class, have otherwise consented or directed the
Trustee, at any public Sale of all or any portion of the Trust Fund at which a
minimum bid equal to or greater than the entire amount which would be payable to
the Holders under the Notes, in full payment thereof in accordance with Section
5.08 on the Distribution Date next succeeding the date of such Sale has not been
established by the Trustee and no Person bids an amount equal to or greater than
such amount, the Trustee shall bid an amount at least $1.00 more than the
highest other bid; provided that the payment for such bid will be limited to the
application of the credit as set forth in Section 5.18(d)(2).
(d) In connection with a Sale of all or any portion of the
Trust Fund,
(1) any Holder or Holders of Notes may bid for and purchase
the property offered for sale, and upon compliance with the terms of
sale may hold, retain and possess and dispose of such property, without
further accountability, and may, in paying the purchase money therefor,
deliver any Outstanding Notes or claims for interest thereon in lieu of
cash up to the amount which shall, upon distribution of the net
proceeds of such sale, be payable thereon, and such Notes, in case the
amounts so payable thereon shall be less than the amount due thereon,
shall be returned to the Holders thereof after being appropriately
stamped to show such partial payment;
(2) the Trustee may bid for and acquire the property offered
for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in
connection therewith, may purchase all or any portion of the Trust Fund
in a private Sale, and, in lieu of paying cash therefor, may make
settlement for the purchase price by crediting the gross Sale price
against the sum of (A) the amount which would be distributable to the
Holders of the Notes as a result of such Sale in accordance with
Section 5.08 on the Distribution Date next succeeding the date of such
Sale and (B) the expenses of the Sale and of any Proceedings in
connection therewith which are reimbursable to it, without being
required to produce the Notes in order to complete any such Sale or in
order for the net Sale price to be credited against such Notes, and any
property so acquired by the Trustee shall be held and dealt with by it
in accordance with the provisions of this Indenture;
(3) the Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of
the Trust Fund in connection with a Sale thereof;
(4) the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Fund in connection with a Sale thereof, and to
take all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.
V-15
<PAGE> 71
SECTION 5.19. Action on Notes.
The Trustee's right to seek and recover judgment on the Notes
or under this Indenture shall not be affected by the seeking, obtaining or
application of any other relief under or with respect to this Indenture. Neither
the lien of this Indenture nor any rights or remedies of the Trustee or the
Holders of Notes shall be impaired by the recovery of any judgment by the
Trustee against the Issuer or by the levy of any execution under such judgment
upon any portion of the Trust Fund.
SECTION 5.20. Allocation of Realized Loss Amount.
On each Distribution Date: any Class A-1 Realized Loss Amount
will be applied in reduction of the Class A-1 Outstanding Principal Balance; any
Class A-2 Realized Loss Amount will be applied in reduction of the Class A-2
Outstanding Principal Balance; any Class A-3 Realized Loss Amount will be
applied in reduction of the Class A-3 Outstanding Principal Balance; and any
Class A-4 Realized Loss Amount will be applied in reduction of the Class A-4
Outstanding Principal Balance; in each case, until the Outstanding Principal
Balance of such Class has been reduced to zero.
V-16
<PAGE> 72
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Duties of Trustee.
(a) If an Event of Default known to the Trustee has occurred
and is continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations of the Trustee shall be read into this
Indenture.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. The Trustee shall, however, examine such certificates
and opinions to determine whether they conform to the requirements of
this Indenture but need not verify the accuracy of the contents thereof
or whether procedures specified by or pursuant to the provisions of
this Indenture have been followed in the preparation thereof.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of subsection (b)
of this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.14.
(d) For all purposes under this Indenture, the Trustee shall
not be deemed to have notice of any Event of Default described in Section
5.01(2) through 5.01(5) or any Default described in Section 5.01(2) through
5.01(5) unless a Responsible Officer assigned to and working in the Trustee's
corporate trust department has actual knowledge thereof or unless written notice
of any event which is in fact such an Event of Default or Default is received by
the Trustee at the Corporate Trust Office, and such notice references the Notes,
the Issuer, the Trust Fund or this Indenture.
VI-1
<PAGE> 73
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it; provided, however, that the Trustee shall not
refuse or fail to perform any of its duties hereunder solely as a result of
non-payment of its normal fees and expenses and, further provided, that nothing
in this Section 6.01(e) shall be construed to limit the exercise by the Trustee
of any right or remedy permitted under this Indenture or otherwise in the event
of the Issuer's failure to pay the Trustee's fees and expenses pursuant to
Section 6.07. In determining that such repayment or indemnity is not reasonably
assured to it, the Trustee must consider not only the likelihood of repayment or
indemnity by or on behalf of the Issuer but also the likelihood of repayment or
indemnity from amounts payable to it from the Trust Fund pursuant to Sections
6.07 and 8.02(d).
(f) Every provision of this Indenture that in any way relates
to the Trustee is subject to the provisions of this Section.
(g) Notwithstanding any extinguishment of all right, title and
interest of the Issuer in and to the Trust Fund following an Event of Default
and a consequent declaration of acceleration of the Maturity of the Notes
secured thereby, whether such extinguishment occurs through a Sale of the Trust
Fund to another Person, the acquisition of the Trust Fund by the Trustee or
otherwise, the rights, powers and duties of the Trustee with respect to the
Trust Fund (or the proceeds thereof) and the Holders of the Notes and the rights
of such Noteholders shall continue to be governed by the terms of this
Indenture.
(h) The Trustee agrees not to consent or cause the filing of a
petition in bankruptcy against the Issuer as a result of any amounts due and
owing the Trustee in its capacity as trustee hereunder.
SECTION 6.02. Notice of Default.
Upon a Default becoming known to the Trustee, the Trustee
shall, within 90 days after the occurrence of such Default becomes known to the
Trustee, transmit notice of such Default by mail to all Holders of Notes as to
which such Default has occurred, unless such Default shall have been cured or
waived; provided, however, that except in the case of a Default of the type
described in Section 5.01(l), the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the interests of the
Holders of the Notes; and provided, further, that in the case of any Default of
the character specified in Section 5.01(3) or 5.01(4) no such notice to
Noteholders shall be given until at least 30 days after the occurrence thereof.
VI-2
<PAGE> 74
SECTION 6.03. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an opinion of Counsel; provided, however,
that the Trustee may not, by relying on an Officer's Certificate or opinion of
Counsel, refrain from making payments of principal or interest on the Notes or
exercising remedies pursuant to Article V. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on the
Certificate or Opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers as provided herein.
(e) The Trustee shall not be liable for any action it takes or
omits to take in good faith pursuant to the Indenture at the direction of
Holders of Notes in accordance with the Indenture, after notice to the Holders
of the Notes of a Default under this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of
Notes.
The recitals contained herein and in the Notes, except the
certificates of authentication on the Notes, shall be taken as the statements of
the Issuer and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations with respect to the Trust Fund or as to the
validity or sufficiency of this Indenture or of the Notes. The Trustee shall not
be accountable for the use or application by the Issuer of Notes or the proceeds
thereof or any money paid to the Issuer or upon Issuer Order pursuant to the
provisions hereof.
SECTION 6.05. May Hold Notes.
The Trustee, any Agent, or any other agent of the Issuer, in
its individual or any other capacity, may become the owner or pledgee of Notes
and, subject to Sections 6.08 and 6.13, may otherwise deal with the Issuer or
any Affiliate of the Issuer with the same rights it would have if it were not
Trustee, Agent, or such other agent.
SECTION 6.06. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by Section 8.04, by
any other provision of this Indenture or by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Issuer and except to the extent of income or
VI-3
<PAGE> 75
other gain on investments which are obligations of the Trustee, in its
commercial capacity, and income or other gain actually received by the Trustee
on investments which are obligations of others.
SECTION 6.07. Compensation and Reimbursement.
The Issuer agrees
(1) subject to any separate written agreement with the
Trustee, to pay the Trustee from time to time reasonable compensation
for all services rendered by it hereunder or any documents executed in
connection herewith (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an
express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
connection with the administration of the Trust Fund pursuant to the
terms of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel incurred in
connection with litigation affecting the Trust Fund or the Trustee),
except any such expense, disbursement or advance as may be attributable
to its negligence or bad faith; and
(3) to indemnify the Trustee and its agents for, and to hold
them harmless against, any loss, liability or expense incurred without
negligence or bad faith on their part, arising out of, or in connection
with, the acceptance or administration of this trust, including the
costs and expenses of defending themselves against any claim in
connection with the exercise or performance of any of their powers or
duties hereunder, provided that:
(i) with respect to any such claim, the Trustee
shall have given the Issuer written notice thereof promptly
after the Trustee shall have knowledge thereof;
(ii) while maintaining absolute control over its
own defense, the Trustee shall cooperate and consult fully
with the Issuer in preparing such defense; and
(iii) notwithstanding anything to the contrary in
this Section 6.07 (3), the Issuer shall not be liable for
settlement of any such claim by the Trustee entered into
without the prior consent of the Issuer, which consent shall
not be unreasonably withheld.
As security for the performance of the obligations of the Issuer under this
Section, the Trustee shall have a lien ranking junior to the lien of this
Indenture for the benefit of the Holders of the Notes (but senior to all other
liens, if any) upon all property and funds held or collected as part of the
Trust Fund by the Trustee in its capacity as such. The Trustee shall not
institute
VI-4
<PAGE> 76
any Proceeding seeking the enforcement of such lien against the Trust Fund
unless such Proceeding is in connection with a Proceeding in accordance with
Article V for enforcement of the lien of this Indenture for the benefit of the
Holders of the Notes after the occurrence of an Event of Default (other than an
Event of Default arising solely from the Issuer's failure to pay amounts due the
Trustee under this Section 6.07) and a resulting declaration of acceleration of
Maturity of the Notes which has not been rescinded and annulled.
SECTION 6.08. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1) and who is Independent of the Issuer and
Servicer (except that the Trustee may serve as Successor Servicer). The Trustee
shall always have a combined capital and surplus as stated in Section 6.09. The
Trustee shall be subject to TIA Section 310(b). The Trustee shall have a place
of business in the State of Florida. Any successor Trustee shall execute the
Servicing Agreement and this Indenture.
SECTION 6.09. Trustee's Capital and Surplus.
The Trustee or any successor or substitute trustee shall at
all times have a combined capital and surplus of at least $50,000,000 and the
long-term unsecured debt obligations of which are rated at least ____ by _______
and the short-term unsecured debt obligations of which are rated at least ____
by _______. If the Trustee publishes annual reports of condition of the type
described in TIA Section 310(a)(2), its combined capital and surplus for
purposes of this Section 6.09 shall be as set forth in the latest such report.
SECTION 6.10. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 6.11.
(b) The Trustee may resign at any time by giving written
notice thereof to the Issuer. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee. The
costs and expenses incurred in connection with the resignation of the Trustee
and any petition filed for appointment of a Successor Trustee shall be paid by
the Issuer.
(c) The Trustee may be removed at any time for reasonable
cause by Act of the Holders of Notes entitled to more than 50% of the aggregate
Voting Rights of all Classes voting together as a single class delivered to the
Trustee and to the Issuer.
VI-5
<PAGE> 77
(d) If at any time:
(1) the Trustee shall have a conflicting interest prohibited
by Section 6.08 and shall fail to resign or eliminate such conflicting
interest in accordance with Section 6.08 after written request therefor
by the Issuer or by any Noteholder, or
(2) the Trustee shall cease to be eligible under Section 6.09
or shall become incapable of acting or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Issuer by an Issuer Order may remove the
Trustee, or (ii) subject to Section 5.16, any Noteholder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Trustee
for any cause, the Issuer by an Issuer Order shall promptly appoint a successor
Trustee. If within one year after such resignation, removal or incapability or
the occurrence of such vacancy, a successor Trustee has not been appointed by
the Issuer, then a successor trustee shall be appointed by Act of the Holders of
Notes entitled to more than 50% of the aggregate Voting Rights of all Classes
voting together as a single class delivered to the Issuer and the retiring
Trustee. The successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor Trustee and supersede the successor
Trustee appointed by the Issuer. If no successor Trustee shall have been so
appointed by the Issuer or Noteholders or the successor Trustee shall not have
accepted appointment in the manner hereinafter provided, any Noteholder who has
been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Noteholders and S&P. Each notice shall include the name of the successor Trustee
and the address of its Corporate Trust office.
SECTION 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Issuer and the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee. Notwithstanding the
foregoing, on request of the Issuer or the successor Trustee, such retiring
Trustee shall, upon payment of its
VI-6
<PAGE> 78
charges, execute and deliver an Instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee, and shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder subject nevertheless to its lien,
if any, provided for in Section 6.07. Upon request of any such successor
Trustee, the Issuer shall execute and deliver any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 6.12. Merger; Conversion, Consolidation or Succession
to Business of Trustee.
Any entity into which the Trustee may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any entity
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such entity
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Notes have been authenticated, but not delivered, by
the Trustee then in office, any successor by merger, conversion or consolidation
to such authenticating Trustee may adopt such authentication and deliver the
Notes so authenticated with the same effect as if such successor Trustee had
authenticated such Notes.
SECTION 6.13. Preferential Collection of Claims Against
Issuer.
The Trustee shall be subject to TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b), and a Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated in TIA Section 311(a).
SECTION 6.14. Co-trustees and Separate Trustees.
At any time or times, for the purpose of meeting the legal
requirements of the TIA or of any jurisdiction in which any of the Trust Fund
may at the time be located, the Issuer and the Trustee shall have power to
appoint, and, upon the written request of the Trustee or of the Holders of Notes
entitled to more than 50% of the aggregate Voting Rights of all Classes voting
together as a single class, the Issuer shall for such purpose join with the
Trustee in the execution, delivery and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Rating Agencies and the Trustee either to act as co-trustee, jointly with the
Trustee, of all or any part of the Trust Fund, or to act as separate trustee of
any such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section. If the Issuer does not join in
such appointment
VI-7
<PAGE> 79
within 15 days after the receipt by it of a request so to do, or in case an
Event of Default has occurred and is continuing, the Trustee alone shall have
power to make such appointment.
Should any written instrument from the Issuer be required by
any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such property, title, right or power, any
such instrument shall, on request, be executed, acknowledged and delivered by
the Issuer.
Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
terms:
(1) The Notes shall be authenticated and delivered and all
rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Trustee hereunder, shall
be exercised, solely by the Trustee.
(2) The rights, powers, duties and obligations hereby
conferred or imposed upon the Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Trustee or by the Trustee and such
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except to
the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers,
duties and obligations shall be exercised and performed by such
co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Issuer evidenced by an
Issuer Order, may accept the resignation of or remove any co-trustee or
separate trustee appointed under this Section, and, in case an Event of
Default has occurred and is continuing, the Trustee shall have power to
accept the resignation of, or remove, any such co-trustee or separate
trustee without the concurrence of the Issuer. Upon the written request
of the Trustee, the Issuer shall join with the Trustee in the
execution, delivery and performance of all instruments and agreements
necessary or proper to effectuate such resignation or removal. A
successor to any co-trustee or separate trustee so resigned or removed
may be appointed in the manner provided in this Section.
(4) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Trustee, or
any other such trustee hereunder, and the Trustee shall not be
personally liable by reason of any act or omission of any co-trustee or
other such separate trustee hereunder.
(5) Any Act of Noteholders delivered to the Trustee shall be
deemed to have been delivered to each such co-trustee and separate
trustee.
VI-8
<PAGE> 80
SECTION 6.15. Authenticating Agents.
The Trustee may appoint an Authenticating Agent with power to
act on its behalf and subject to its direction in the authentication and
delivery of the Notes designated for such authentication by the Issuer and
containing provisions therein for such authentication (or with respect to which
the Issuer has made other arrangements, satisfactory to the Trustee and such
Authenticating Agent, for notation on the Notes of the authority of an
Authenticating Agent appointed after the initial authentication and delivery of
such Notes) in connection with transfers and exchanges under Sections 2.06 and
2.07 as fully to all intents and purposes as though the Authenticating Agent had
been expressly authorized by those Sections to authenticate and deliver Notes.
For all purposes of this Indenture (other than in connection with the
authentication and delivery of Notes pursuant to Sections 2.05 and 2.12 in
connection with their initial issuance and for purposes of Section 2.08), the
authentication and delivery of Notes by the Authenticating Agent pursuant to
this Section shall be deemed to be the authentication and delivery of Notes "by
the Trustee". Such Authenticating Agent shall at all times be a Person that both
meets the requirements of Section 6.09 for the Trustee hereunder and has its
principal office in the City and State of New York.
Any Authenticating Agent shall also serve as Note Registrar or
co-Note Registrar as provided in Section 2.07. Any Authenticating Agent
appointed by the Trustee pursuant to the terms of this Section 6.15 shall
deliver to the Trustee as a condition precedent to the effectiveness of such
appointment an instrument accepting the trusts, duties and responsibilities of
Authenticating Agent and of Note Registrar or co-Note Registrar and indemnifying
the Trustee for and holding the Trustee harmless against, any loss, liability or
expense (including reasonable attorneys' fees) incurred without negligence or
bad faith on its part, arising out of or in connection with the acceptance,
administration of the trust or exercise of authority by such Authenticating
Agent, Note Registrar or co-Note Registrar.
Any entity into which any Authenticating Agent may be merged
or converted or with which it may be consolidated, or any entity resulting from
any merger, consolidation or conversion to which any Authenticating Agent shall
be a party, or any entity succeeding to the corporate trust business of any
Authenticating Agent, shall be the successor of the Authenticating Agent
hereunder, if such successor entity is otherwise eligible under this Section,
without the execution or filing of any further act on the part of the parties
hereto or the Authenticating Agent or such successor corporation.
Any Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and the Issuer. The Trustee may at
any time terminate the agency of any Authenticating Agent by giving written
notice of termination to such Authenticating Agent and the Issuer. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time any Authenticating Agent shall cease to be eligible under this Section,
the Trustee shall promptly appoint a successor Authenticating Agent, shall give
written notice of such appointment to the Issuer and shall mail notice of such
appointment to all Holders of Notes.
VI-9
<PAGE> 81
The Issuer agrees to pay to any Authenticating Agent from time
to time reasonable compensation for its services. The provisions of Sections
2.10, 6.04 and 6.05 shall be applicable to any Authenticating Agent.
VI-10
<PAGE> 82
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. Issuer to Furnish Trustee Names and Addresses of
Noteholders.
(a) The Issuer will furnish or cause to be furnished to the
Trustee (i) semi-annually, not less than 45 days nor more than 60 days after the
Record Date for each ________ and ______________ Distribution Date, a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the Holders of Notes, and (ii) at such other times, as the Trustee may request
in writing, within 30 days after receipt by the Issuer of any such request, a
list of similar form and content as of a date not more than 10 days prior to the
time such list is furnished; provided, however, that so long as the Trustee is
the Note Registrar, no such list shall be required to be furnished to the
Trustee.
(b) In addition to furnishing to the Trustee the Noteholder
lists, if any, required under subsection (a), the Issuer shall also furnish all
Noteholder lists, if any, required under Section 3.03 at the times required by
said Section 3.03.
SECTION 7.02. Preservation of Information; Communications to
Noteholders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list, if any, furnished to the Trustee as provided
in Section 7.01 and the names and addresses of the Holders of Notes received by
the Trustee in its capacity as Note Registrar. The Trustee may destroy any list
furnished to it as provided in Section 7.01 upon receipt of a new list so
furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or
under the Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.03. Reports by Trustee.
(a) (i) Within 60 days after ____________ of each year (the
"reporting date"), commencing with the year after the issuance of the Notes, the
Trustee shall mail to all Holders (together with all other Persons to whom
reports are to be transmitted under TIA Section 313(c)) a brief report dated as
of such reporting date that complies with TIA Section 313(a); (ii) the Trustee
shall also mail to Holders any reports that are required by TIA Section
313(b)(2) with respect to any advances made by the Trustee and (iii) the Trustee
shall also mail to Holders of Notes any reports required by TIA Section
313(a)(5) and Section 313(b)(1) with respect to the release
VII-1
<PAGE> 83
and substitution of any Accounts. For purposes of the information required to be
included in any such reports pursuant to TIA Section 313(a)(3), 313(b)(1) or
313(b)(2) the principal amount of indenture securities outstanding on the date
as of which such information is provided shall be the Aggregate Outstanding
Principal Balance at the date as of which such information is presented.
(b) A copy of each report required under this Section 7.03
shall, at the time of such transmission to Noteholders, be filed by the Trustee
with the Commission and with each securities exchange upon which the Notes are
listed, provided that the Issuer has previously notified the Trustee of such
listing. The Issuer will notify the Trustee when the Notes are listed on any
securities exchange.
SECTION 7.04. Reports by Issuer.
The Issuer (a) shall file with the Trustee within 15 days
after it files them with the Commission copies of the annual reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Issuer is required to file with the Commission pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 and (b) shall also comply with the
other provisions of TIA Section 314(a).
VII-2
<PAGE> 84
ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01. Collection of Moneys.
Except as otherwise expressly provided herein, the Trustee may
demand payment or delivery of, and shall receive and collect, directly and
without intervention or assistance of any fiscal agent or other intermediary all
money and other property payable to or receivable by the Trustee pursuant to
this Indenture. The Trustee shall hold all such money and property received by
it as part of the Trust Fund, and shall apply it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under the Servicing Agreement, or
any Hazard Insurance Policy or any other related insurance policy, the Trustee
may, and upon the request of the Holders of Notes entitled to more than 50% of
the aggregate Voting Rights of all Classes voting together as a class, the
Trustee shall, take such action as may be appropriate to enforce such payment or
performance including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and to proceed thereafter as
provided in Article V.
SECTION 8.02. Collection Account.
(a) Prior to the initial authentication and delivery of the
Notes, the Issuer shall open, at the Corporate Trust Office, a segregated trust
account (the "Collection Account") in the name of the Trustee on behalf of the
Noteholders which such account shall be an Eligible Account. All payments to be
made from time to time to the Holders of Notes out of funds in the Collection
Account pursuant to this Indenture shall be made by the Trustee as the Paying
Agent of the Issuer or, pursuant to Section 3.03, by any other Paying Agent
appointed by the Issuer. All moneys deposited from time to time in the
Collection Account, including the deposits to be made by the Servicer in the
Collection Account pursuant to the Servicing Agreement, and all deposits therein
pursuant to this Indenture, and all investments made with such moneys including
all income or other gain from such investments shall be held by the Trustee as
part of the Trust Fund as herein provided. So long as no Servicing Default shall
have occurred and be continuing, moneys in the Collection Account representing
collections on the Accounts erroneously deposited therein shall be subject to
withdrawals by the Servicer pursuant to Sections 2.07(c) (i) and 2.11 of the
Servicing Agreement.
(b) So long as no Default or Event of Default shall have
occurred and be continuing, all or a portion of the Collection Account shall be
invested and reinvested by the Trustee at the Issuer's direction in one or more
Eligible Investments bearing interest or sold at discount. No such investment
shall mature later than two Business Days prior to the next Distribution Date
(or on such Distribution Date, in the case of obligations referred to in clause
(a) (i) of the definition of Eligible Investments and in the case of Eligible
Investments of which the Trustee is the obligor, so long as at the time of such
investment the long-term unsecured debt securities of the Trustee are rated
_______ by the Rating Agencies). Notwithstanding the
VIII-1
<PAGE> 85
foregoing, any investment (including repurchase agreements) on which the
Trustee, in its commercial capacity, is the obligor, may mature on a
Distribution Date if, under this Section 8.02, such investment could otherwise
mature on the Business Day immediately preceding such Distribution Date.
All income or other gains from investment of moneys deposited
in the Collection Account shall be deposited by the Trustee in the Collection
Account immediately upon receipt, and any loss resulting from such investment
shall be charged to the Collection Account.
(c) Unless the Notes have been declared due and payable
pursuant to Section 5.02 and moneys collected by the Trustee with respect to the
Notes are being applied in accordance with Section 5.08, the amount on deposit
in the Collection Account on any Distribution Date shall, after payment of
Issuer Expenses in accordance with Subsection (d), be withdrawn from the
Collection Account, in the amounts required, for application as follows:
On each Distribution Date, interest and principal payments on
the Notes will be made from Available Funds in the following amounts and order
of priority:
First: To the holders of the Class A-1 Notes, in an amount up
to the Interest Accrual Amount thereof;
Second: To the holders of the Class A-1 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
Third: To the holders of the Class A-2 Notes, in an amount up
to the Interest Accrual Amount thereof;
Fourth: To the holders of the Class A-2 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
Fifth: To the holders of the Class A-3 Notes, in an amount up
to the Interest Accrual Amount thereof;
Sixth: To the holders of the Class A-3 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
Seventh: To the holders of the Class A-4 Notes, in an amount
up to the Interest Accrual Amount thereof;
Eighth: To the holders of the Class A-4 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
Ninth: To the Class A-4 Reserve Account, in an amount up to
all unreimbursed Class A-4 Reserve Withdrawal Amounts;
VIII-2
<PAGE> 86
Tenth: To the holders of the Class A-1 Notes, in an amount up
to the Class A-1 Optimal Principal Amount;
Eleventh: To the holders of the Class A-1 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-1 Realized Loss Amounts previously allocated to the Class
A-1 Notes (provided that any such amount will not be due and payable unless
there exist Available Funds sufficient to pay such amount and all prior amounts
under this Available Funds Allocation);
Twelfth: To the holders of the Class A-1 Notes, in an amount
up to the amount of any unreimbursed Class A-1 Realized Loss Amounts previously
allocated thereto (provided that any such amount will not be due and payable
unless there exist Available Funds sufficient to pay such amount and all prior
amounts under this Available Funds Allocation);
Thirteenth: To the holders of the Class A-2 Notes, in an
amount up to the Class A-2 Optimal Principal Amount;
Fourteenth: To the holders of the Class A-2 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-2 Realized Loss Amounts previously allocated to the Class
A-2 Notes (provided that any such amount will not be due and payable unless
there exist Available Funds sufficient to pay such amount and all prior amounts
under this Available Funds Allocation);
Fifteenth: To the holders of the Class A-2 Notes, in an amount
up to the amount of any unreimbursed Class A-2 Realized Loss Amounts previously
allocated thereto (provided that any such amount will not be due and payable
unless there exist Available Funds sufficient to pay such amount and all prior
amounts under this Available Funds Allocation);
Sixteenth: To the holders of the Class A-3 Notes, in an amount
up to the Class A-3 Optimal Principal Amount;
Seventeenth: To the holders of the Class A-3 Notes, accrued
and unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-3 Realized Loss Amounts previously allocated to the Class
A-3 Notes (provided that any such amount will not be due and payable unless
there exist Available Funds sufficient to pay such amount and all prior amounts
under this Available Funds Allocation);
Eighteenth: To the holders of the Class A-3 Notes, in an
amount up to the amount of any unreimbursed Class A-3 Realized Loss Amounts
previously allocated thereto (provided that any such amount will not be due and
payable unless there exist Available Funds sufficient to pay such amount and all
prior amounts under this Available Funds Allocation);
Nineteenth: To the holders of the Class A-4 Notes, in an
amount up to the Class A-4 Optimal Principal Amount;
VIII-3
<PAGE> 87
Twentieth: To the holders of the Class A-4 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-4 Realized Loss Amounts previously allocated to the Class
A-4 Notes (provided that any such amount will not be due and payable unless
there exist Available Funds sufficient to pay such amount and all prior amounts
under this Available Funds Allocation);
Twenty-First: To the holders of the Class A-4 Notes, in an
amount up to the amount of any unreimbursed Class A-4 Realized Loss Amounts
previously allocated thereto (provided that any such amount will not be due and
payable unless there exist Available Funds sufficient to pay such amount and all
prior amounts under this Available Funds Allocation);
Twenty-Second: To the Successor Servicer, as additional
servicing compensation, an amount equal to the net reinvestment earnings on
funds on deposit in the Holding Account to the extent of Available Funds
remaining after the applications pursuant to sub-clauses first through
twenty-first in this clause (c) for such Distribution Date; and
Twenty-Third: To the Issuer, free of the lien of this
Indenture, an amount equal to the excess, if any, of (x) the Available Funds for
such Distribution Date over (y) the aggregate of the amounts applied pursuant to
subclauses first through twenty-second in this clause (ii) for such Distribution
Date, each such amount being the amount thereof set forth in the Distribution
Date Statement. Any funds remaining in the Collection Account shall be invested
in accordance with Section 8.02(b).
In addition to distributions of Available Funds thereto in
accordance with the Available Funds Allocation, on each Distribution Date the
Trustee shall pay any Class A-4 Reserve Withdrawal Amount to the Holders of the
Class A-4 Notes in accordance with Section 8.03.
(d) Funds on deposit in the Collection Account shall be
withdrawn therefrom and applied on each Distribution Date to the payment of
Issuer Expenses; provided that (i) funds shall not be withdrawn from the
Collection Account for such purpose during the period from the end of each Due
Period through the next Distribution Date if such withdrawal would result in the
funds on deposit in the Collection Account on such Distribution Date being less
than the Available Funds for such Distribution Date as set forth in the related
Distribution Date Statement and (ii) such Issuer Expenses, to the extent not
paid on such Distribution Date because of clause (i), shall be paid as soon as
possible after such Distribution Date.
(e) After the entire principal amount of and accrued and
unpaid interest on the Notes and any unreimbursed Realized Loss Amounts have
been paid or provided for as provided in Section 4.01, the cash balance, if any,
then remaining in the Collection Account shall be withdrawn from such Collection
Account by the Trustee, released from the lien of this Indenture and paid to the
Issuer.
VIII-4
<PAGE> 88
SECTION 8.03. Class A-4 Reserve Account.
Prior to the initial authentication and delivery of the Notes,
the Issuer shall open, at the Corporate Trust Office, a segregated trust account
which shall be an Eligible Account (the "Class A-4 Reserve Account"). Prior to
the initial authentication and delivery of Notes, the Issuer shall deposit the
Class A-4 Reserve Initial Deposit into the Class A-4 Reserve Account. If on any
Distribution Date, Available Funds, less amounts thereof distributed on the
Class A-1, Class A-2 and Class A-3 Notes in respect of interest, are
insufficient to make full payment of interest on the Class A-4 Notes, in
accordance with paragraphs seventh and eighth of Section 8.02(c) the Trustee
will withdraw the amount of the deficiency from the Class A-4 Reserve Account
(or the amount on deposit therein, if less) (the "Class A-4 Reserve Withdrawal
Amount") and deposit such amount in the Collection Account for distribution to
the Holders of the Class A-4 Notes. Any Class A-4 Reserve Withdrawal Amount will
be reimbursed to the Class A-4 Reserve Account in accordance with paragraph
ninth of Section 8.02(c). Other than any such reimbursement, no person will have
any obligation to deposit any amounts in the Class A-4 Reserve Account following
the Closing Date.
So long as no Default or Event of Default shall have occurred
and be continuing, all or a portion of the Class A-4 Reserve Account shall be
invested and reinvested by the Trustee at the Issuer's direction in one or more
Eligible Investments bearing interest or sold at discount. Such Eligible
Investments must mature such that at any point in time: (i) an amount up to
three month's interest on the Class A-4 Outstanding Principal Balance as of the
immediately preceding Distribution Date must mature no later than two Business
Days prior to the next Distribution Date; (ii) the excess of such Eligible
Investments up to an amount equal to three month's interest on the Class A-4
Outstanding Principal Balance as of the immediately preceding Distribution Date
must mature no later than two Business Days prior to the second succeeding
Distribution Date; (iii) the excess of such Eligible Investments up to an amount
equal to three month's interest on the Class A-4 Outstanding Principal Balance
as of the immediately preceding Distribution Date must mature no later than two
Business Days prior to the third succeeding Distribution Date; and (iv) the
excess of such Eligible Investments must mature no later than two Business Days
prior to the fourth succeeding Distribution Date.
All income or other gains from investment of moneys deposited
in the Class A-4 Reserve Account shall be deposited by the Trustee in the Class
A-4 Reserve Account immediately upon receipt, and any loss resulting from such
investment shall be charged to the Class A-4 Reserve Account. Any income or
other gains from such investments shall be paid to the Issuer on each
Distribution Date prior to the distribution of any Class A-4 Reserve Withdrawal
Amounts on such date.
On each Distribution Date any excess of the amount on deposit
in the Class A-4 Reserve Account (following the Available Funds Allocation and
any required withdrawals from the Class A-4 Reserve Account in respect of
shortfalls in Available Funds) over the Class A-4 Maximum Reserve Amount will be
withdrawn therefrom by the Trustee and remitted to the Issuer, free of the lien
of this Indenture. On the Distribution Date on which the Class A-4
VIII-5
<PAGE> 89
Outstanding Principal Balance has been reduced to zero, all amounts on deposit
in the Class A-4 Reserve Account will be remitted to the Issuer free of the lien
of this Indenture.
SECTION 8.04. General Provisions Regarding the Collection
Account.
(a) The Collection Account shall relate solely to the Notes
and to the Accounts, Eligible Investments and other property securing the Notes.
Funds and other property in the Collection Account shall not be commingled with
any other moneys or property of the Issuer or any Affiliate thereof.
(b) The Issuer will not direct the Trustee to make any
investment of any funds in the Collection Account or to sell any investment held
in the Collection Account except under the following terms and conditions:
(i) each such investment shall be made in the name of the
Trustee (in its capacity as such) or in the name of a nominee of the
Trustee (or, if, as indicated by an opinion of Counsel delivered to the
Trustee, applicable law provides for perfection of pledges of an
investment not evidenced by a certificate or other instrument through
registration of such pledge on books maintained by or on behalf of the
issuer of such investment, such pledge may be so registered),
(ii) the Trustee shall have sole control over such
investment, the income thereon and the proceeds thereof,
(iii) any certificate or other instrument evidencing such
investment shall be delivered directly to the Trustee or its agent, and
(iv) the proceeds of each sale of such an investment shall
be remitted by the purchaser thereof directly to the Trustee for
deposit in the Collection Account.
(c) If any amounts are needed for disbursement from the
Collection Account and sufficient uninvested funds are not available therein to
make such disbursement, in the absence of an Issuer Order for the liquidation of
investments held therein in an amount sufficient to provide the required funds,
the Trustee shall cause to be sold or otherwise converted to cash a sufficient
amount of the investments in the Collection Account.
(d) The Trustee shall not in any way be held liable by reason
of any insufficiency in the Collection Account except for its liability on
investments which are liabilities of the Trustee in its commercial capacity as
an obligor of any Eligible Investment.
(e) All investments of funds in the Collection Account and all
sales of investments held in the Collection Account shall, except as provided
below, be made by the Trustee in accordance with an Issuer Order; provided,
however, such Issuer Order shall specify investment of such funds only in
Eligible Investments. Subject to compliance with the requirements of Sections
8.02(b) and 8.04(b), such Issuer Order may authorize the Trustee to make the
specific investments set forth therein, to make investments from time to time
VIII-6
<PAGE> 90
consistent with the general instructions set forth therein, or to make specific
investments pursuant to written, telegraphic or telephonic instructions of the
employees or agents of the Issuer identified therein, in each case only in
Eligible Investments and in such amounts as such Issuer Order shall specify.
In the event that:
(i) the Issuer shall have failed to give investment
directions to the Trustee by 10:30 a.m. Eastern Time on the Business
Day prior to any day on which funds are due to be deposited in the
Collection Account (whether with respect to Remittances or payments of
principal of or interest on Eligible Investments) authorizing the
Trustee to invest such funds,
(ii) a Default or Event of Default shall have occurred and
be continuing but the Notes shall not have been declared due and
payable pursuant to Section 5.02, or if such Notes shall have been
declared due and payable following an Event of Default, amounts
collected or receivable from the Trust Fund are being applied in
accordance with Section 5.05, or
(iii) an Event of Default shall have occurred and be
continuing, the Notes shall have been declared due and payable pursuant
to Section 5.02 and amounts collected or receivable from the Trust Fund
are being applied in accordance with Section 5.08,
the Trustee shall invest and reinvest the funds then in the Collection Account
to the fullest extent practicable, in such manner as the Trustee shall from time
to time determine, but only in Eligible Investments described in paragraph (a)
of the definition thereof. In determining the practicability of making any
investment required by this Section 8.04 (e), the Trustee shall be entitled to
take into account the availability to it, in the normal course of its corporate
trust business, of investments of the required maturity and in the amounts
available to be invested. All investments made pursuant to clause (i) above
shall mature on the next Business Day following the date of such investment, all
such investments made pursuant to clause (ii) above shall mature no later than
the maturity date therefor permitted by Section 8.02(b), and all investments
made pursuant to clause (iii) above shall mature no later than the first date
following the date of such investment on which the Trustee proposes to make a
distribution to Holders of Notes pursuant to Section 5.08.
(f) Subject to the restriction on the maturity of investments
set forth in Section 8.02(b) and notwithstanding subsection (e) above, the
Issuer will give appropriate and timely investment directions to the Trustee
such that at the close of business on not more than two Business Days in any one
calendar year not more than an aggregate of $25,000 of funds in the Collection
Account are not invested pursuant, directly or indirectly, to an Issuer Order in
Eligible Investments bearing interest or sold at a discount which mature on or
after the opening of business on the next Business Day.
VIII-7
<PAGE> 91
SECTION 8.05. Reports by Trustee to Noteholders.
On each Distribution Date the Trustee shall deliver to the
Noteholders a written report based upon the Distribution Date Statement for such
Distribution Date as reviewed by a firm of Independent Accountants pursuant to
Section 8.07(b) setting forth the amount of such payment which represents
principal and the amount which represents interest (in each case on a per
Individual Note basis), and the principal amount of an Individual Note after
giving effect to the payment of principal made on such Distribution Date.
SECTION 8.06. Reports by Trustee.
In addition to any statement required to be delivered or
prepared by the Trustee pursuant to Section 2.09, 8.02 or 10.01, the Trustee
shall deliver to the Issuer, the Servicer and the Independent Accountants
appointed pursuant to Section 8.07, within two Business Days after the request
of the Issuer, or such Independent Accountants, a written report setting forth
the amount of the Collection Account established hereunder and the identity of
the investments included therein. Without limiting the generality of the
foregoing, the Trustee shall, upon the request of the Issuer, promptly transmit
to the Issuer copies of all accountings of, and information with respect to,
Remittances furnished it by the Servicer and shall promptly notify the Issuer
if, on the fifth day after any Remittance Date, any Remittance then due or any
portion thereof has not been received by the Trustee.
SECTION 8.07. Reports by Independent Accountants.
(a) At the Closing Date the Issuer shall appoint the firm of
Independent Accountants to prepare and deliver the certificate or opinion
required to be delivered under Section 2.12(f), and prior to the time any report
or certificate pursuant to Section 8.07(b) is required to be delivered, the
Issuer will appoint a firm of Independent Accountants as its Independent
Accountants for purposes of preparing and delivering the reports or certificates
required by Section 8.07(b). Upon any resignation by such firm the Issuer shall
promptly appoint a successor thereto that shall also be a firm of Independent
Accountants of recognized national reputation. If the Issuer shall fail to
appoint a successor to a firm of Independent Accountants which has resigned
within fifteen days after such resignation, the Issuer shall promptly notify the
Trustee of such failure in writing. If the Issuer shall not have appointed a
successor within ten days thereafter, the Trustee shall promptly appoint a
successor firm of Independent Accountants of recognized national reputation. The
fees of such successor shall be payable by the Issuer, and any fees not so paid
by the Issuer may be paid by the Trustee on behalf of the Issuer, from amounts
otherwise payable to the Issuer from the related Collection Account pursuant to
Section 8.02(e).
(b) If the Trustee shall fail to deliver to the Issuer any
Distribution Date Statement by the due date therefor, the Issuer shall, at the
opening of business on the next Business Day after such due date, direct the
firm of Independent Accountants appointed pursuant to subsection (a) to prepare
and deliver to the Trustee such Distribution Date Statement at the expense of
the Trustee, no later than 2:00 p.m. on the Business Day following the day on
which such direction was given. Any fees of such Independent Accountants not
VIII-8
<PAGE> 92
paid by the Issuer may be paid by the Trustee, on behalf of the Issuer (unless
such fees are for the account of the Trustee), from amounts otherwise payable to
the Issuer from the Collection Account pursuant to Section 8.02(e).
SECTION 8.08. Reports by the Servicer.
In the Servicing Agreement the Servicer has agreed to deliver
to the Trustee at the time specified therein the information called for by
Section 3.01(a) of the Servicing Agreement.
VIII-9
<PAGE> 93
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures without Consent of
Noteholders.
Without the consent of the Holders of any Notes, the Issuer
and the Trustee when authorized by an Issuer Order, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee for any of the following purposes:
(1) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Trustee any property subject or required to
be subjected to the lien of this Indenture, or to subject to the lien
of this Indenture additional property;
(2) to evidence the succession of another Person to the
Issuer, and the assumption by any such successor of the covenants of
the Issuer herein and in the Notes contained:
(3) to add to the covenants of the Issuer, for the benefit of
the Holders of all Notes, or to surrender any right or power herein
conferred upon the Issuer;
(4) to cure any ambiguity or mistake, to correct or supplement
any provision herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture, which shall not be
materially inconsistent with the other provisions of this Indenture,
provided that such action shall not adversely affect in any material
respect the interests of the Holders of the Notes; or
(5) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under TIA or under any similar federal
statute hereafter enacted, and to add to this Indenture such other
provisions as may be expressly required by TIA.
SECTION 9.02. Supplemental Indentures with Consent of
Noteholders.
With the consent of the Holders of Notes entitled to at least
50% of the aggregate Voting Rights of all Classes voting together as a single
class, by Act of said Holders delivered to the Issuer and the Trustee, the
Issuer, when authorized by an Issuer Order, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions,
of this Indenture or of modifying in any manner the rights of the Holders of the
Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
IX-1
<PAGE> 94
(1) change the final installment of principal of, or any
installment of interest on, any Note or reduce the principal amount
thereof, the Note Interest Rate thereon or the Redemption Price with
respect thereto, change the Note Redemption Date, change any place of
payment where, or the coin or currency in which, any Note or any
interest thereon is payable, or impair the right to institute suit for
the enforcement of the payment of any installment of interest due on
any Note on or after the date such payment is due or for the
enforcement of the payment of the entire remaining unpaid principal
amount of any Note on or after the Maturity of the final installment of
the principal thereof (or, in the case of redemption, on or after the
applicable Redemption Date);
(2) reduce the percentage of the Voting Rights, the consent of
the Holders of which is required for any such supplemental indenture,
or the consent of the Holders of which is required for any waiver of
compliance with provisions of this Indenture or Defaults hereunder and
their consequences provided for in this Indenture;
(3) modify any of the provisions of this Section 9.02, Section
5.14 or Section 5.18 (b) or 5.18 (c), except to increase any percentage
specified therein or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby;
(4) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(5) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Fund or terminate the lien of this Indenture on any property at
any time subject hereto or deprive the Holder of any Note of the
security afforded by the lien this Indenture; or
(6) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the principal or interest for
any Distribution Date on any Notes (including the calculation of any of
the individual components of such Debt Service Requirement) or to
affect the rights of the Holders of Notes to the benefits of any
provisions contained herein for the mandatory payment of principal.
The Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture pursuant to this Section
9.02 or Section 9.01(4) hereof and any such determination shall be conclusive
upon the Holders of all Notes, whether theretofore or thereafter authenticated
and delivered hereunder. The Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under
this Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
IX-2
<PAGE> 95
Promptly after the execution by the Issuer and the Trustee of
any supplemental indenture pursuant to this Section, the Issuer shall mail to
the Holders of the Notes to which such supplemental indenture relates a notice
setting forth in general terms the substance of such supplemental indenture. Any
failure of the Issuer to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.
SECTION 9.03. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 6.01) shall be fully protected in relying
upon, an opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not (except to the extent required in the case of a supplemental indenture
entered into under Section 9.01(5)) be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes to which such supplemental indenture relates which have
theretofore been or thereafter are authenticated and delivered hereunder shall
be bound thereby.
SECTION 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Section
shall conform to the requirements of the TIA as then in effect, so long as this
Indenture shall then be qualified under the TIA.
SECTION 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and if required by the
Trustee shall, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Issuer, to any such supplemental indenture which relates to the Notes may be
prepared and executed by the Issuer and authenticated and delivered by the
Trustee in exchange for Outstanding Notes.
IX-3
<PAGE> 96
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Optional Redemption of Notes.
The Notes are subject to redemption in whole and not in part
at the option of the Issuer on any Distribution Date at the Redemption Price
therefor if before or after giving effect to the payment of principal otherwise
required to be made on such Distribution Date the Outstanding Principal Balance
of each Class of Notes outstanding (prior to allocations of any Realized Loss
Amounts) equals 101 or less of the initial principal amount of such Class of
Notes.
Payment on the Notes pursuant to any optional redemption may
be made only with Eligible Moneys. If the Issuer elects to so redeem all Notes
then Outstanding, it shall, no later than 30 days prior to the Distribution Date
selected for such redemption, deliver notice of such election to the Trustee and
Moody's, together with an Issuer Order directing the Trustee to effect such
redemption and the Aggregate Redemption Price due on such Distribution Date for
deposit into the Collection Account. All such Notes shall be due and payable on
such Distribution Date upon the giving of the notice thereof required by Section
10.02.
SECTION 10.02. Form of Redemption Notice.
Notices of redemptions of Notes shall be given by the Trustee
in the name and at the expense of the Issuer and shall be mailed no later than
10 days prior to the Redemption Date to the Persons who were Holders of such
Notes on the Record Date that would otherwise be applicable to the Distribution
Date on which such notes are to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and
(3) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or agency of the
Issuer to be maintained as provided in Section 3.02) and that no interest shall
accrue on such Note for any period after the date fixed for redemption.
Failure to give notice of redemption, or any defect therein,
to any Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.
X-1
<PAGE> 97
SECTION 10.03. Notes Payable on Redemption Date.
Notice of redemption having been given as provided in section
10. 02, the Notes so to be redeemed shall, on the applicable Redemption Date,
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on such
Redemption Price for any period after such Redemption Date. Upon surrender of
such Notes for redemption in accordance with said notice such Notes shall be
paid by or on behalf of the Issuer at the Redemption Price.
X-2
<PAGE> 98
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Compliance Certificates and Opinions.
Upon any application or request by the Issuer to the Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Trustee an Officers, Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition of covenant provided for in this Indenture (including one furnished
pursuant to specific requirements of this Indenture relating to a particular
application or request) shall include to the extent applicable:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with; and
(5) if the signer of such certificate or opinion is required
to be Independent, the statement required by the definition of the term
"Independent".
SECTION 11.02. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
XI-1
<PAGE> 99
Any certificate or opinion of an officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of
counsel, unless such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Owner Trustee, the Grantor or any other Person, stating that the information
with respect to such factual matters is in the possession of such Person, unless
such officer or counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous. Any Opinion of Counsel may be based on the written
opinion of other counsel, in which event such Opinion of Counsel shall be
accompanied by a copy of such other counsels opinion and shall include a
statement to the effect that such counsel believes that such counsel and the
Trustee may reasonably rely upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Wherever in this Indenture, in connection with any application
or certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, the facts and opinions
stated in such document shall in such case be conditions precedent to the right
of the Issuer to have such application granted or to the sufficiency of such
certificate or report. The foregoing shall not, however, be construed to affect
the Trustee's right to rely upon the truth and accuracy of any statement or
opinion contained in any such document as provided in Section 6.01(b)(2)
Wherever in this Indenture it is provided that the absence of
the occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Issuer, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Issuer's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default as provided in Section 6.01(d).
SECTION 11.03. Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such
XI-2
<PAGE> 100
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and
the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Notes.
SECTION 11.04. Notices, etc., to Trustee and Issuer.
(a) Any request, demand, authorization, direction, notice,
consent waiver or Act of Noteholders or other documents provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with
(1) the Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if filed in writing and mailed
by registered mail to the Trustee at
___________________________________________, Attention: __________, or
(2) the Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder (except as provided in Section
5.01(3) and (4)) if in writing and mailed, firstclass postage-prepaid,
to the Issuer addressed to it at c/o _________________________ as Owner
Trustee, Attention: ____________________, or at any other address
previously furnished in writing to the Trustee by the Issuer.
(b) Notices required under this Indenture to be sent to
Noteholders with respect to material amendments to the Indenture, the Trust
Agreement or the Servicing Agreement, satisfaction and discharge of the
Indenture and any reports, statements, or other notices required hereunder shall
in addition be sent to each Rating Agency; to ___________ at its address at
________________________________, and to ___ at its address at
_____________________________.
XI-3
<PAGE> 101
SECTION 11.05. Notices and Reports to Noteholders; Waiver of
Notices
Where this Indenture provides for notice to Noteholders of any
event or the mailing of any report to Noteholders, such notice or report shall
be sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Noteholder affected by such event or to
whom such report is required to be mailed, at the address of such Noteholder as
it appears on the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice or the mailing
of such report. In any case where a notice or report to Noteholders is mailed in
the manner provided above, neither the failure to mail such notice or report,
nor any defect in any notice or report so mailed, to any particular Noteholder
shall affect the sufficiency of such notice or report with respect to other
Noteholders, and any notice or report which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Noteholders shall be filed with the Trustee,
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
SECTION 11.06. Rules by Trustee and Agents
The Trustee may make reasonable rules for any meeting of
Noteholders. Any Agent may make reasonable rules and set reasonable requirements
for its functions.
SECTION 11.07. Conflict with Trust Indenture Act
If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Indenture by,
or which is deemed to be included in this Indenture (an "incorporated
provision") by operation of, any of the provisions of TIA, such required
provision or incorporated provision shall control.
SECTION 11.08. Effect of Headings and Table of Contents
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
XI-4
<PAGE> 102
SECTION 11.09. Successors and Assigns
All covenants and agreements in this Indenture by the Issuer
shall bind its successors and assigns, whether so expressed or not.
SECTION 11.10. Separability
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.11. Benefits of Indenture
Nothing in this Indenture or in the Notes, expressed or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any separate trustee or co-trustee appointed under Section
6.14 and the Noteholders any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 11.12. Legal Holidays
In any case where the date of any Distribution Date,
Redemption Date, or any other date on which principal of or interest on any Note
is proposed to be paid shall not be a Business Day, then (notwithstanding any
other provision of the Notes or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the nominal date of any such Distribution Date,
Redemption Date, or other date for the payment of principal of or interest on
any Note, and no interest shall accrue for the period from and after any such
nominal date, provided such payment is made in full on such next Succeeding
Business Day.
SECTION 11.13. Governing Law
This Indenture and each Note shall be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed therein.
SECTION 11.14. Counterparts
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument
SECTION 11.15. Recording of Indenture
This Indenture is subject to recording in any appropriate
public recording offices, such recording to be effected by the Issuer and at its
expense in compliance with any opinion of Counsel delivered pursuant to Section
2.12(l) or 3.06.
XI-5
<PAGE> 103
SECTION 11.16. Issuer Obligations
No recourse may be taken, directly or indirectly, against (i)
the Owner Trustee in its individual capacity, (ii) any incorporator, subscriber
to the capital stock, stockholder, officer or director of the Owner Trustee or
of any predecessor or successor of the Owner Trustee in its individual capacity,
(iii) any holder of a beneficial interest in the Issuer, (iv) any partner,
beneficiary, agent, officer, director, employee, or successor or assign of a
holder of a beneficial interest in the Issuer, or (v) any incorporator,
subscriber to the capital stock, stockholder, officer, director or employee of
the Trustee or any predecessor or successor of the Trustee with respect to the
Issuer's obligations with respect to the Notes or the obligation of the Issuer
or the Trustee under this Indenture or any certificate or other writing
delivered in connection herewith or therewith.
SECTION 11.17. Inspection
The Issuer and the Note Registrar will agree that, on
reasonable prior notice, they will permit any representative of Trustee, during
normal business hours, to examine all of the books of account, records, reports
and other papers in its possession relating to the Notes, to make copies and
extracts therefrom in the case of the Issuer, to cause such books to be audited
by Independent Accountants selected by the Trustee, and to discuss its affairs,
finances and accounts with its officers, employees and Independent Accountants
(and by this provision the Issuer hereby authorizes its Independent Accountants
to discuss with such representatives such affairs, finances and accounts), all
at such reasonable times and as often as may be reasonably requested. Any
expense incident to the exercise by the Trustee of any right under this Section
11.17 shall be borne by the Issuer.
XI-6
<PAGE> 104
IN WITNESS WHEREOF, the Owner Trustee on behalf of the Issuer
and the Trustee have caused this Indenture to be duly executed by their
respective officers thereunto duly authorized and the seal of the Owner Trustee
and of the Trustee to be hereunto affixed, all as of the day and year first
above written
[Trust]
By: , not in its individual
capacity, but solely as Owner Trustee of
[Trust]
By
--------------------------------------
Authorized Officer
as Trustee
By
--------------------------------------
Authorized Officer
<PAGE> 105
STATE OF )
)SS.:
COUNTY OF )
On the ___ day of _______, ___, before me, a notary public in
and for said State, personally appeared _____________________, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
who executed the within instrument on behalf of one of the corporations therein
named, and acknowledged to me that such corporation executed it.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
----------------------------
Notary Public
STATE OF )
)SS.:
COUNTY OF )
On the ____ day of ________, _____, before me, a notary public
in and for said State, personally appeared _________________, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
who executed the within instrument on behalf of one of the corporations therein
named, and acknowledged to me that such national banking association executed
it.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
----------------------------
Notary Public
-1-
<PAGE> 106
EXHIBIT A
[UNLESS THIS CLASS A-1 NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
PRINCIPAL OF THIS CLASS A-1 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-1 NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL OUTSTANDING
PRINCIPAL AMOUNT OF THIS CLASS A-1 NOTE MAY BE ASCERTAINED ONLY BY OBTAINING A
WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE RIGHTS OF A
HOLDER OF THIS CLASS A-1 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
A-1
<PAGE> 107
[TRUST]
% ASSET BACKED NOTE, CLASS A-1
DUE:
ACCRUAL DATE:
$ No.
CUSIP NO.
[Trust] (the "Issuer"), a _______________ business trust
governed by a Trust Agreement dated as of __________, 199_ (the "Trust
Agreement"), for value received, hereby promises to pay to
______________________, the principal sum of ______________________ Dollars in
quarterly installments on _______, _______, ______, and __________ (the
"Principal Distribution Dates") in each year, commencing on ______, 199_ and
ending on or before ______, 20__ (the "Maturity" of such final installment of
principal) and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid principal amount of this Class A-1 Note
outstanding from time to time from ________, 199_ (the "Accrual Date"), or such
later date to which interest has been paid, until the principal amount of this
Class A-1 Note is paid in full, at the rate of
percent ( %) per annum, such interest being payable quarterly on
____________, ________, _________, and ________ in each year, commencing on
________, 199_ (the "Interest Distribution Dates"). Installments of principal of
this Class A-1 Note are due and payable in the amounts and on the dates
described on the reverse hereof.
The principal of, and interest on, this Class A-1 Note are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. All payments
made by the Issuer with respect to this Class A-1 Note shall be applied first to
interest due and payable on this Class A-1 Note as provided above and then to
the unpaid principal of this Class A-1 Note. Any installment of principal or
interest which is not paid when and as due shall bear interest at the rate of
interest borne by the principal of this Class A-1 Note from the date due to the
date of payment thereof, but only to the extent that the payment of such
interest shall be lawful and enforceable.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Class A-1 Note shall not be
entitled to any benefit under the Indenture referred to below, or be valid or
obligatory for any purpose.
A-2
<PAGE> 108
IN WITNESS WHEREOF, [Trust] has caused this instrument to be
duly executed by _________________________, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated [TRUST]
By: _____________________, not in its
individual capacity but solely in
its capacity as Owner Trustee under
the Trust Agreement
By
------------------------------------
[Title]
A-3
<PAGE> 109
This Class A-1 Note is one of a duly authorized issue of Notes
of the Issuer, designated as its % Asset Backed Notes, Class A-l (herein called
the "Class A-1 Notes"). The Class A-1 Notes are issued and will be issued under
an Indenture dated ------, 199- (herein called the "Indenture"), between the
Issuer and _____________________, as Trustee (the "Trustee", which term includes
any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the Holders of the
Class A-1 Notes and the terms upon which the Class A-1 Notes are, and are to be,
authenticated and delivered. Also issued under the Indenture are the ____% Asset
Backed Notes, Class A-2, ____% Asset Backed Notes, Class A-3 and ____% Asset
Backed Notes, Class A-4. The Class A-1 Notes are secured by the collateral
pledged as security therefor to the extent provided in the Indenture. All terms
used in this Class A-1 Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
An installment of principal shall be paid on the Class A-1
Notes on each Principal Distribution Date in the amount equal to the amount
available to be paid thereon as principal pursuant to and subject to the
priorities set forth in Section 8.02(c) of the Indenture on such Principal
Distribution Date; provided that the unpaid principal amount of this Class A-1
Note shall be due and payable on the Principal Distribution Date in ____ 20__.
Each payment of principal of the Class A-1 Notes shall be allocated among the
Class A-1 Notes in proportion to their then remaining unpaid principal amounts.
The unpaid principal amount of this Class A-1 Note may be reduced by the
allocation to it (in accordance with Section 5.20 of the Indenture) of Class A-1
Realized Loss Amounts without any corresponding payment.
Payment of the then remaining unpaid principal amount of this
Class A-1 Note on the Maturity of its final installment of principal or on such
earlier date as the Issuer shall be required to apply payments received with
respect to the collateral securing the Class A-1 Notes to payment of the then
remaining unpaid principal amount of this Class A-1 Note or to payment of the
Redemption Price payable on any date as of which this Class A-1 Note has been
called for redemption in full shall be made upon presentation of this Class A-1
Note to the office or agency of the Issuer maintained for such purpose. Payments
of interest on this Class A-1 Note due and payable on each Interest Distribution
Date, together with any installment of principal of this Class A-1 Note due and
payable on each Interest Distribution Date which is also a Principal
Distribution Date for this Class A-1 Note, shall be made by check mailed to the
Person whose name appears as the registered Holder of this Class A-1 Note (or
one or more Predecessor Notes) in the Note Register as of the Record Date
preceding such Interest Distribution Date, except that with respect to a Class
A-1 Note registered in the name of the nominee of a clearing agency (initially,
such nominee to be Cede & Co.) payments will be made by wire transfer in
immediately available funds to the account designated by such nominee.
Checks for amounts due on this Class A-1 Note shall be mailed
to the Person entitled thereto at the address of such Person as it appears on
the Note Register as of the applicable Record Date without requiring that this
Class A-1 Note be submitted for notation of
A-4
<PAGE> 110
payment and checks returned undelivered will be held for payment to the Person
entitled thereto, subject to the terms of the Indenture, at the office or agency
in the United States of America designated by the Issuer for such purpose
pursuant to the Indenture. Any reduction in the principal amount of this Class
A-1 Note (or any one or more Predecessor Notes) effected by any payments made on
any Principal Distribution Date or by any allocation of a Class A-1 Realized
Loss Amount shall be binding upon all Holders of this Class A-1 Note and of any
Class A-1 Note issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not noted hereon.
If funds are expected to be available, as provided in the
Indenture, for payment in full of the then remaining unpaid principal amount of
this Class A-1 Note on a Principal Distribution Date which is prior to the
Maturity of the final installment of principal hereof, then the Trustee, on
behalf of the Issuer, will notify the Person who was the registered Holder
hereof on the 15th day of the month prior to the month in which such Principal
Distribution Date occurs, by notice mailed no later than ten days prior to such
Principal Distribution Date, and the amount then due and payable shall, if
sufficient funds therefor are available, be payable only upon presentation of
this Class A-1 Note to the office or agency of the Issuer maintained for such
purpose.
If an Event of Default shall occur and be continuing with
respect to the Class A-1 Notes, the Class A-1 Notes may become or be declared
due and payable in the manner and with the effect provided in the Indenture.
Reference is hereby made to Article V of the Indenture which sets forth certain
events which constitute Events of Default. If any such acceleration of maturity
occurs prior to the Maturity of the final installment of principal of this Class
A-1 Note, the amount payable to the Holder of this Class A-1 Note will be equal
to the aggregate unpaid principal amount of this Class A-1 Note on the date this
Class A-1 Note becomes so due and payable, together with accrued interest on
such unpaid principal amount to the date of payment thereof. The Indenture
provides that, notwithstanding the acceleration of the Maturity of the Class A-1
Notes, under certain circumstances specified therein all amounts collected as
proceeds of the collateral securing the Class A-1 Notes or otherwise shall
continue to be applied to payments of principal of and interest on the Class A-1
Notes as if they had not been declared due and payable. In such event, interest
on the then unpaid principal amount of all Class A-1 Notes and on any overdue
installments of interest on the Class A-1 Notes following the acceleration of
the Maturity of the Class A-1 Notes shall accrue and be payable at the
applicable Note Interest Rate, but only to the extent that the payment thereof
shall be lawful and enforceable.
The Class A-1 Notes are not prepayable or redeemable at the
option or direction of the Issuer except that all of the outstanding Notes may
be called for redemption in whole at the option of the Issuer on any
Distribution Date, if, either before or after giving effect to the payment of
principal otherwise required to be made on such Distribution Date, each Class of
Notes shall be in an aggregate Outstanding Principal Balance which is 10% or
less of the original principal amount of such Class of Notes, at 100% of the
outstanding principal amount thereof together with interest accrued and unpaid
to the date set for redemption.
A-5
<PAGE> 111
As provided in the Indenture the transfer of this Class A-1
Note may be registered on the Note Register of the Issuer, upon surrender of
this Class A-1 Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and in
the same aggregate initial principal amount will be issued to the designated
transferee or transferees.
Prior to the due presentment for registration of transfer of
this Class A-1 Note, the Issuer, the Trustee and any agent of the Issuer or the
Trustee may treat the Person in whose name this Class A-1 Note is registered (i)
on any Record Date, for purposes of making payments, and (ii) on any other date
for any other purpose, as the owner hereof, whether or not this Class A-1 Note
be overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Class A-1 Notes
under the Indenture at any time by the Issuer, and the Holders of Notes entitled
to more than 50% of the aggregate Voting Rights of all Classes voting together
as a single class. The Indenture also contains provisions that permit the
Holders of the percentage of the Class or Classes of Notes specified in Section
5.02 of the Indenture, on behalf of the Holders of all the Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder, at the time of the giving thereof, of this Class A-1 Note
(or any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future holders of this Class A-1 Note and of any Class A-1
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Class A-1 Note.
The term "Issuer" as used in this Class A-1 Note includes any
successor to the Issuer under the Indenture.
The Class A-1 Notes are issuable only in registered form in
the denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-1 Notes are exchangeable for a like aggregate
initial principal amount of Class A-1 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to the
terms and conditions set forth in the Indenture.
As provided in the Indenture, this Class A-1 Note and the
Indenture shall be construed in accordance with, and governed by, the laws of
the State of New York applicable to agreements made and to be performed therein.
No reference herein to the Indenture and no provision of this
Class A-1 Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and
A-6
<PAGE> 112
unconditional, to pay the principal of and interest on this Class A-1 Note at
the times, place and rate, and in the coin or currency, herein prescribed.
Anything herein to the contrary notwithstanding, neither the
Owner Trustee in its individual capacity, any beneficial owner of the Issuer,
the Trustee nor any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for the payment of
principal of and interest on, or performance of, or omission to perform, any of
the covenants, obligations or indemnifications contained in, this Class A-1 Note
or the Indenture, it being expressly understood that said covenants, obligations
and indemnifications have been made by the Owner Trustee for the sole purpose of
binding the respective interests of the beneficial owners of the Issuer and the
owner Trustee in the assets of the Issuer. The Holder of this Class A-1 Note by
the acceptance hereof agrees that in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and the enforcement against, the
assets of the Issuer of any and all liabilities, obligations and undertakings
contained in the Indenture or in this Class A-1 Note.
The Owner Trustee has executed this Class A-1 Note on behalf
of the Issuer, not in its individual capacity but solely as owner trustee under
the Trust Agreement and the Owner Trustee shall be liable hereunder only in
respect of the assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in
the Indenture, shall be cumulative and concurrent and may be pursued solely
against the assets of the Trust created by the Trust Agreement pledged under the
Indenture as security for the Class A-1 Notes. No failure on the part of the
Holder in exercising any right or remedy hereunder shall operate as a waiver or
release thereof, nor shall any single or partial exercise of any right or remedy
preclude any further exercise thereof or the exercise of any other right or
remedy hereunder.
A-7
<PAGE> 113
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-1 Notes referred to in the
within-mentioned Indenture.
as Trustee
By
--------------------------------
Authorized Signatory
A-8
<PAGE> 114
EXHIBIT B
[UNLESS THIS CLASS A-2 NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE CO., HAS AN INTEREST
HEREIN.]
PRINCIPAL OF THIS CLASS A-2 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-2 NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL OUTSTANDING
PRINCIPAL AMOUNT OF THIS CLASS A-2 NOTE MAY BE ASCERTAINED ONLY BY OBTAINING A
WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE RIGHTS OF A
HOLDER OF THIS CLASS A2 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
THE RIGHTS OF THE CLASS A-2 NOTEHOLDERS TO RECEIVE PAYMENTS IN RESPECT OF
PRINCIPAL AND INTEREST ON THE CLASS A-2 NOTES ARE SUBORDINATE TO THE RIGHTS OF
THE CLASS A-1 NOTEHOLDERS TO RECEIVE PAYMENTS OF PRINCIPAL AND INTEREST.
B-1
<PAGE> 115
[TRUST]
% ASSET BACKED NOTE, CLASS A-2
DUE:
ACCRUAL DATE:
$ No.
CUSIP NO.
[Trust] (the "Issuer"), a _________ business trust governed by
a Trust Agreement dated as of _________, 199_ (the "Trust Agreement"), for value
received, hereby promises to pay to ________________________, the principal sum
of _________________________ Dollars in quarterly installments on ____________,
___________, ___________, and ___________ (the "Principal Distribution Dates")
in each year, commencing on July1 , 1997 and ending on or before ________, 20__
(the "Maturity" of such final installment of principal) and to pay interest
(computed on the basis of a 360-day year of twelve 30-day months) on the unpaid
principal amount of this Class A-2 Note outstanding from time to time from
_____, 199_ (the "Accrual Date"), or such later date to which interest has been
paid, until the principal amount of this Class A-2 Note is paid in full, at the
rate of __________________ percent (____%) per annum, such interest being
payable quarterly on ______, _______, ______, and _________ in each year,
commencing on _______, 199_ (the "Interest Distribution Dates"). Installments of
principal of this Class A-2 Note are due and payable in the amounts and on the
dates described on the reverse hereof.
The principal of, and interest on, this Class A-2 Note are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. All payments
made by the Issuer with respect to this Class A-2 Note shall he applied first to
interest due and payable on this Class A-2 Note as provided above and then to
the unpaid principal of this Class A-2 Note. Any installment of principal or
interest which is not paid when and as due shall bear interest at the rate of
interest borne by the principal of this Class A-2 Note from the date due to the
date of payment thereof, but only to the extent that the payment of such
interest shall be lawful and enforceable.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Class A-2 Note shall not be
entitled to any benefit under the Indenture referred to below, or be valid or
obligatory for any purpose.
B-2
<PAGE> 116
IN WITNESS WHEREOF, [Trust] has caused this instrument to be
duly executed by ________________________, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated: [TRUST]
By:___________________________, not in its
individual capacity but solely in its
capacity as Owner Trustee under the
Trust Agreement
By
--------------------------------------
[Title]
B-3
<PAGE> 117
This Class A-2 Note is one of a duly authorized issue of Notes
of the Issuer, designated as its % Asset Backed Notes, Class A2 (herein called
the "Class A-2 Notes"). The Class A-2 Notes are issued and will be issued under
an Indenture dated , 199_ (herein called the "Indenture"), between the Issuer
and ______________________, as Trustee (the "Trustee", which term includes any
successor Trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights thereunder of the Issuer, the Trustee and the Holders of the Class A-2
Notes and the terms upon which the Class A-2 Notes are, and are to be,
authenticated and delivered. Also issued under the Indenture are the ____% Asset
Backed Notes, Class A-1, ____% Asset Backed Notes, Class A-3 and ____% Asset
Backed Notes, Class A-4. The Class A-2 Notes are secured by the collateral
pledged as security therefor to the extent provided in the Indenture. All terms
used in this Class A-2 Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
An installment of principal shall be paid on the Class A-2
Notes on each Principal Distribution Date in the amount equal to the amount
available to be paid thereon as principal pursuant to and subject to the
priorities set forth in Section 8.02(c) of the Indenture on such Principal
Distribution Date; provided that the unpaid principal amount of this Class A-2
Note shall be due and payable on the Principal Distribution Date in ____ 20__.
Each payment of principal of the Class A-2 Notes shall be allocated among the
Class A-2 Notes in proportion to their then remaining unpaid principal amounts.
The unpaid principal amount of this Class A-2 Note may be reduced by the
allocation to it (in accordance with Section 5.20 of the Indenture) of Class A-2
Realized Loss Amounts without any corresponding payment.
The rights of the Class A-2 Noteholders to receive payments in
respect of principal and interest on the Class A-2 Notes are subordinate to the
rights of the Class A-1 Noteholders to receive payments of principal and
interest.
Payment of the then remaining unpaid principal amount of this
Class A-2 Note on the Maturity of its final installment of principal or on such
earlier date as the Issuer shall be required to apply payments received with
respect to the collateral securing the Class A-2 Notes to payment of the then
remaining unpaid principal amount of this Class A-2 Note or to payment of the
Redemption Price payable on any date as of which this Class A-2 Note has been
called for redemption in full shall be made upon presentation of this Class A-2
Note to the office or agency of the Issuer maintained for such purpose. Payments
of interest on this Class A-2 Note due and payable on each Interest Distribution
Date, together with any installment of principal of this Class A-2 Note due and
payable on each Interest Distribution Date which is also a Principal
Distribution Date for this Class A-2 Note, shall be made by check mailed to the
Person whose name appears as the registered Holder of this Class A-2 Note (or
one or more Predecessor Notes) in the Note Register as of the Record Date
preceding such Interest Distribution Date, except that with respect to a Class
A-2 Note registered in the name of the nominee of a clearing agency (initially,
such nominee to be Cede & Co.) payments will be made by wire transfer in
immediately available funds to the account designated by such nominee.
B-4
<PAGE> 118
Checks for amounts due on this Class A-2 Note shall be mailed
to the Person entitled thereto at the address of such Person as it appears on
the Note Register as of the applicable Record Date without requiring that this
Class A-2 Note be submitted for notation of payment and checks returned
undelivered will be held for payment to the Person entitled thereto, subject to
the terms of the Indenture, at the office or agency in the United States of
America designated by the Issuer for such purpose pursuant to the Indenture. Any
reduction in the principal amount of this Class A-2 Note (or any one or more
Predecessor Notes) effected by any payments made on any Principal Distribution
Date or by any allocation of a Class A-2 Realized Loss Amount shall be binding
upon all Holders of this Class A-2 Note and of any Class A-2 Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not noted hereon.
If funds are expected to be available, as provided in the
Indenture, for payment in full of the then remaining unpaid principal amount of
this Class A-2 Note on a Principal Distribution Date which is prior to the
Maturity of the final installment of principal hereof, then the Trustee, on
behalf of the Issuer, will notify the Person who was the registered Holder
hereof on the 15th day of the month prior to the month in which such Principal
Distribution Date occurs, by notice mailed no later than ten days prior to such
Principal Distribution Date, and the amount then due and payable shall, if
sufficient funds therefor are available, be payable only upon presentation of
this Class A-2 Note to the office or agency of the Issuer maintained for such
purpose.
If an Event of Default shall occur and be continuing with
respect to the Class A-2 Notes, the Class A-2 Notes may become or be declared
due and payable in the manner and with the effect provided in the Indenture.
Reference is hereby made to Article V of the Indenture which sets forth certain
events which constitute Events of Default. If any such acceleration of maturity
occurs prior to the Maturity of the final installment of principal of this Class
A-2 Note, the amount payable to the Holder of this Class A-2 Note will be equal
to the aggregate unpaid principal amount of this Class A-2 Note on the date this
Class A-2 Note becomes so due and payable, together with accrued interest on
such unpaid principal amount to the date of payment thereof. The Indenture
provides that, notwithstanding the acceleration of the Maturity of the Class A-2
Notes, under certain circumstances specified therein all amounts collected as
proceeds of the collateral securing the Class A-2 Notes or otherwise shall
continue to be applied to payments of principal of and interest on the Class A-2
Notes as if they had not been declared due and payable. In such event, interest
on the then unpaid principal amount of all Class A-2 Notes and on any overdue
installments of interest on the Class A-2 Notes following the acceleration of
the Maturity of the Class A-2 Notes shall accrue and be payable at the
applicable Note Interest Rate, but only to the extent that the payment thereof
shall be lawful and enforceable.
The Class A-2 Notes are not prepayable or redeemable at the
option or direction of the Issuer except that all of the outstanding Notes may
be called for redemption in whole at the option of the Issuer on any
Distribution Date, if, either before or after giving effect to the payment of
principal otherwise required to be made on such Distribution Date, each Class of
Notes shall be in an aggregate Outstanding Principal Balance which is 10% or
less of the
B-5
<PAGE> 119
original principal amount of such Class of Notes, at 100% of the outstanding
principal amount thereof together with interest accrued and unpaid to the date
set for redemption.
As provided in the Indenture the transfer of this Class A-2
Note may be registered on the Note Register of the Issuer, upon surrender of
this Class A-2 Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and in
the same aggregate initial principal amount will be issued to the designated
transferee or transferees.
Prior to the due presentment for registration of transfer of
this Class A-2 Note, the Issuer, the Trustee and any agent of the Issuer or the
Trustee may treat the Person in whose name this Class A-2 Note is registered (i)
on any Record Date, for purposes of making payments, and (ii) on any other date
for any other purpose, as the owner hereof, whether or not this Class A-2 Note
be overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Class A-2 Notes
under the Indenture at any time by the Issuer, and the Holders of Notes entitled
to more than 50% of the aggregate Voting Rights of all Classes voting together
as a single class. The Indenture also contains provisions that permit the
Holders of the percentage of the Class or Classes of Notes specified in Section
5.02 of the Indenture, on behalf of the Holders of all the Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder, at the time of the giving thereof, of this Class A-2 Note
(or any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future holders of this Class A-2 Note and of any Class A-2
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Class A-2 Note.
The term "Issuer" as used in this Class A-2 Note includes any
successor to the Issuer under the Indenture.
The Class A-2 Notes are issuable only in registered form in
the denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-2 Notes are exchangeable for a like aggregate
initial principal amount of Class A-2 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to the
terms and conditions set forth in the Indenture.
As provided in the Indenture, this Class A-2 Note and the
Indenture shall be construed in accordance with, and governed by, the laws of
the State of New York applicable to agreements made and to be performed therein.
B-6
<PAGE> 120
No reference herein to the Indenture and no provision of this
Class A-2 Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Class A-2 Note at the times, place and rate, and in the coin or
currency, herein prescribed.
Anything herein to the contrary notwithstanding, neither the
Owner Trustee in its individual capacity, any beneficial owner of the Issuer,
the Trustee nor any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for the payment of
principal of and interest on, or performance of, or omission to perform, any of
the covenants, obligations or indemnifications contained in, this Class A-2 Note
or the Indenture, it being expressly understood that said covenants, obligations
and indemnifications have been made by the owner Trustee for the sole purpose of
binding the respective interests of the beneficial owners of the Issuer and the
Owner Trustee in the assets of the Issuer. The Holder of this Class A-2 Note by
the acceptance hereof agrees that in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and the enforcement against, the
assets of the Issuer of any and all liabilities, obligations and undertakings
contained in the Indenture or in this Class A-2 Note.
The Owner Trustee has executed this Class A-2 Note on behalf
of the Issuer, not in its individual capacity but solely as owner trustee under
the Trust Agreement and the Owner Trustee shall be liable hereunder only in
respect of the assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in
the Indenture, shall be cumulative and concurrent and may be pursued solely
against the assets of the Trust created by the Trust Agreement pledged under the
Indenture as security for the Class A-2 Notes. No failure on the part of the
Holder in exercising any right or remedy hereunder shall operate as a waiver or
release thereof, nor shall any single or partial exercise of any right or remedy
preclude any further exercise thereof or the exercise of any other right or
remedy hereunder.
B-7
<PAGE> 121
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-2 Notes referred to in the
within-mentioned Indenture.
as Trustee
By
-------------------------
Authorized Signatory
B-8
<PAGE> 122
EXHIBIT C
[UNLESS THIS CLASS A-3 NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
PRINCIPAL OF THIS CLASS A-3 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-3 NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL OUTSTANDING
PRINCIPAL AMOUNT OF THIS CLASS A-3 NOTE MAY BE ASCERTAINED ONLY BY OBTAINING A
WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE RIGHTS OF A
HOLDER OF THIS CLASS A3 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
THE RIGHTS OF THE CLASS A-3 NOTEHOLDERS TO RECEIVE PAYMENTS IN RESPECT
OF PRINCIPAL AND INTEREST ON THE CLASS A-3 NOTES ARE SUBORDINATE TO THE RIGHTS
OF THE CLASS A-1 NOTEHOLDERS AND CLASS A-2 NOTEHOLDERS TO RECEIVE PAYMENTS OF
PRINCIPAL AND INTEREST.
C-1
<PAGE> 123
[TRUST]
7.54% ASSET BACKED NOTE, CLASS A-3
DUE:
ACCRUAL DATE:
$ No.
CUSIP NO.
[Trust] (the "Issuer"), a business trust governed by a Trust
Agreement dated as of , 199_ (the "Trust Agreement"), for value
received, hereby promises to pay to
________________________, the principal sum of _______________________ Dollars
in quarterly installments on ________, _______, ______, and _________ (the
"Principal Distribution Dates") in each year, commencing on , 199_ and ending
on or before , 20__ (the "Maturity" of such final installment of principal) and
to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal amount of this Class A-3 Note outstanding from
time to time from , 199_ (the "Accrual Date"), or such later date to which
interest has been paid, until the principal amount of this Class A-3 Note is
paid in full, at the rate of percent ( %) per annum, such interest being
payable quarterly on _______, _______, _______, and _________ in each year,
commencing on ________, 199_ (the "Interest Distribution Dates"). Installments
of principal of this Class A-3 Note are due and payable in the amounts and on
the dates described on the reverse hereof.
The principal of, and interest on, this Class A-3 Note are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. All payments
made by the Issuer with respect to this Class A-3 Note shall be applied first to
interest due and payable on this Class A-3 Note as provided above and then to
the unpaid principal of this Class A-3 Note. Any installment of principal or
interest which is not paid when and as due shall bear interest at the rate of
interest borne by the principal of this Class A-3 Note from the date due to the
date of payment thereof, but only to the extent that the payment of such
interest shall be lawful and enforceable.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Class A-3 Note shall not be
entitled to any benefit under the Indenture referred to below, or be valid or
obligatory for any purpose.
C-2
<PAGE> 124
IN WITNESS WHEREOF, [Trust] has caused this instrument to be
duly executed by ______________________, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated [TRUST]
By:________________________, not in its
individual capacity but solely in its
capacity as Owner Trustee under the
Trust Agreement
By
--------------------------------------
[Title]
C-3
<PAGE> 125
This Class A-3 Note is one of a duly authorized issue of Notes
of the Issuer, designated as its 7.54% Asset Backed Notes, Class A-3 (herein
called the "Class A-3 Notes"). The Class A-3 Notes are issued and will be issued
under an Indenture dated , 199_ (herein called the "Indenture"), between the
Issuer and _____________________, as Trustee (the "Trustee", which term includes
any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the Holders of the
Class A-3 Notes and the terms upon which the Class A-3 Notes are, and are to be,
authenticated and delivered. Also issued under the Indenture are the % Asset
Backed Notes, Class A-1, % Asset Backed Notes, Class A-2 and % Asset Backed
Notes, Class A-4. The Class A-3 Notes are secured by the collateral pledged as
security therefor to the extent provided in the Indenture. All terms used in
this Class A-3 Note which are defined in the Indenture shall have the meanings
assigned to them in the Indenture.
An installment of principal shall be paid on the Class A-3
Notes on each Principal Distribution Date in the amount equal to the amount
available to be paid thereon as principal pursuant to and subject to the
priorities set forth in Section 8.02(c) of the Indenture on such Principal
Distribution Date; provided that the unpaid principal amount of this Class A-3
Note shall be due and payable on the Principal Distribution Date in July 2035.
Each payment of principal of the Class A-3 Notes shall be allocated among the
Class A-3 Notes in proportion to their then remaining unpaid principal amounts.
The unpaid principal amount of this Class A-3 Note may be reduced by the
allocation to it (in accordance with Section 5.20 of the Indenture) of Class A-3
Realized Loss Amounts without any corresponding payment.
The rights of the Class A-3 Noteholders to receive payments in
respect of principal and interest on the Class A-3 Notes are subordinate to the
rights of the Class A-1 Noteholders and Class A2 Noteholders to receive payments
of principal and interest.
Payment of the then remaining unpaid principal amount of this
Class A-3 Note on the Maturity of its final installment of principal or on such
earlier date as the Issuer shall be required to apply payments received with
respect to the collateral securing the Class A-3 Notes to payment of the then
remaining unpaid principal amount of this Class A-3 Note or to payment of the
Redemption Price payable on any date as of which this Class A-3 Note has been
called for redemption in full shall be made upon presentation of this Class A-3
Note to the office or agency of the Issuer maintained for such purpose. Payments
of interest on this Class A-3 Note due and payable on each Interest Distribution
Date, together with any installment of principal of this Class A-3 Note due and
payable on each Interest Distribution Date which is also a Principal
Distribution Date for this Class A-3 Note, shall be made by check mailed to the
Person whose name appears as the registered Holder of this Class A-3 Note (or
one or more Predecessor Notes) in the Note Register as of the Record Date
preceding such Interest Distribution Date, except that with respect to a Class
A-3 Note registered in the name of the nominee of a clearing agency (initially,
such nominee to be Cede & Co.) payments will be made by wire transfer in
immediately available funds to the account designated by such nominee.
C-4
<PAGE> 126
Checks for amounts due on this Class A-3 Note shall be mailed
to the Person entitled thereto at the address of such Person as it appears on
the Note Register as of the applicable Record Date without requiring that this
Class A-3 Note be submitted for notation of payment and checks returned
undelivered will be held for payment to the Person entitled thereto, subject to
the terms of the Indenture, at the office or agency in the United States of
America designated by the Issuer for such purpose pursuant to the Indenture. Any
reduction in the principal amount of this Class A-3 Note (or any one or more
Predecessor Notes) effected by any payments made on any Principal Distribution
Date or by any allocation of a Class A-3 Realized Loss Amount shall be binding
upon all Holders of this Class A-3 Note and of any Class A-3 Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not noted hereon.
If funds are expected to be available, as provided in the
Indenture, for payment in full of the then remaining unpaid principal amount of
this Class A-3 Note on a Principal Distribution Date which is prior to the
Maturity of the final installment of principal hereof, then the Trustee, on
behalf of the Issuer, will notify the Person who was the registered Holder
hereof on the 15th day of the month prior to the month in which such Principal
Distribution Date occurs, by notice mailed no later than ten days prior to such
Principal Distribution Date, and the amount then due and payable shall, if
sufficient funds therefor are available, be payable only upon presentation of
this Class A-3 Note to the office or agency of the Issuer maintained for such
purpose.
If an Event of Default shall occur and be continuing with
respect to the Class A-3 Notes, the Class A-3 Notes may become or be declared
due and payable in the manner and with the effect provided in the Indenture.
Reference is hereby made to Article V of the Indenture which sets forth certain
events which constitute Events of Default. If any such acceleration of maturity
occurs prior to the Maturity of the final installment of principal of this Class
A-3 Note, the amount payable to the Holder of this Class A-3 Note will be equal
to the aggregate unpaid principal amount of this Class A-3 Note on the date this
Class A-3 Note becomes so due and payable, together with accrued interest on
such unpaid principal amount to the date of payment thereof. The Indenture
provides that, notwithstanding the acceleration of the Maturity of the Class A-3
Notes, under certain circumstances specified therein all amounts collected as
proceeds of the collateral securing the Class A-3 Notes or otherwise shall
continue to be applied to payments of principal of and interest on the Class A-3
Notes as if they had not been declared due and payable. In such event, interest
on the then unpaid principal amount of all Class A-3 Notes and on any overdue
installments of interest on the Class A-3 Notes following the acceleration of
the Maturity of the Class A-3 Notes shall accrue and be payable at the
applicable Note Interest Rate, but only to the extent that the payment thereof
shall be lawful and enforceable.
The Class A-3 Notes are not prepayable or redeemable at the
option or direction of the Issuer except that all of the outstanding Notes may
be called for redemption in whole at the option of the Issuer on any
Distribution Date, if, either before or after giving effect to the payment of
principal otherwise required to be made on such Distribution Date, each Class of
Notes shall be in an aggregate Outstanding Principal Balance which is 10% or
less of the
C-5
<PAGE> 127
original principal amount of such Class of Notes, at 100% of the outstanding
principal amount thereof together with interest accrued and unpaid to the date
set for redemption.
As provided in the Indenture the transfer of this Class A-3
Note may be registered on the Note Register of the Issuer, upon surrender of
this Class A-3 Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and in
the same aggregate initial principal amount will be issued to the designated
transferee or transferees.
Prior to the due presentment for registration of transfer of
this Class A-3 Note, the Issuer, the Trustee and any agent of the Issuer or the
Trustee may treat the Person in whose name this Class A-3 Note is registered (i)
on any Record Date, for purposes of making payments, and (ii) on any other date
for any other purpose, as the owner hereof, whether or not this Class A-3 Note
be overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Class A-3 Notes
under the Indenture at any time by the Issuer, and the Holders of Notes entitled
to more than 50% of the aggregate Voting Rights of all Classes voting together
as a single class at the time Outstanding. The Indenture also contains
provisions that permit the Holders of the percentage of the Class or Classes of
Notes specified in Section 5.02 of the Indenture, on behalf of the Holders of
all the Notes, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder, at the time of the giving thereof, of
this Class A-3 Note (or any one or more Predecessor Notes) shall be conclusive
and binding upon such Holder and upon all future holders of this Class A-3 Note
and of any Class A-3 Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Class A-3 Note.
The term "Issuer" as used in this Class A-3 Note includes any
successor to the Issuer under the Indenture.
The Class A-3 Notes are issuable only in registered form in
the denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-3 Notes are exchangeable for a like aggregate
initial principal amount of Class A-3 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to the
terms and conditions set forth in the Indenture.
As provided in the Indenture, this Class A-3 Note and the
Indenture shall be construed in accordance with, and governed by, the laws of
the State of New York applicable to agreements made and to be performed therein.
C-6
<PAGE> 128
No reference herein to the Indenture and no provision of this
Class A-3 Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Class A-3 Note at the times, place and rate, and in the coin or
currency, herein prescribed.
Anything herein to the contrary notwithstanding, neither the
Owner Trustee in its individual capacity, any beneficial owner of the Issuer,
the Trustee nor any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for the payment of
principal of and interest on, or performance of, or omission to perform, any of
the covenants, obligations or indemnifications contained in, this Class A-3 Note
or the Indenture, it being expressly understood that said covenants, obligations
and indemnifications have been made by the Owner Trustee for the sole purpose of
binding the respective interests of the beneficial owners of the Issuer and the
Owner Trustee in the assets of the Issuer. The Holder of this Class A-3 Note by
the acceptance hereof agrees that in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and the enforcement against, the
assets of the Issuer of any and all liabilities, obligations and undertakings
contained in the Indenture or in this Class A-3 Note.
The Owner Trustee has executed this Class A-3 Note on behalf
of the Issuer, not in its individual capacity but solely as owner trustee under
the Trust Agreement and the Owner Trustee shall be liable hereunder only in
respect of the assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in
the Indenture, shall be cumulative and concurrent and may be pursued solely
against the assets of the Trust created by the Trust Agreement pledged under the
Indenture as security for the Class A-3 Notes. No failure on the part of the
Holder in exercising any right or remedy hereunder shall operate as a waiver or
release thereof, nor shall any single or partial exercise of any right or remedy
preclude any further exercise thereof or the exercise of any other right or
remedy hereunder.
C-7
<PAGE> 129
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-3 Notes referred to in the
within-mentioned Indenture.
as Trustee
By
------------------------------
Authorized Signatory
C-8
<PAGE> 130
EXHIBIT D
[UNLESS THIS CLASS A-4 NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
PRINCIPAL OF THIS CLASS A-4 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-4 NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL OUTSTANDING
PRINCIPAL AMOUNT OF THIS CLASS A-4 NOTE MAY BE ASCERTAINED ONLY BY OBTAINING A
WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE RIGHTS OF A
HOLDER OF THIS CLASS A4 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
THE RIGHTS OF THE CLASS A-4 NOTEHOLDERS TO RECEIVE PAYMENTS IN RESPECT OF
PRINCIPAL AND INTEREST ON THE CLASS A-4 NOTES ARE SUBORDINATE TO THE RIGHTS OF
THE CLASS A-1 NOTEHOLDERS, CLASS A-2 NOTEHOLDERS AND CLASS A-3 NOTEHOLDERS TO
RECEIVE PAYMENTS OF PRINCIPAL AND INTEREST.
D-1
<PAGE> 131
[TRUST]
% ASSET BACKED NOTE, CLASS A-4
DUE:
ACCRUAL DATE:
$ No.
CUSIP NO.
[Trust] (the "Issuer"), a business trust governed by a Trust
Agreement dated as of , 199_ (the "Trust Agreement"), for value received, hereby
promises to pay to Cede & Co. or registered assigns, the principal sum of
_______________________ Dollars in quarterly installments on _________,
__________, _________, and ___________ (the "Principal Distribution Dates") in
each year, commencing on , 199_ and ending on or before , 20__ (the "Maturity"
of such final installment of principal) and to pay interest (computed on the
basis of a 360-day year of twelve 30-day months) on the unpaid principal amount
of this Class A-4 Note outstanding from time to time from _________, 199_ (the
"Accrual Date"), or such later date to which interest has been paid, until the
principal amount of this Class A-4 Note is paid in full, at the rate of seven
and seventy-nine hundredths percent (7.79%) per annum, such interest being
payable quarterly on ________, _________, ________, and __________ in each year,
commencing on , 199_ (the "Interest Distribution Dates"). Installments of
principal of this Class A-4 Note are due and payable in the amounts and on the
dates described on the reverse hereof.
The principal of, and interest on, this Class A-4 Note are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. All payments
made by the Issuer with respect to this Class A-4 Note shall be applied first to
interest due and payable on this Class A-4 Note as provided above and then to
the unpaid principal of this Class A-4 Note. Any installment of principal or
interest which is not paid when and as due shall bear interest at the rate of
interest borne by the principal of this Class A-4 Note from the date due to the
date of payment thereof, but only to the extent that the payment of such
interest shall be lawful and enforceable.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Class A-4 Note shall not be
entitled to any benefit under the Indenture referred to below, or be valid or
obligatory for any purpose.
D-2
<PAGE> 132
IN WITNESS WHEREOF, [Trust] has caused this instrument to be
duly executed by __________________________, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated [TRUST]
By: _______________________, not in its
individual capacity but solely in
its capacity as Owner Trustee
under the Trust Agreement
By
------------------------------------
[Title]
D-3
<PAGE> 133
This Class A-4 Note is one of a duly authorized issue of Notes
of the Issuer, designated as its % Asset Backed Notes, Class A4 (herein
called the "Class A-4 Notes"). The Class A-4 Notes are issued and
will be issued under an Indenture dated , 199_ (herein called the "Indenture"),
between the Issuer and __________________, as Trustee (the "Trustee", which term
includes any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the Holders of the
Class A-4 Notes and the terms upon which the Class A-4 Notes are, and are to be,
authenticated and delivered. Also issued under the Indenture are the % Asset
Backed Notes, Class A-1, % Asset Backed Notes, A-2 and % Asset Backed Notes,
Class A-3. The Class A-4 Notes are secured by the collateral pledged as security
therefor to the extent provided in the Indenture. All terms used in this Class
A-4 Note which are defined in the Indenture shall have the meanings assigned to
them in the Indenture.
An installment of principal shall be paid on the Class A-4
Notes on each Principal Distribution Date in the amount equal to the amount
available to be paid thereon as principal pursuant to and subject to the
priorities set forth in Section 8.02(c) of the Indenture on such Principal
Distribution Date; provided that the unpaid principal amount of this Class A-4
Note shall be due and payable on the Principal Distribution Date in
20__. Each payment of principal of the Class A-4 Notes shall be allocated
among the Class A-4 Notes in proportion to their then remaining unpaid principal
amounts. The unpaid principal amount of this Class A-4 Note may be reduced by
the allocation to it (in accordance with Section 5.20 of the Indenture) of Class
A-4 Realized Loss Amounts without any corresponding payment.
The rights of the Class A-4 Noteholders to receive payments in
respect of principal and interest on the Class A-4 Notes are subordinate to the
rights of the Class A-1 Noteholders, Class A-2 Noteholders and Class A-3
Noteholders to receive payments of principal and interest.
Payment of the then remaining unpaid principal amount of this
Class A-4 Note on the Maturity of its final installment of principal or on such
earlier date as the Issuer shall be required to apply payments received with
respect to the collateral securing the Class A-4 Notes to payment of the then
remaining unpaid principal amount of this Class A-4 Note or to payment of the
Redemption Price payable on any date as of which this Class A-4 Note has been
called for redemption in full shall be made upon presentation of this Class A-4
Note to the office or agency of the Issuer maintained for such purpose. Payments
of interest on this Class A-4 Note due and payable on each Interest Distribution
Date, together with any installment of principal of this Class A-4 Note due and
payable on each Interest Distribution Date which is also a Principal
Distribution Date for this Class A-4 Note, shall be made by check mailed to the
Person whose name appears as the registered Holder of this Class A-4 Note (or
one or more Predecessor Notes) in the Note Register as of the Record Date
preceding such Interest Distribution Date, except that with respect to a Class
A-4 Note registered in the name of the nominee of a clearing agency (initially,
such nominee to be Cede & Co.)
D-4
<PAGE> 134
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee.
Checks for amounts due on this Class A-4 Note shall be mailed
to the Person entitled thereto at the address of such Person as it appears on
the Note Register as of the applicable Record Date without requiring that this
Class A-4 Note be submitted for notation of payment and checks returned
undelivered will be held for payment to the Person entitled thereto, subject to
the terms of the Indenture, at the office or agency in the United States of
America designated by the Issuer for such purpose pursuant to the Indenture. Any
reduction in the principal amount of this Class A-4 Note (or any one or more
Predecessor Notes) effected by any payments made on any Principal Distribution
Date or by any allocation of a Class A-4 Realized Loss Amount shall be binding
upon all Holders of this Class A-4 Note and of any Class A-4 Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not noted hereon.
If funds are expected to be available, as provided in the
Indenture, for payment in full of the then remaining unpaid principal amount of
this Class A-4 Note on a Principal Distribution Date which is prior to the
Maturity of the final installment of principal hereof, then the Trustee, on
behalf of the Issuer, will notify the Person who was the registered Holder
hereof on the 15th day of the month prior to the month in which such Principal
Distribution Date occurs, by notice mailed no later than ten days prior to such
Principal Distribution Date, and the amount then due and payable shall, if
sufficient funds therefor are available, be payable only upon presentation of
this Class A-4 Note to the office or agency of the Issuer maintained for such
purpose.
If an Event of Default shall occur and be continuing with
respect to the Class A-4 Notes, the Class A-4 Notes may become or be declared
due and payable in the manner and with the effect provided in the Indenture.
Reference is hereby made to Article V of the Indenture which sets forth certain
events which constitute Events of Default. If any such acceleration of maturity
occurs prior to the Maturity of the final installment of principal of this Class
A-4 Note, the amount payable to the Holder of this Class A-4 Note will be equal
to the aggregate unpaid principal amount of this Class A-4 Note on the date this
Class A-4 Note becomes so due and payable, together with accrued interest on
such unpaid principal amount to the date of payment thereof. The Indenture
provides that, notwithstanding the acceleration of the Maturity of the Class A-4
Notes, under certain circumstances specified therein all amounts collected as
proceeds of the collateral securing the Class A-4 Notes or otherwise shall
continue to be applied to payments of principal of and interest on the Class A-4
Notes as if they had not been declared due and payable. In such event, interest
on the then unpaid principal amount of all Class A-4 Notes and on any overdue
installments of interest on the Class A-4 Notes following the acceleration of
the Maturity of the Class A-4 Notes shall accrue and be payable at the
applicable Note Interest Rate, but only to the extent that the payment thereof
shall be lawful and enforceable.
The Class A-4 Notes are not prepayable or redeemable at the
option or direction of the Issuer except that all of the outstanding Notes may
be called for redemption in whole at
D-5
<PAGE> 135
the option of the Issuer on any Distribution Date, if, either before or after
giving effect to the payment of principal otherwise required to be made on such
Distribution Date, each Class of Notes shall be in an aggregate Outstanding
Principal Balance which is 10% or less of the original principal amount of such
Class of Notes, at 100% of the outstanding principal amount thereof together
with interest accrued and unpaid to the date set for redemption.
As provided in the Indenture the transfer of this Class A-4
Note may be registered on the Note Register of the Issuer, upon surrender of
this Class A-4 Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and in
the same aggregate initial principal amount will be issued to the designated
transferee or transferees.
Prior to the due presentment for registration of transfer of
this Class A-4 Note, the Issuer, the Trustee and any agent of the Issuer or the
Trustee may treat the Person in whose name this Class A-4 Note is registered (i)
on any Record Date, for purposes of making payments, and (ii) on any other date
for any other purpose, as the owner hereof, whether or not this Class A-4 Note
be overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Class A-4 Notes
under the Indenture at any time by the Issuer, and the Holders of Notes entitled
to more than 50% of the aggregate Voting Rights of all Classes voting together
as a single class at the time Outstanding. The Indenture also contains
provisions that permit the Holders of the percentage of the Class or Classes of
Notes specified in Section 5.02 of the Indenture, on behalf of the Holders of
all the Notes, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder, at the time of the giving thereof, of
this Class A-4 Note (or any one or more Predecessor Notes) shall be conclusive
and binding upon such Holder and upon all future holders of this Class A-4 Note
and of any Class A-4 Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Class A-4 Note.
The term "Issuer" as used in this Class A-4 Note includes any
successor to the Issuer under the Indenture.
The Class A-4 Notes are issuable only in registered form in
the denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-4 Notes are exchangeable for a like aggregate
initial principal amount of Class A-4 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to the
terms and conditions set forth in the Indenture.
D-6
<PAGE> 136
As provided in the Indenture, this Class A-4 Note and the
Indenture shall be construed in accordance with, and governed by, the laws of
the State of New York applicable to agreements made and to be performed therein.
No reference herein to the Indenture and no provision of this
Class A-4 Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Class A-4 Note at the times, place and rate, and in the coin or
currency, herein prescribed.
Anything herein to the contrary notwithstanding, neither the
Owner Trustee in its individual capacity, any beneficial owner of the Issuer,
the Trustee nor any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for the payment of
principal of and interest on, or performance of, or omission to perform, any of
the covenants, obligations or indemnifications contained in, this Class A-4 Note
or the Indenture, it being expressly understood that said covenants, obligations
and indemnifications have been made by the Owner Trustee for the sole purpose of
binding the respective interests of the beneficial owners of the Issuer and the
owner Trustee in the assets of the Issuer. The Holder of this Class A-4 Note by
the acceptance hereof agrees that in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and the enforcement against, the
assets of the Issuer of any and all liabilities, obligations and undertakings
contained in the Indenture or in this Class A-4 Note.
The Owner Trustee has executed this Class A-4 Note on behalf
of the Issuer, not in its individual capacity but solely as owner trustee under
the Trust Agreement and the Owner Trustee shall be liable hereunder only in
respect of the assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in
the Indenture, shall be cumulative and concurrent and may be pursued solely
against the assets of the Trust created by the Trust Agreement pledged under the
Indenture as security for the Class A-4 Notes. No failure on the part of the
Holder in exercising any right or remedy hereunder shall operate as a waiver or
release thereof, nor shall any single or partial exercise of any right or remedy
preclude any further exercise thereof or the exercise of any other right or
remedy hereunder.
D-7
<PAGE> 137
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-4 Notes referred to in the
within-mentioned Indenture.
,
as Trustee
By
-----------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 5.1
October 10, 1997
Nations Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, N.C. 28255
Re: Asset Backed Certificates and Asset Backed Notes
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration
statement filed with the Securities and Exchange Commission (the "Commission")
on August 5, 1997, pursuant to the Securities Act of 1933, as amended (the
"Act"), as amended by Pre-Effective Amendment No. 1 to the Registration
Statement to be filed on the date hereof (as amended, the "Registration
Statement"). The Registration Statement covers Asset Backed Certificates
("Certificates") and Asset Backed Notes ("Notes" and, together with the
Certificates, the "Securities") to be sold by Nations Asset Securities, Inc.
(the "Company") in one or more series (each, a "Series") of Securities. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among the Company, a
trustee to be identified in the Prospectus Supplement for such Series of
Certificates (a "Trustee"), and a servicer (the "Servicer") or a master servicer
(the "Master Servicer") to be identified in the Prospectus Supplement for such
Series of Certificates. Each Series of Notes will be issued under a seperate
indenture (each, an "Indenture") between the Company and an indenture trustee to
be identified in the Prospectus Supplement for such Series of Notes (an
"Indenture Trustee"). A form of Pooling and Servicing Agreement and a form of
Indenture are included as Exhibits to the Registration Statement. Capitalized
terms used and not otherwise defined herein have the respective meanings
ascribed to such terms in the Registration Statement.
<PAGE> 2
NationsBanc Asset Securities, Inc. -2- October 10, 1997
We have examined originals or copies certified or otherwise
identified to our satisfaction of such documents and records of the Company, and
such public documents and records as we have deemed necessary as a basis for the
opinions hereinafter expressed.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed
and delivered by the Company, a Trustee and the Servicer or
Master Servicer, such Pooling and Servicing Agreement will
constitute a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting the
enforcement of rights of creditors generally and to general
principles of equity and the discretion of the court
(regardless of whether enforceability is considered in a
proceeding in equity or at law);
2. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed
and delivered by the Company, a Trustee and the Servicer or
Master Servicer, and the Certificates of such Series have been
duly executed, authenticated, delivered and sold as
contemplated in the Registration Statement, such Certificates
will be legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates will be
entitled to the benefits of such Pooling and Servicing
Agreement;
3. When an Indenture for a Series of Notes has been duly and
validly authorized, executed and delivered by the Company and
an Indenture Trustee, such Indenture will constitute a valid
and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium
and other laws affecting the enforcement of rights of
creditors generally and to general principles of equity and
the discretion of the court (regardless of whether
enforceability is considered in a proceeding in equity or at
law); and
4. When an Indenture for a Series of Notes has been duly and
validly authorized, executed and delivered by the Company and
an Indenture Trustee, and the Notes of such Series have been
duly executed, authenticated, delivered and sold as
contemplated in the Registration Statement, such Notes will be
legally and validly issued, fully paid and nonassessable, and
the holders of such Notes will be entitled to the benefits of
such Indenture.
<PAGE> 3
NationsBanc Asset Securities, Inc. -3- October 10, 1997
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
<PAGE> 1
EXHIBIT 5.2
October 10, 1997
Nations Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, N.C. 28255
Re: Asset Backed Certificates and Asset Backed Notes
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration
statement filed with the Securities and Exchange Commission (the "Commission")
on August 5, 1997, pursuant to the Securities Act of 1933, as amended (the
"Act"), as amended by Pre-Effective Amendment No. 1 to the Registration
Statement to be filed on the date hereof (as amended, the "Registration
Statement"). The Registration Statement covers Asset Backed Certificates
("Certificates") and Asset Backed Notes ("Notes" and, together with the
Certificates, the "Securities") to be sold by Nations Asset Securities, Inc.
(the "Company") in one or more series (each, a "Series") of Securities. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among the Company, a
trustee to be identified in the Prospectus Supplement for such Series of
Certificates (a "Trustee"), and a servicer (the "Servicer") or a master servicer
(the "Master Servicer") to be identified in the Prospectus Supplement for such
Series of Certificates. Each Series of Notes will be issued under a separate
indenture (each, an "Indenture") between the Company and an indenture trustee to
be identified in the Prospectus Supplement for such Series of Notes (an
"Indenture Trustee"). A form of Pooling and Servicing Agreement and a form of
Indenture are included as Exhibits to the Registration Statement. Capitalized
terms used and not otherwise defined herein have the respective meanings
ascribed to such terms in the Registration Statement.
We have examined originals or copies certified or otherwise identified
to our satisfaction of such documents and records of the Company, and such
public documents and records as we have deemed necessary as a basis for the
opinions hereinafter expressed.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series
of Certificates has been duly and validly authorized,
executed and delivered by the Company, a Trustee and
the Servicer or Master Servicer, such Pooling and
Servicing Agreement will constitute a valid and
legally binding agreement of the Company, enforceable
against the Company in accordance with its terms,
subject to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting the
enforcement of rights of creditors generally
<PAGE> 2
Nations Asset Securities, Inc.
October 10, 1997
and to general principles of equity and the
discretion of the court (regardless of whether
enforceability is considered in a proceeding in
equity or at law);
2. When a Pooling and Servicing Agreement for a Series
of Certificates has been duly and validly authorized,
executed and delivered by the Company, a Trustee and
the Servicer or Master Servicer, and the Certificates
of such Series have been duly executed,
authenticated, delivered and sold as contemplated in
the Registration Statement, such Certificates will be
legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates
will be entitled to the benefits of such Pooling and
Servicing Agreement;
3. When an Indenture for a Series of Notes has been duly
and validly authorized, executed and delivered by the
Company and an Indenture Trustee, such Indenture will
constitute a valid and legally binding agreement of
the Company, enforceable against the Company in
accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium
and other laws affecting the enforcement of rights of
creditors generally and to general principles of
equity and the discretion of the court (regardless of
whether enforceability is considered in a proceeding
in equity or at law); and
4. When an Indenture for a Series of Notes has been duly
and validly authorized, executed and delivered by the
Company and an Indenture Trustee, and the Notes of
such Series have been duly executed, authenticated,
delivered and sold as contemplated in the
Registration Statement, such Notes will be legally
and validly issued, fully paid and nonassessable, and
the holders of such Notes will be entitled to the
benefits of such Indenture.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ Hunton & Williams
2
<PAGE> 1
EXHIBIT 8.1
October 10, 1997
Nations Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, North Carolina 28255
Ladies and Gentlemen:
We have acted as your special tax counsel in connection with the
registration statement filed with the Securities and Exchange Commission (the
"Commission") on August 5, 1997, pursuant to the Securities Act of 1933, as
amended (the "Act"), as amended by Pre-Effective Amendment No. 1 to the
registration statement to be filed on the date hereof (as amended, the
"Registration Statement"). The Registration Statement covers Asset Backed
Certificates ("Certificates") and Asset Backed Notes ("Notes and, together with
the Certificates, the "Securities") to be sold by Nations Asset Securities, Inc.
(the "Company") in one or more series (each, a "Series") of Securities. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among the Company, a
trustee to be identified in the Prospectus Supplement for such Series of
Certificates and a servicer or a master servicer to be identified in the
Prospectus Supplement for such Series of Certificates. Each Series of Notes will
be issued under a separate indenture (each, an "Indenture") between the Company
and an indenture trustee to be identified in the Prospectus Supplement for such
Series of Notes. A form of Pooling and Servicing Agreement and a form of
Indenture are included as Exhibits to the Registration Statement. Capitalized
terms used and not otherwise defined herein have the respective meanings
ascribed to such terms in the Registration Statement.
In rendering the opinion set forth below, we have examined and relied
upon the following: (i) the Registration Statement, the Prospectus and the form
of Prospectus Supplement constituting a part thereof, each substantially in the
form filed with the Commission, (ii) the form of the Pooling and Servicing
Agreement and Indenture, each substantially in the form filed with the
Commission and (iii) such other documents, records and instruments as we have
deemed necessary for the purposes of this opinion.
<PAGE> 2
Nations Asset Securities, Inc. -2- October 10, 1997
As counsel to the Company, we have advised the Company with respect to
certain federal income tax aspects of the proposed issuance of the Securities.
Such advice has formed the basis for the description of material federal income
tax consequences for holders of the Securities that appears under the headings
"Summary of Prospectus--Tax Status of Securities" and "Federal Income Tax
Consequences" in the Prospectus and under the headings "Summary--Federal Income
Tax Consequences" and "Federal Income Tax Consequences" in the form of
Prospectus Supplement. Such description do not purport to discuss all possible
federal income tax ramifications of the proposed issuance of the Securities,
but, with respect to those federal income tax consequences that are discussed,
in our opinion, the descriptions is accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and Prospectus Supplement and in the other documents reviewed by us.
Our opinion as to the matters set forth herein could change with respect to a
particular Series of Securities as a result of changes in facts or
circumstances, changes in the terms of the documents reviewed by us, or changes
in the law subsequent to the date hereof. Because the Registration Statement
contemplates Series of Securities with numerous different characteristics, the
particular characteristics of each Series of Securities must be considered in
determining the applicability of this opinion to a particular Series of
Securities. The opinion contained in each Prospectus Supplement and Prospectus
prepared pursuant to the Registration Statement is, accordingly, deemed to be
incorporated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under the
caption "Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
No opinion has been sought and none has been given concerning the tax
treatment of the issuance and sale of the Securities under the laws of any
state.
Very truly yours,
/s/ Cadwalader, Wickerham & Taft
<PAGE> 1
EXHIBIT 8.2
October 10, 1997
Nations Asset Securities, Inc.
NationsBank Corporate Center
Charlotte, N.C. 28255
Ladies and Gentlemen:
We have acted as your special tax counsel in connection with the
registration statement filed with the Securities and Exchange Commission (the
"Commission") on August 5, 1997, pursuant to the Securities Act of 1933, as
amended (the "Act"), as amended by Pre-Effective Amendment No. 1 to the
Registration Statement to be filed on the date hereof (as amended, the
"Registration Statement"). The Registration Statement covers Asset Backed
Certificates ("Certificates") and Asset Backed Notes ("Notes" and, together with
the Certificates, the "Securities") to be sold by Nations Asset Securities, Inc.
(the "Company") in one or more series (each, a "Series") of Securities. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among the Company, a
trustee to be identified in the Prospectus Supplement for such Series of
Certificates and a servicer or a master servicer to be identified in the
Prospectus Supplement for such Series of Certificates. Each Series of Notes will
be issued under a separate indenture (each, an "Indenture") between the Company,
or a trust established by the Company, and an indenture trustee to be identified
in the Prospectus Supplement for such Series of Notes. A form of Pooling and
Servicing Agreement and a form of Indenture are included as Exhibits to the
Registration Statement. Capitalized terms used and not otherwise defined herein
have the respective meanings ascribed to such terms in the Registration
Statement.
In rendering the opinion set forth below, we have examined and relied
upon the following: (i) the Registration Statement, the Prospectus and the form
of Prospectus Supplement constituting a part thereof, each substantially in the
form filed with the Commission, (ii) the form of the Pooling and Servicing
Agreement and Indenture, each substantially in the form filed with the
Commission and (iii) such other documents, records and instruments as we have
deemed necessary for the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed that each
Pooling and Servicing Agreement and Indenture will be duly authorized by all
necessary corporate action on the part of the parties thereto for such Series of
Securities and will be duly executed and delivered by such parties substantially
in the applicable form filed or incorporated by reference as an exhibit to the
Registration Statement, that each Series of Securities will be duly executed and
delivered in substantially the forms set forth in the related Pooling and
Servicing Agreement or Indenture filed
<PAGE> 2
Nations Asset Securities, Inc.
October 10, 1997
or incorporated by reference as an exhibit to the Registration Statement, and
that Securities will be sold as described in the Registration Statement.
As counsel to the Company, we have advised the Company with respect to
certain federal income tax aspects of the proposed issuance of the Securities.
Such advice has formed the basis for the description of material federal income
tax consequences for holders of the Securities that appears under the headings
"Summary of Prospectus--Tax Status of Securities" and "Federal Income Tax
Consequences" in the Prospectus and under the headings "Summary--Federal Income
Tax Consequences" and "Federal Income Tax Consequences" in the form of
Prospectus Supplement. Such descriptions do not purport to discuss all possible
federal income tax ramifications of the proposed issuance of the Securities,
but, with respect to those federal income tax consequences that are discussed,
in our opinion, the descriptions are accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and Prospectus Supplement and in the other documents reviewed by us.
Our opinion as to the matters set forth herein could change with respect to a
particular Series of Securities as a result of changes in facts or
circumstances, changes in the terms of the documents reviewed by us, or changes
in the law subsequent to the date hereof. Because the Registration Statement
contemplates Series of Securities with numerous different characteristics, the
particular characteristics of each Series of Securities must be considered in
determining the applicability of this opinion to a particular Series of
Securities.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under the
caption "Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
No opinion has been sought and none has been given concerning the tax
treatment of the issuance and sale of the Securities under the laws of any
state.
Very truly yours,
/s/ Hunton & Williams
2
