<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION NO. 333-40465
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
AVCO ABS RECEIVABLES CORP.
(Depositor)
(Exact name of Registrant as Specified in its Charter)
NEVADA APPLICATION PENDING
(State of incorporation) (I.R.S. Employer Identification Number)
1727-B CHARLESTON
LAS VEGAS, NEVADA 89104
(702) 474-6282
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
HERBERT F. SMITH, ESQ.
AVCO FINANCIAL SERVICES MANAGEMENT COMPANY
600 ANTON BLVD.
COSTA MESA, CALIFORNIA 92628-5011
(714) 445-7860
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Copy to:
REED D. AUERBACH, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
--------------------------
Approximate date of commencement of proposed
sale to the public: From time to time after the
effective date of this Registration Statement.
--------------------------
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, 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, 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.[ ]
-----------------------
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 THIS 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.
1
<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 SUPPLEMENT AND THE 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.
2
<PAGE> 3
SUBJECT TO COMPLETION, DATED JUNE 19, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________ , 199_)
$__________
AVCO FINANCIAL HOME EQUITY LOAN TRUST 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_
Avco ABS Receivables Corp.
(Seller)
Avco Financial Services Management Company
(Master Servicer and Representative)
-----------------------
The Home Equity Loan Asset-Backed Certificates, Series 199_-_ (the
"Certificates"), will consist of the Classes (each, a "Class") listed below
(collectively, the "Class A Certificates"), the Class S Certificates
(collectively with the Class A Certificates, the "Senior Certificates"), and one
or more Classes which are subordinated to the Senior Certificates. Only the
Class A Certificates are being offered hereby. The Senior Certificates will have
the benefit of an irrevocable and unconditional certificate guaranty insurance
policy (the "Policy") issued by [Name of Certificate Insurer] (the "Certificate
Insurer") pursuant to which the Certificate Insurer will guarantee certain
payments to the holders of Senior Certificates as described herein. [THE MASTER
SERVICER MAY, AT ITS OPTION, TERMINATE THE AGREEMENT ON THE DISTRIBUTION DATE
FOLLOWING THE DUE PERIOD AT THE END OF WHICH THE AGGREGATE PRINCIPAL BALANCE OF
THE MORTGAGE LOANS IS LESS THAN [PERCENTAGE GREATER THAN 10%] OF THE SUM OF THE
PRINCIPAL BALANCES OF THE INITIAL MORTGAGE LOANS AND SUBSEQUENT MORTGAGE LOANS
AS OF THE CUT-OFF DATE (THE "OPTIONAL TERMINATION DATE"). SEE "DESCRIPTION OF
THE CERTIFICATES--TERMINATION; PURCHASE OF MORTGAGE LOANS" HEREIN.]
(cover continued on next page)
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE S-20 HEREIN AND ON PAGE 19 IN THE ACCOMPANYING
PROSPECTUS.
------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE MASTER SERVICER, THE
TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT PROVIDED
HEREIN. NEITHER THE CERTIFICATES NOR THE MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY.
------------------------
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>
Initial Class Certificate Price to Underwriting Proceeds to
Principal Balance Rate Public(1) Discount Seller(1)(2)
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Class A-1 Certificates......... % % % %
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
Class A-2 Certificates......... % % % %
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
Class A-3 Certificates......... % % % %
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
Class A-4 Certificates......... % % % %
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
Class A-5 Certificates......... % % % %
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
Class A-6 Certificates......... % % % %
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
Class A-7 Certificates......... (3) % % %
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
Total
- ----------------------------------- -------------------- -------------- ------------------- ----------------- --------------
</TABLE>
(1) Plus accrued interest, if any, at the respective Certificate Rates from
______ __, 199_ (or in the case of the Class A-7 Certificates from
______ __, 199_).
(2) Before deduction of expenses payable by the Seller estimated to be
$________.
S-1
<PAGE> 4
(3) The Certificate Rate for this Class will be calculated by reference to
the London interbank offered rate for one-month U.S. dollar deposits
("1-Month LIBOR") subject to the limitations described herein. See
"Description of the Certificates--The Certificate Rate" herein.
The Class A Certificates are offered by the Underwriters subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel for the Underwriters. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that the Class A Certificates will be issued
on or about _____ __, 199_ (the "Closing Date"), and will thereafter be
available from the Underwriters through the facilities of The Depository Trust
Company on the Same Day Funds Settlement System and Cedel Bank, societe anonyme,
and the Euroclear System.
-----------------------
S-2
<PAGE> 5
(Cover continued from front page)
[NAME OF UNDERWRITER] [NAME OF UNDERWRITER]
_______ __, 199_
The Certificates will evidence in the aggregate the entire beneficial
interest in a pool (the "Mortgage Pool") of closed-end, fixed- and
adjustable-rate mortgage loans (the "Mortgage Loans") consisting of two groups
("Loan Group 1" and "Loan Group 2," respectively, and each a "Loan Group") held
by Avco Financial Home Equity Loan Trust 199_-_ (the "Trust") to be formed
pursuant to a Pooling and Servicing Agreement, to be dated as of ______ __,
199_, between among Avco ABS Receivables Corp., as seller (the "Seller"), Avco
Financial Services Management Company, as master servicer (the "Master
Servicer") and as representative of the Trust (the "Representative"), and [Name
of Trustee], as Trustee. Distributions on the Class S, Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and Class A-6 Certificates (collectively, the
"Group 1 Certificates") will be calculated by reference to Loan Group 1 which
consists of Mortgage Loans with fixed interest rates. Distributions on the Class
A-7 Certificates (the "Group 2 Certificates") will be calculated by reference to
Loan Group 2 which consists of Mortgage Loans with adjustable interest rates.
The Mortgage Loans are secured by first and second deeds of trust or mortgages
primarily on one-to four-family residential properties.
Distributions on the Class A Certificates will be made on the 25th day
of each month or, if such date is not a Business Day, then on the next
succeeding Business Day (each, a "Distribution Date"), commencing in _____ 199_.
On each Distribution Date, holders of the Class A Certificates will be entitled
to receive, from and to the limited extent of funds available in the
Distribution Account (as defined herein), distributions calculated as set forth
herein.
There is currently no market for the Class A Certificates and there can
be no assurance that such a market will develop or if it does develop that it
will continue or will provide sufficient liquidity of investment. See "RISK
FACTORS" herein.
Separate elections will be made to treat certain assets of the Trust as
a "real estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes. As described more fully herein and in the Prospectus, the Class A
Certificates will constitute "regular interests" in a REMIC. See "FEDERAL INCOME
TAX CONSEQUENCES" herein and in the Prospectus.
-------------------------------
The Mortgage Loans that were identified as of ________ __, 199_ will be
collectively referred to herein as the "Initial Mortgage Loans." The Pooling and
Servicing Agreement will provide that additional closed-end, fixed- and
adjustable-rate mortgage loans (the "Subsequent Mortgage Loans") may be
purchased by the Trust from the Seller on the Closing Date. The Initial Mortgage
Loans and the Subsequent Mortgage Loans will be collectively referred to as the
"Mortgage Loans." The maximum amount of Subsequent Mortgage Loans to be
transferred to the Trust on the Closing Date for Loan Group 1 and Loan Group 2
is $__________ and $_____________, respectively (each, a "Maximum Funding
Amount").
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 PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
ACTING AS UNDERWRITERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
CERTIFICATES OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE
PURCHASE OF THE CLASS A CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
-------------------------------
The Class A Certificates constitute part of a separate series of
Asset-Backed Securities being offered by Avco ABS Receivables Corp. from time to
time pursuant to its Prospectus dated ______ __, 199_. This Prospectus
Supplement does not contain complete information about the offering of the Class
A Certificates. Additional information is contained in the Prospectus and
investors are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Class A Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
S-3
<PAGE> 6
SUMMARY
The following summary of certain pertinent information is qualified in
its entirety by reference to the detailed information appearing elsewhere in
this Prospectus Supplement and the accompanying Prospectus. Certain capitalized
terms used in the Summary are defined elsewhere in this Prospectus Supplement or
in the Prospectus. Reference is made to Index of Principal Terms beginning on
page S-70 herein and the Glossary of Terms beginning on page 93 in the
Prospectus for the definitions of certain capitalized terms.
Trust................. Avco Financial Home Equity Loan Trust 199_-_ (the
"Trust") will be formed pursuant to a pooling and
servicing agreement, to be dated as of _______ __,
199_ (the "Agreement"), among Avco ABS Receivables
Corp., as seller (the "Seller"), Avco Financial
Services Management Company, as master servicer
(together with any successor in such capacity, the
"Master Servicer") and as representative of the Trust
(the "Representative") and [Name of Trustee], as
Trustee (the "Trustee"). The property of the Trust
will include: a pool of closed- end, fixed- and
adjustable-rate mortgage loans (the "Mortgage
Loans"), secured by first and second deeds of trust
or mortgages on residential properties that are
primarily one- to four-family properties (the
"Mortgaged Properties"); payments in respect of the
Mortgage Loans received after the Cut-Off Date, other
than payments of interest on the Initial Mortgage
Loans due on or before ______ __, 199_; property that
secured a Mortgage Loan which is acquired by
foreclosure or deed in lieu of foreclosure; rights
under certain hazard insurance policies covering the
Mortgaged Properties; and funds on deposit in trust
accounts (the "Initial Interest Coverage Account" and
the "Funding Account"). In addition, the Seller and
the Representative have caused the Certificate
Insurer to issue an irrevocable and unconditional
certificate guaranty insurance policy (the "Policy")
for the benefit of the holders of the Class A and the
Class S Certificates (collectively, "Senior
Certificates") pursuant to which the Certificate
Insurer will guarantee payments to the Senior
Certificateholders as described herein. The "Cut-Off
Date" for the Initial Mortgage Loans is ______ __,
199_, and the Cut-Off Date with respect to any
Mortgage Loan originated on or after________ __, 199_
will be the date of origination of such Mortgage
Loan. The Trust property will include the unpaid
principal balance of each Mortgage Loan as of its
Cut-Off Date. With respect to any date, the "Pool
Balance" will be equal to the aggregate of the
Principal Balances of all Mortgage Loans as of such
date. The "Cut-Off Date Principal Balance" with
respect to each Mortgage Loan is the unpaid principal
balance thereof as of the related Cut-Off Date. With
respect to any date, the "Loan Group 1 Principal
Balance" and the "Loan Group 2 Principal Balance"
will be equal to the aggregate of the Principal
Balances of all Mortgage Loans in
S-4
<PAGE> 7
Loan Group 1 and Loan Group 2, respectively, as of
such date. The Loan Group 1 Principal Balance and the
Loan Group 2 Principal Balance are each sometimes
referred to herein as a "Loan Group Principal
Balance." The "Principal Balance" of a Mortgage Loan
(other than a Liquidated Mortgage Loan) on any day is
equal to its Cut-Off Date Principal Balance, minus
all collections applied in reduction of the Cut-Off
Date Principal Balance of such Mortgage Loan. The
Principal Balance of a Liquidated Mortgage Loan (as
defined herein) after final recovery of related
Liquidation Proceeds (as defined herein) will be
zero.
Securities Offered.... The Home Equity Loan Asset-Backed Certificates,
Series 199_-_ (the "Certificates") will consist of
the Classes listed on the cover page hereof (the
"Class A Certificates"), the Class S Certificates
(collectively with the Class A Certificates, the
"Senior Certificates") and one or more other Classes
of Certificates which are subordinated to the Senior
Certificates. Only the Class A Certificates are
offered hereby. Each Class of Class A Certificates
represents the right to receive payments of interest
at the rates described below (with respect to each
such Class, the "Certificate Rate"), payable monthly,
and payments of principal to the extent provided
below. The Class A-7 Certificates are sometimes
referred to herein collectively as the "Variable Rate
Certificates" and the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5 and Class A-6 Certificates
are sometimes referred to herein collectively as the
"Fixed Rate Certificates." The Senior Certificates
will be divided into two groups (each a "Certificate
Group"). Distributions on the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6 and Class
S Certificates (collectively, the "Group 1
Certificates") will be calculated by reference to
Loan Group 1 which consists of Mortgage Loans with
fixed interest rates. Distributions on the Class A-7
Certificates (the "Group 2 Certificates") will be
calculated by reference to Loan Group 2 which
consists of Mortgage Loans with adjustable interest
rates. The principal amount of a Class of Class A
Certificates (each, a "Class Principal Balance") on
any date is equal to the applicable Class Principal
Balance on the Closing Date minus the aggregate of
amounts actually distributed as principal to the
holders of such Class of Class A Certificates prior
to such date. On any date, the "Certificate Group
Principal Balance" is the aggregate of the Class
Principal Balances of the Class A Certificates in
such Certificate Group on such date.
Final Scheduled
Distribution Dates.... The Final Scheduled Distribution Date for each Class
of Class A Certificates is as follows:
S-5
<PAGE> 8
<TABLE>
<CAPTION>
Final Scheduled
Class Distribution Date
----- -----------------
<S> <C>
A-1
A-2
A-3
A-4
A-5
A-6
A-7
</TABLE>
Each such date has been calculated as described under
"DESCRIPTION OF THE CERTIFICATES--Final Scheduled
Distribution Date" herein.
Seller................ Avco ABS Receivables Corp., a Nevada corporation (the
"Seller"). The principal executive offices of the
Seller are located at 1727-B Charleston, Las Vegas,
Nevada 89104 (telephone: (702) 474-6282). See "THE
SELLER" in the Prospectus.
Representative and
Master Servicer....... Avco Financial Services Management Company, a
Delaware corporation with principal executive offices
located at 600 Anton Boulevard, Costa Mesa,
California, and a telephone number of (714) 445-7860.
See "THE REPRESENTATIVE AND THE MASTER SERVICER" in
the Prospectus.
Originators and
Sub-Servicers......... The Mortgage Loans will be originated or acquired by
affiliates of the Master Servicer (each such
affiliate, an "Originator") and sold by such
Originators to the Seller. Each Originator will
sub-service the Mortgage Loans originated or
purchased by it pursuant to separate sub-servicing
agreements (each a "Sub-Servicing Agreement") between
the Master Servicer and the applicable Originator.
The Mortgage Loans.... The Mortgage Pool consists of _____ Initial Mortgage
Loans with an aggregate Cut-Off Date Principal
Balance of $__________ (the "Cut-Off Date Initial
Pool Principal Balance") of closed-end, fixed- and
adjustable- rate home equity loans secured by first
and second deeds of trust or mortgages on Mortgaged
Properties located in ___ states and the District of
Columbia.
The Mortgage Loans will be divided into two groups
(each, a "Loan Group"): "Loan Group 1" and "Loan
Group 2." The Initial Mortgage Loans in such Loan
Groups are referred to
S-6
<PAGE> 9
herein as "Loan Group 1 Initial Mortgage Loans" and
"Loan Group 2 Initial Mortgage Loans."
Interest on each Mortgage Loan is payable monthly on
the outstanding Principal Balance thereof at a rate
per annum (the "Loan Rate") specified in the related
Mortgage Note. Each Mortgage Loan in Loan Group 1
will bear interest at a fixed rate that is calculated
on the "simple interest" method. Certain of the
Mortgage Loans in Loan Group 1 will have original
terms to stated maturity of up to 15 years and
amortization schedules of up to 30 years ("Balloon
Loans"), leaving a substantial payment due at the
stated maturity (each, a "Balloon Payment").
Each Mortgage Loan in Loan Group 2 will bear interest
at an adjustable rate (each an "ARM") that is
calculated on the "simple interest" method. The Loan
Rate borne by each Loan Group 2 Mortgage Loan is
subject to adjustment on the date set forth in the
related Mortgage Note and at regular intervals
thereafter (each, a "Change Date") to equal the sum
of (i) the applicable index (the "Loan Index") and
(ii) the number of basis points set forth in such
Mortgage Note (the "Gross Margin"), subject to
rounding and to the effects of the applicable
Periodic Cap, the applicable Lifetime Cap and the
applicable Lifetime Floor. The "Periodic Cap" limits
changes in the Loan Rate for each ARM on each Change
Date. The "Lifetime Cap" is the maximum Loan Rate
that may be borne by an ARM at any point of its life.
The "Lifetime Floor" is the minimum Loan Rate that
may be borne by an ARM at any point of its life. The
Loan Group 2 Mortgage Loans do not provide for
negative amortization. See "DESCRIPTION OF THE
MORTGAGE LOANS" herein.
Initial Interest
Coverage Account...... On the Closing Date, cash will be deposited in a
trust account (the "Initial Interest Coverage
Account") in the name of the Trustee on behalf of the
Trust. The amount on deposit in the Initial Interest
Coverage Account, including reinvestment income
thereon, will be used by the Trustee to fund certain
interest shortfalls on the initial Distribution Date
as described herein under "DESCRIPTION OF THE
CERTIFICATES--Initial Interest Coverage Account."
Amounts remaining in the Initial Interest Coverage
Account after the initial Distribution Date and not
used for such purpose are required to be paid to the
Seller. The Initial Interest Coverage Account will
terminate immediately following the first
Distribution Date. The Initial Interest Coverage
Account will not be an asset of any REMIC.
S-7
<PAGE> 10
Funding Account....... On the Closing Date, it is expected that Subsequent
Mortgage Loans equal to the applicable Maximum
Funding Amount will be transferred to the Trust for
Loan Group 1 and Loan Group 2, respectively. See
"DESCRIPTION OF THE MORTGAGE LOANS -- Conveyance of
Subsequent Mortgage Loans." In the event that less
than such amounts of Subsequent Mortgage Loans are
transferred to the Trust for each Loan Group,
respectively, an aggregate cash amount equal to the
excess of the applicable Maximum Funding Amount over
the aggregate Cut-Off Date Principal Balances of the
related Subsequent Mortgage Loans for such Loan
Groups, respectively, will be deposited by the Seller
in an account which will be in the name of, and
maintained by, the Trustee on behalf of the Trust
(the "Funding Account"). Any amounts on deposit in
the Funding Account in respect of each Loan Group
will be transferred by the Trustee on the first
Distribution Date into the Distribution Account, and
will be distributed as a principal prepayment to
Certificateholders of the related Certificate Group
then entitled to distributions of principal. See
"RISK FACTORS--The Subsequent Mortgage Loans,"
"PREPAYMENT AND YIELD CONSIDERATIONS," and
"DESCRIPTION OF THE CERTIFICATES--Distributions."
Denominations......... The Class A Certificates will be offered for purchase
in denominations of $25,000 and integral multiples of
$1,000 in excess thereof.
Registration of
Class A Certificates.. The Class A Certificates will initially be issued in
book-entry form. Persons acquiring beneficial
ownership interests in the Class A Certificates
("Certificate Owners") will hold their Class A
Certificate interests through The Depository Trust
Company ("DTC"), in the United States, or Cedel Bank
societe anonyme ("Cedel") or the Euroclear System
("Euroclear"), in Europe. Transfers within DTC, Cedel
or Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. So long as the
Class A Certificates are Book-Entry Certificates (as
defined herein), such Certificates will be evidenced
by one or more Certificates registered in the name of
Cede & Co. ("Cede"), as the nominee of DTC, or one of
the relevant depositaries (collectively, the
"European Depositaries"). Cross-market transfers
between persons holding directly or indirectly
through DTC, on the one hand, and counterparties
holding directly or indirectly through Cedel or
Euroclear, on the other, will be effected in DTC
through Citibank N.A. ("Citibank") or The Chase
Manhattan Bank ("Chase"), the relevant depositaries
of Cedel and Euroclear, respectively, and each a
participating member of DTC. The interests of such
Certificateholders will be represented by
book-entries on the
S-8
<PAGE> 11
records of DTC and participating members thereof. No
Certificate Owner will be entitled to receive a
definitive certificate representing such person's
interest, except in the event that Definitive
Certificates (as defined herein) are issued under the
limited circumstances described herein. All
references in this Prospectus Supplement to any Class
A Certificates reflect the rights of Certificate
Owners only as such rights may be exercised through
DTC and its participating organizations for so long
as such Class A Certificates are held by DTC. See
"RISK FACTORS-- Book-Entry Registration May Affect
Liquidity," "DESCRIPTION OF THE
CERTIFICATES--Book-Entry Certificates" and "ANNEX I"
hereto.
Certificate Rate...... The Certificate Rate for each Class of Fixed Rate
Certificates is set forth on the cover page hereof.
The Certificate Rate for the Class A-7 Certificates
for the first Distribution Date is _______%. The
Certificate Rate for the Class A-7 Certificates for
any other Distribution Date will equal the lesser of
(A) the Class A-7 Formula Rate and (B) the Loan Group
2 Net Funds Cap for such Distribution Date. The
"Class A-7 Formula Rate" is the sum of the interbank
offered rates for one-month United States dollar
deposits in the London market (the "Certificate
Index") (calculated as described under "DESCRIPTION
OF THE CERTIFICATES--The Certificate Rate") as of the
related LIBOR Determination Date (as defined herein)
plus ____% (or ____% for each Distribution Date
occurring after the Optional Termination Date). The
"Loan Group 2 Net Funds Cap" for any Distribution
Date will equal the product of (x) 360/365 and (y)
the difference between (A) the weighted average of
the Loan Rates of the Loan Group 2 Mortgage Loans as
of the first day of the related Due Period, weighted
on the basis of the related Principal Balances as of
such date and (B) the sum of (i) the Servicing Fee
Rate and the rates at which the Trustee fee and the
premium payable to the Certificate Insurer with
respect to the Group 2 Certificates are calculated
and (ii) commencing with the thirteenth Distribution
Date, ____% per annum.
The Certificate Rate on any Distribution Date for the
Class S Certificates will equal the average of the
Strip Rates weighted on the basis of the Class
Principal Balances of the related Classes of Group 1
Certificates immediately prior to such Distribution
Date. The Strip Rates are as follows:
<TABLE>
<CAPTION>
Class Strip Rate
----- ----------
<S> <C>
A-1 _____%
A-2 _____%
</TABLE>
S-9
<PAGE> 12
<TABLE>
<S> <C>
A-3 _____%
A-4 _____%
A-5 _____%
A-6 _____%
</TABLE>
The "Interest Period" means, with respect to each
Distribution Date and the Fixed Rate Certificates and
the Class S Certificates, the period from the first
day of the calendar month preceding the month of such
Distribution Date through the last day of such
calendar month. Interest on the Fixed Rate
Certificates in respect of any Distribution Date will
accrue during the related Interest Period on the
basis of a 360-day year consisting of twelve 30-day
months. The "Interest Period" means, with respect to
each Distribution Date and the Variable Rate
Certificates, the period from the Distribution Date
in the month preceding the month of such Distribution
Date (or, in the case of the first Distribution Date,
from the Closing Date) through the day before such
Distribution Date. Interest on the Variable Rate
Certificates in respect of any Distribution Date will
accrue during the related Interest Period on the
basis of a 360-day year and the actual number of days
elapsed.
Record Date........... With respect to the Variable Rate Certificates and
any Distribution Date, the "Record Date" will be the
day immediately preceding such Distribution Date.
With respect to the Fixed Rate Certificates and any
Distribution Date, the "Record Date" will be the last
business day of the calendar month immediately
preceding the calendar month in which such
Distribution Date occurs.
Distributions......... On the 25th day of each month, or if such a day is
not a Business Day then the next succeeding Business
Day, commencing in _____, 199_ (each such day, a
"Distribution Date"), the Trustee will be required to
distribute from funds available therefor in the
Distribution Account (as described herein) to the
Holders of the Senior Certificates on the related
Record Date, in the priorities described below, in
the aggregate an amount equal to the sum of (a) the
Class Interest Distribution for each Class of Senior
Certificates in a Certificate Group and (b) the Class
A Principal Distribution for each Certificate Group.
On any Distribution Date, the Class A Principal
Distribution will be distributed as described below.
See "DESCRIPTION OF THE CERTIFICATES--Distributions"
herein.
Interest
On each Distribution Date, to the extent of funds
available therefor as described herein, interest will
be distributed with
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<PAGE> 13
respect to each Class of Senior Certificates in an
amount (each, a "Class Interest Distribution") equal
to the sum of (a) interest for the related Interest
Period at the related Certificate Rate on the related
Class Principal Balance or, in the case of the Class
S Certificates, the Notional Balance of such Class
(the "Class Monthly Interest Distributable Amount")
and (b) any Class Interest Carryover Shortfall for
such Class of Senior Certificates for such
Distribution Date. As to any Distribution Date and
Class of Senior Certificates, "Class Interest
Carryover Shortfall" is the sum of (i) the excess, if
any, of the related Class Monthly Interest
Distributable Amount for the preceding Distribution
Date and any outstanding Class Interest Carryover
Shortfall with respect to such Class on such
preceding Distribution Date, over the amount in
respect of interest that is actually distributed on
the Certificates of such Class on such preceding
Distribution Date plus (ii) one month's interest on
such excess, to the extent permitted by law, at the
related Certificate Rate. The interest entitlement
described in (a) above will be reduced by such Class"
pro rata share of Civil Relief Act Interest
Shortfalls, if any, for such Distribution Date. Civil
Relief Act Interest Shortfalls will not be covered by
payments under the Policy. See "DESCRIPTION OF THE
CERTIFICATES--Interest" herein.
On each Distribution Date, the Class Interest
Distribution relating to each Class of Senior
Certificates in a Certificate Group will be
distributed on an equal priority and any shortfall in
the amount required to be distributed as interest
thereon to each such Class will be allocated among
such Classes pro rata based on the amount that would
have been distributed on each such Class in the
absence of such shortfall.
The "Notional Balance" of the Class S Certificates at
any date of determination will equal the aggregate of
the Class Principal Balances of the Group 1
Certificates on such date. The Notional Balance of
the Class S Certificates does not entitle the Holders
thereof to any distributions in respect of principal
but is used to calculate the Class Interest
Distribution for the Class S Certificates.
If on any Distribution Date, the Certificate Rate for
the Class A-7 Certificates is based on the Loan Group
2 Net Funds Cap, Holders of the Class A-7
Certificates will be entitled to receive the Class
A-7 Basis Risk Carryover Amount (as defined herein)
to the extent of funds available therefor as
described herein. The Policy will not cover the
payment of, and the ratings assigned to the Class A-7
Certificates do not address the likelihood of the
payment of, any Class A-7 Basis Risk Carryover
Amount.
S-11
<PAGE> 14
Principal
On each Distribution Date, to the extent of funds
available therefor as described herein, principal
will be distributed to the holders of the Class A
Certificates of a Certificate Group then entitled to
distributions of principal in an amount equal to the
lesser of (A) the related Certificate Group Principal
Balance and (B) the related Class A Principal
Distribution for such Distribution Date. "Class A
Principal Distribution" means, with respect to any
Distribution Date and Certificate Group, the sum of
the related Class A Monthly Principal Distributable
Amount for such Distribution Date and any Class A
Principal Shortfall for such Distribution Date.
So long as an Insurer Default has not occurred, the
Class A Principal Distribution relating to the Group
1 Certificates will be distributed as follows: (a) to
the Class A-6 Certificates, the Priority Amount for
such Distribution Date until the Class Principal
Balance thereof has been reduced to zero; and (b)
sequentially, to the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5 and Class A-6 Certificates, in
that order, until the respective Class Principal
Balances thereof have been reduced to zero. On any
Distribution Date during the occurrence and
continuance of an Insurer Default, the Class A
Principal Distribution relating to the Group 1
Certificates will be distributed to each Class of
Group 1 Certificates outstanding on a pro rata basis
in accordance with the Class Principal Balance of
each such Class immediately prior to such
Distribution Date. The Class A Principal Distribution
relating to the Group 2 Certificates will be
distributed to the Holders of the Class A-7
Certificates. "Class A Monthly Principal
Distributable Amount" means, with respect to any
Distribution Date and Certificate Group, to the
extent of funds available therefor as described
herein, the amount equal to the sum of the following
amounts (without duplication) with respect to the
immediately preceding Due Period (as defined below):
(i) each payment of principal on a Mortgage Loan in
the related Loan Group received by the Master
Servicer or a Sub-Servicer during such Due Period,
including all full and partial principal prepayments,
(ii) the Principal Balance as of the end of the
immediately preceding Due Period of each Mortgage
Loan in the related Loan Group that became a
Liquidated Mortgage Loan for the first time during
the related Due Period, (iii) the portion of the
Purchase Price allocable to principal of all
repurchased Defective Mortgage Loans in the related
Loan Group with respect to such Due Period, (iv) any
Substitution Adjustment Amounts received on or prior
to the previous Determination Date and not yet
distributed with respect to the related Loan Group,
(v) the amount, if any, required to be distributed on
such Distribution Date to satisfy the required
S-12
<PAGE> 15
level of overcollateralization for the related Loan
Group for such Distribution Date (the "Distributable
Excess Spread") and (vi) with respect to the initial
Distribution Date, the amount by which the related
Certificate Group Principal Balance exceeds the
aggregate Principal Balance of the Mortgage Loans in
the related Loan Group as of the Cut-Off Date.
"Class A Principal Shortfall Amount" means for any
Distribution Date and Certificate Group, the amount,
if any, by which the related Certificate Group
Principal Balance exceeds the related Loan Group
Principal Balance at the end of the related Due
Period after giving effect to all distributions of
the related Class A Monthly Principal Distributable
Amount (exclusive of Distributable Excess Spread) and
draws under the Policy for such Distribution Date.
If the required level of overcollateralization for a
Certificate Group is reduced below the then existing
amount of overcollateralization (described below) or
if the required level of overcollateralization is
satisfied, the amount of the Class A Monthly
Principal Distributable Amount for such Certificate
Group will be correspondingly reduced by the amount
of such reduction or by the amount necessary such
that the overcollateralization will not exceed the
required level of overcollateralization for such
Certificate Group after giving effect to the
distribution in respect of principal to be made on
such Distribution Date.
The "Priority Amount" for any Distribution Date will
equal the product of (i) the applicable Priority
Percentage, and (ii) the product of (a) percentage
equivalent of a fraction, the numerator of which is
the Class Principal Balance of the Class A-6
Certificates and the denominator of which is the
Certificate Group Principal Balance of Certificate
Group 1 (the "Pro-Rata Percentage") and (b) the Class
A Principal Distribution for Certificate Group 1 for
such Distribution Date. The "Priority Percentage" for
any Distribution Date will be as follows:
<TABLE>
<CAPTION>
Distribution Dates Priority Percentage
------------------ -------------------
<S> <C> <C>
[--------]-[--------] ---%
[--------]-[--------] ---%
[--------]-[--------] ---%
[--------]-[--------] ---%
[--------]-[--------] ---%
thereafter
</TABLE>
S-13
<PAGE> 16
"Due Period" means, (a) with respect to the first
Determination Date (i) for collections of principal,
the period from and including ______ 199_ through and
including ______ __, 199_ and (ii) for collections of
interest, the period from and including _______, 199_
through and including _____ __, 199_ and (b) with
respect to each Determination Date thereafter for
collections of both interest and principal the period
from and including the ________ day of the month
preceding the month of such Determination Date to and
including the ________ day of the month of such
Determination Date.
For a description of a Liquidated Mortgage Loan, see
"DESCRIPTION OF THE CERTIFICATES--Principal" herein.
Overcollateralization. The credit enhancement provisions of the Trust result
in a limited acceleration of the Class A Certificates
of a Certificate Group relative to the amortization
of the Mortgage Loans in the related Loan Group in
the early months of the transaction. The accelerated
amortization is achieved by the application of Excess
Spread as described herein to principal distributions
on the Class A Certificates of the related
Certificate Group. "Excess Spread" means, with
respect to any Distribution Date and Loan Group, the
positive excess, if any, of (x) Available Funds (as
defined herein) for the related Certificate Group for
such Distribution Date over (y) the portion thereof
to be distributed pursuant to subclauses A and C with
respect to the Group 1 Certificates and subclauses B
and C with respect to the Group 2 Certificates, in
each case as set forth under the heading "DESCRIPTION
OF CERTIFICATES--Distributions" on such Distribution
Date. This acceleration feature creates, with respect
to each Certificate Group, overcollateralization
(i.e., the excess, if any, of the aggregate
outstanding Principal Balance of the Mortgage Loans
in the related Loan Group over the related
Certificate Group Principal Balance). Once the
required level of overcollateralization is reached
for a Certificate Group, and subject to the
provisions described in the next paragraph, the
acceleration feature for such Certificate Group will
cease, until necessary to maintain the required level
of overcollateralization for such Certificate Group.
The Agreement will provide that, subject to certain
floors, caps and triggers, the required level of
overcollateralization with respect to a Certificate
Group may increase or decrease over time. An increase
in the required level of overcollateralization for a
Certificate Group will result in a temporary period
of accelerated amortization of the related Class A
Certificates to increase the actual level of
S-14
<PAGE> 17
overcollateralization to its required level; a
decrease would result in a temporary period of
decelerated amortization to reduce the actual level
of overcollateralization for a Certificate Group to
its required level. An increase in the required level
of overcollateralization for a Certificate Group will
result if the delinquency experience on the related
Mortgage Loans exceeds certain levels set forth in
the Agreement. In that event, amortization of the
Class A Certificates of the related Certificate Group
would be accelerated until the level of
overcollateralization reaches its required level. The
required level of overcollateralization for a
Certificate Group may be decreased (and may be
decreased to zero) under certain circumstances, which
will slow the amortization of the related Class A
Certificates. See "PREPAYMENT AND YIELD
CONSIDERATIONS" and "DESCRIPTION OF THE
CERTIFICATES-- Overcollateralization Provisions."
Crosscollateralization In addition to the foregoing, the Agreement provides
for crosscollateralization through the application of
certain Available Funds generated by one Loan Group
to fund shortfalls in Available Funds and to create
overcollateralization in the other Loan Group,
subject to certain prior requirements of such
Available Funds. See "DESCRIPTION OF THE
CERTIFICATES--Distributions" and "PREPAYMENT AND
YIELD CONSIDERATIONS."
The Policy............ The Policy will unconditionally and irrevocably
guarantee principal payments (as described in the
next sentence) on the Class A Certificates plus
accrued and unpaid interest due on the Senior
Certificates. On each Distribution Date, a draw will
be made on the Policy equal to the sum of (a) the
amount by which interest accrued during the
applicable Interest Period at the applicable
Certificate Rate for each Class of Senior
Certificates on the related outstanding Class
Principal Balance or, in the case of the Class S
Certificates, the Notional Balance (net of any Civil
Relief Act Interest Shortfalls with respect to the
related Loan Group) exceeds the amount on deposit in
the Distribution Account available to be distributed
therefor on such Distribution Date and (b) with
respect to each Certificate Group, the amount, if
any, by which the Certificate Group Principal Balance
exceeds the related Loan Group Principal Balance at
the end of the related Due Period (after giving
effect to all distributions of principal on the
related Class A Certificates on such Distribution
Date). In addition, the Policy will guarantee the
payment in full of the applicable Certificate Group
Principal Balance to the Group 1 Certificates and the
Group 2 Certificates on the Distribution Date in
________ (the "Final Distribution Date") (after
giving effect to all other distributions of principal
on such Classes on such Distribution Date).
S-15
<PAGE> 18
In the absence of payments under the Policy, Class A
Certificateholders will directly bear the credit and
other risks associated with their undivided interest
in the Trust. See "DESCRIPTION OF THE
CERTIFICATES--The Policy" herein.
The Certificate Insurer [Name of Certificate Insurer], a _________ stock
insurance company (the "Certificate Insurer"). See
"DESCRIPTION OF THE CERTIFICATES--The Policy" and
"THE CERTIFICATE INSURER" herein.
Certificates Involve
Risks................. An investment in the Class A Certificates involves
material risks and should be considered only by
investors which, either alone or together with their
investment advisors, have the ability to understand
such risks. See "RISK FACTORS" beginning on page S-__
herein and on page __ in the Prospectus.
Servicing ............ The Master Servicer will be responsible for
servicing, managing and making collections on the
Mortgage Loans. The Master Servicer will deposit, or
cause each Sub-Servicer to deposit, all collections
in respect of the Mortgage Loans into the Collection
Account as described herein. Not later than the
fourth Business Day prior to each Distribution Date
(the "Determination Date"), the Master Servicer will
calculate the amounts to be paid, as described
herein, to the Certificateholders on such
Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES--Distributions." With respect to each
Due Period, the Master Servicer will receive from
each payment in respect of interest on the Mortgage
Loans a portion of such payments as a monthly
servicing fee (the "Servicing Fee") in the amount of
____% per annum (the "Servicing Fee Rate") on the
Principal Balance of each Mortgage Loan as of the
first day of each such Due Period. See "DESCRIPTION
OF THE CERTIFICATES--Servicing Compensation, Payment
of Expenses and Prepayment Interest Shortfalls." In
certain limited circumstances, the Master Servicer
may resign or be removed, in which event either the
Trustee or a third-party servicer will be appointed
as successor Master Servicer. See "DESCRIPTION OF THE
CERTIFICATES -- Certain Matters Regarding the Master
Servicer," "--Events of Default" and "--Rights Upon
an Event of Default."
The Master Servicer will enter into Sub-Servicing
Agreements with the Originators pursuant to which
each originator will sub-service the Mortgage Loans
originated or purchased by it. Such sub-servicing
arrangements will not relieve the Master
S-16
<PAGE> 19
Servicer of any liability it might otherwise have,
had the sub-servicing arrangement not been entered
into.
Trustee............... [Name of Trustee], a _______ banking association (the
"Trustee").
Monthly Advances...... The Master Servicer is required to remit to the
Trustee no later than the close of business on the
Determination Date for each Distribution Date, for
deposit in the Distribution Account, an amount equal
to the scheduled installment of interest due on each
Mortgage Loan but not received by the Master Servicer
or a Sub-Servicer during the related Due Period (a
"Monthly Advance"). Such obligation of the Master
Servicer continues with respect to each Mortgage Loan
until such Mortgage Loan becomes a Liquidated
Mortgage Loan. The Master Servicer is not required to
make any Monthly Advances which it determines would
be nonrecoverable. Monthly Advances are reimbursable
to the Master Servicer subject to certain conditions
and restrictions, and are intended to provide
sufficient funds for the payment of interest on the
Senior Certificates. See "DESCRIPTION OF THE
CERTIFICATES --Advances" herein.
Prepayment Interest
Shortfalls............ Not later than the Determination Date, the Master
Servicer is required to remit to the Trustee, without
any right of reimbursement, an amount equal to, with
respect to each Mortgage Loan as to which a principal
prepayment in full was received during the related
Due Period, the lesser of (a) the excess, if any, of
(i) the sum of 30 days" interest on the Principal
Balance of each such Mortgage Loan at the Loan Rate
(or at such lower rate as may be in effect for such
Mortgage Loan because of application of the Soldiers"
and Sailors" Civil Relief Act of 1940, as amended
(the "Civil Relief Act")), minus the sum of the
Servicing Fees for each such Mortgage Loan over (ii)
the amount of interest actually paid by the related
Mortgagor in connection with such principal
prepayment (with respect to all such Mortgage Loans,
the "Prepayment Interest Shortfall") and (b) the
Servicing Fee received by the Master Servicer in the
most recently ended Due Period.
Civil Relief Act Interest Shortfalls will not be
covered by the Policy, although Prepayment Interest
Shortfalls, after application of the Servicing Fee,
will be so covered. The Master Servicer is not
obligated to offset any of the Servicing Fee against,
or to provide any other funds to cover, any
shortfalls in interest collections on the Mortgage
Loans that are attributable to the application of the
Civil Relief Act
S-17
<PAGE> 20
("Civil Relief Act Interest Shortfalls"). See "RISK
FACTORS--Payments on the Mortgage Loans" herein.
Optional Termination
by the Master Servicer The Master Servicer may, at its option, terminate the
Agreement on the Distribution Date following the Due
Period at the end of which the aggregate Principal
Balance of the Mortgage Loans is less than 10% of the
sum of the Principal Balances of the Initial Mortgage
Loans and Subsequent Mortgage Loans as of the Cut-Off
Date (the "Optional Termination Date"). See
"DESCRIPTION OF THE CERTIFICATES--Termination;
Purchase of Mortgage Loans" herein.
Optional Purchase of
Defaulted Mortgage
Loans................. The Master Servicer has the option, but is not
obligated, to purchase from the Trust any Mortgage
Loan 90 days or more delinquent at a purchase price
equal to the outstanding Principal Balance as of the
date of purchase, plus all accrued and unpaid
interest on such Principal Balance through the date
of purchase, computed at the Loan Rate net of the
Servicing Fee Rate. See "DESCRIPTION OF THE
CERTIFICATES--Optional Purchase of Defaulted Mortgage
Loans" herein.
Federal Income Tax
Consequences.......... Separate elections will be made to treat certain
assets of the Trust (exclusive of the Initial
Interest Coverage Account and the Funding Account) as
a "real estate mortgage investment conduit" (the
"REMIC"). The Class A Certificates will be designated
as "regular interests" in a REMIC and will be treated
as debt instruments of a REMIC for federal income tax
purposes with payment terms equivalent to the terms
of such Certificates. Upon the issuance of the
Certificates, Stroock & Stroock & Lavan LLP, counsel
to the Depositor, will deliver its opinion generally
to the effect that, assuming compliance with all
provisions of the Agreement, for federal income tax
purposes the REMIC will qualify as a REMIC, as such
term is defined in Section 860D of the Internal
Revenue Code of 1986, as amended (the "Code").
The holders of the Class A Certificates will be
required to include in income interest on such
Certificates in accordance with the accrual method of
accounting, and the Class A Certificates may,
depending on their issue price, be treated as having
been issued with original issue discount for federal
income tax purposes. 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.
S-18
<PAGE> 21
ERISA Considerations.. The acquisition of a Class A Certificate by a pension
or other employee benefit plan (a "Plan") subject to
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), could, in some instances,
result in a "prohibited transaction" or other
violation of the fiduciary responsibility provisions
of ERISA and Code Section 4975. Certain exemptions
from the prohibited transaction rules could be
applicable to the acquisition of such Certificates.
Any Plan fiduciary considering whether to purchase
any Class A Certificate on behalf of a Plan should
consult with its counsel regarding the applicability
of the provisions of ERISA and the Code. See "ERISA
CONSIDERATIONS" herein and in the Prospectus. Subject
to the considerations and conditions described under
"ERISA CONSIDERATIONS" herein, it is expected that
the Class A Certificates may be purchased by a Plan.
Legal Investment
Considerations........ The Group 1 Certificates will not constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"), because some of the Mortgages securing the
Loan Group 1 Mortgage Loans are not first mortgages.
Accordingly, many institutions with legal authority
to invest in comparably rated securities based solely
on first mortgages may not be legally authorized to
invest in the Group 1 Certificates.
S-19
<PAGE> 22
The Group 2 Certificates will constitute "mortgage
related securities" for purposes of SMMEA for so long
as they are rated in one of the two highest rating
categories by one or more nationally recognized
statistical rating organizations. As such, the Group
2 Certificates will be legal investments for certain
entities to the extent provided in SMMEA, subject to
state laws overriding SMMEA. In addition,
institutions whose investment activities are subject
to review by federal or state regulatory authorities
may be or may become subject to restrictions, which
may be retroactively imposed by such regulatory
authorities, on the investment by such institutions
in certain forms of mortgage related securities.
Furthermore, certain states have enacted legislation
overriding the legal investment provisions of SMMEA.
In addition, institutions whose activities are
subject to review by federal or state regulatory
authorities may be or may become subject to
restrictions, which may be retroactively imposed by
such regulatory authorities, on the investment by
such institutions in certain forms of mortgage
related securities. See "LEGAL INVESTMENT
CONSIDERATIONS" herein and "LEGAL INVESTMENT" in the
Prospectus.
Certificate Rating.... It is a condition to the issuance of the Class A
Certificates that they receive ratings of "AAA" by
Standard & Poor's Rating Services ("Standard &
Poor's"), "AAA" by Fitch Investors Service, Inc.
("Fitch") and "Aaa" by Moody's Investors Service,
Inc. ("Moody's") (each a "Rating Agency"). In
general, ratings address credit risk and do not
address the likelihood of prepayments or the payment
of any Class A-7 Basis Risk Carryover Amount. See
"RATINGS" herein and "RISK FACTORS--Ratings Are Not
Recommendations" in the Prospectus.
S-20
<PAGE> 23
RISK FACTORS
Investors should consider, among other things, the following risk
factors and the risk factors set forth on page 19 of the Prospectus in
connection with the purchase of the Offered Certificates.
Prepayments May Vary. All of the Mortgage Loans may be prepaid in whole
or in part at any time. [However, Mortgage Loans secured by first liens on
Mortgaged Properties in [list states] are subject to a prepayment penalty for
the first 12 months following origination. In addition, Mortgage Loans secured
by Mortgaged Properties in other jurisdictions may be subject to prepayment
penalties to the extent permitted by law. Home equity loans, such as the
Mortgage Loans, have been originated in significant volume only during the past
few years and the Seller and Representative are unaware of any publicly
available studies or statistics on the rate of prepayment of such loans.
Generally, home equity loans are not viewed by borrowers as permanent financing.
Accordingly, the Mortgage Loans may experience a higher rate of prepayment than
traditional loans. The Trust's prepayment experience may be affected by a wide
variety of factors, including general economic conditions, interest rates, the
availability of alternative financing and homeowner mobility. In addition,
substantially all of the Mortgage Loans contain due-on-sale provisions and the
Master Servicer will be required by the Agreement to enforce such provisions
unless (i) such enforcement is not permitted by applicable law or (ii) the
Master Servicer or the applicable Sub-Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related Mortgaged
Property to assume the Mortgage Loan. To the extent permitted by applicable law,
such assumption will not release the original borrower from its obligation under
any such Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF THE LOANS -- Due-on-Sale
Clauses in Mortgage Loans" in the Prospectus.
Underwriting Standards May Affect Performance. As described in the
Prospectus under "THE ORIGINATORS AND THE MASTER SERVICER -- Underwriting," the
Originators' underwriting standards generally are less stringent than those of
FNMA or FHLMC with respect to a borrower's credit history and in certain other
respects. A borrower's past credit history may not preclude an Originator from
making a loan; however, it will reduce the size (and consequently the Combined
Loan-to-Value Ratio) of the loan that the Originator is willing to make. As a
result of this approach to underwriting, the Mortgage Loans in the Mortgage Pool
may experience higher rates of delinquencies, defaults and foreclosures than
mortgage loans underwritten in a more traditional manner.
Risk of Early Defaults. Substantially all of the Initial Mortgage Loans
were originated within ___ months prior to the Cut-Off Date. Although little
data is available, defaults on mortgage loans, including home equity loans
similar to the Initial Mortgage Loans, are generally expected to occur with
greater frequency in the early years of the terms of mortgage loans. Liquidation
proceeds received upon liquidation of a Mortgaged Property following a default
on the related Mortgage Loan will have the same effect as a principal prepayment
on the yield to maturity of the Class of Class A Certificates receiving such
proceeds. In general, the earlier a prepayment is received, the greater will be
the effect on the yield to maturity. In addition, Holders may not be able to
reinvest such prepayment at yields equal to the yields on such Holders" Class A
Certificates.
Balloon Loans May Adversely Affect Performance. With respect to
approximately _____% of the Loan Group 1 Initial Mortgage Loans (by Cut-Off Date
Loan Group 1 Principal Balance) the borrowers are not required to make monthly
payments of principal that will be sufficient to amortize such Mortgage Loans by
their maturity (collectively, "Balloon Loans"). Following the conveyance of the
Subsequent Mortgage Loans to the Trust, no more than approximately ____% (by
Cut-Off Date Loan Group 1 Principal Balance) of the Loan Group 1 Mortgage Loans
will be Balloon Loans. In the case of Balloon Loans, a borrower generally will
be required to pay the entire remaining principal amount of the Mortgage Loan at
its maturity. The general credit risk may be greater to holders of Group 1
Certificates than to holders of instruments representing interests only in level
payment fully amortizing first mortgage loans. The ability of a borrower to make
such a payment may depend on the ability of the borrower to obtain refinancing
of the balance due on the Mortgage Loan. An increase in interest rates over the
Loan Rate applicable at the time the Mortgage Loan was originated may have an
adverse effect on the borrower's ability to obtain refinancing or to pay the
required monthly payment.
S-21
<PAGE> 24
Second Liens Create Risks. Based on appraisals at the time of
origination of each Mortgage Loan, each such Mortgage Loan will have been fully
secured at such time. However, even if the Mortgaged Properties provide adequate
security for the Mortgage Loans, substantial delays could be encountered in
connection with the liquidation of Mortgage Loans that are delinquent and
resulting shortfalls in distributions to Class A Certificateholders could occur
if the Certificate Insurer were unable to perform its obligations under the
Policy. Further, liquidation expenses (such as legal fees, real estate taxes,
and maintenance and preservation expenses) will reduce the proceeds payable to
Certificateholders and thereby reduce the security for the Mortgage Loans. In
the event any of the Mortgaged Properties fail to provide adequate security for
the related Mortgage Loans, Class A Certificateholders could experience a loss
if the Certificate Insurer were unable to perform its obligations under the
Policy.
Approximately _____ % (by Cut-Off Date Principal Balance) of the Group
1 Initial Mortgage Loans are secured by second liens on the related Mortgaged
Properties. None of the Group 2 Mortgage Loans are secured by second liens. With
respect to Mortgage Loans that are junior in priority to liens having a first
priority with respect to the related Mortgaged Property ("First Liens"), the
Master Servicer or the applicable Sub-Servicer has the power under certain
circumstances to consent to a new mortgage lien on such Mortgaged Property
having priority over such Mortgage Loan in connection with the refinancing of
such First Lien. Mortgage Loans secured by second mortgages are entitled to
proceeds that remain from the sale of the related Mortgaged Property after any
related senior mortgage loan and prior statutory liens have been satisfied. 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 Policy, the Trust and, accordingly, the
Certificateholders, bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is sought and (ii) the risk of loss if
the deficiency judgment cannot be obtained or is not realized upon. See "CERTAIN
LEGAL ASPECTS OF THE LOANS" in the Prospectus.
Geographic Concentration. Approximately _____% (by Cut-Off Date
Principal Balance) of the Loan Group 1 Initial Mortgage Loans and approximately
_____ % (by Cut-Off Date Principal Balance) of the Loan Group 2 Initial Mortgage
Loans, are secured by Mortgaged Properties located in ____________. To the
extent that the ______ region has experienced or may experience in the future
weaker economic conditions or greater rates of decline in real estate values
than the United States generally, such a concentration of the Mortgage Loans may
be expected to exacerbate the foregoing risks. The Seller can neither quantify
the impact of any recent property value declines on the Mortgage Loans nor
predict whether, to what extent or for how long such declines may continue.
Hazard Insurance. The Master Servicer is not obligated to maintain
hazard insurance policies, and does not currently pay hazard insurance premiums
if a Mortgagor has not paid insurance premiums to maintain in effect the hazard
insurance policy for related Mortgaged Property. As a result, there may be
Mortgaged Properties not covered by hazard insurance policies. See "THE HOME
EQUITY LENDING PROGRAM -- Underwriting-Other Issues" and "THE POOLING AND
SERVICING AGREEMENT -- Hazard Insurance" in the Prospectus.
The Subsequent Mortgage Loans. The Originators will not select
Subsequent Mortgage Loans in a manner that they believe is adverse to the
interest of the Class A Certificateholders and the Certificate Insurer. However,
Subsequent Mortgage Loans sold to the Trust may have been originated using
credit criteria different from those which were applied to the Initial Mortgage
Loans and may be of a different credit quality. Therefore, following the
transfer of Subsequent Mortgage Loans to the Trust, the aggregate
characteristics of the Mortgage Loans then held in the Trust may vary from those
of the Initial Mortgage Loans. See "DESCRIPTION OF THE MORTGAGE LOANS --
Conveyance of Subsequent Mortgage Loans" herein.
In the event that on the Closing Date the aggregate principal balance
of the Mortgage Loans in a Loan Group is less than the related Certificate Group
Principal Balance, the holders of the Class A-1 Certificates in the case of
Certificate Group 1 and the holders of the Class A-7 Certificates in the case of
Certificate Group 2 will receive, on the first Distribution Date, an additional
distribution allocable to principal in an amount equal to such difference.
S-22
<PAGE> 25
The ability of the Trust to invest in Subsequent Mortgage Loans is
largely dependent upon the ability of the Originators to originate and/or
purchase additional loans. The ability of the Originators to originate and/or
purchase additional loans may be affected as a result of a variety of social and
economic factors. Economic factors include interest rates, unemployment levels,
the rate of inflation and consumer perception of economic conditions generally.
Prepayments and Simple Interest Loans Affect Interest Collections. When
a principal prepayment in full is made on a Mortgage Loan, the Mortgagor is
charged interest only up to the date of such prepayment, instead of for a full
month which may result in a Prepayment Interest Shortfall. The Master Servicer
is obligated to pay, without any right of reimbursement, those shortfalls in
interest collections payable on the Senior Certificates that are attributable to
Prepayment Interest Shortfalls, but only to the extent of the Servicing Fee for
the related Due Period (any such payment, "Compensating Interest").
The Initial Mortgage Loans are simple interest mortgage loans ("Simple
Interest Loans") pursuant to which interest is computed and charged to the
Mortgagor on the outstanding Principal Balance of the related Mortgage Loan
based on the number of days elapsed between the date through which interest was
last paid on the Mortgage Loan through receipt of the Mortgagor's most current
payment, and the portions of each monthly payment that are allocated to interest
and principal are adjusted based on the actual amount of interest charged on
such basis. Consequently, if less than a full month has elapsed between the
interest paid to date and the next payment on a Mortgage Loan, the amount of
interest actually paid by the Mortgagor will be less than a full month's
interest on the principal balance of such Mortgage Loan. Conversely, if more
than a full month has elapsed between the interest paid to date and the next
payment on a Mortgage Loan, the amount of interest actually paid by the
Mortgagor will be greater than a full month's interest on the principal balance
of such Mortgage Loan. To the extent that the aggregate of such shortfalls
exceeds the aggregate of such excesses, a "Net Simple Interest Shortfall" will
result. The Servicing Fee will not be available to cover any shortfalls in
interest collections on the Mortgage Loans that are attributable to Civil Relief
Act Interest Shortfalls or Net Simple Interest Shortfalls. Civil Relief Act
Interest Shortfalls will not be covered by payments under the Policy, although
Prepayment Interest Shortfalls, after application of the Servicing Fee as
described above, and Net Simple Interest Shortfalls, will be so covered.
Book-entry Registration May Affect Liquidity. Issuance of the Class A
Certificates in book-entry form may reduce the liquidity of such Certificates 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 Class A Certificates can be effected only
through DTC, Cedel, Euroclear, participating organizations, indirect
participants and certain banks, the ability of a Certificate Owner to pledge a
Class A Certificate to persons or entities that do not participate in the DTC,
Cedel or Euroclear system or otherwise to take actions in respect of such
Certificates, may be limited due to lack of a physical certificate representing
the Class A Certificates.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Class A Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. See "DESCRIPTION OF THE CERTIFICATES
- -- Book-Entry Certificates" herein.
Reduction of Rating May Affect Price. The rating of the Class A
Certificates will depend primarily on an assessment by the Rating Agencies of
the Mortgage Loans and upon the claims-paying ability of the Certificate
Insurer. Any reduction in a rating assigned to the claims-paying ability of the
Certificate Insurer below the rating initially given to the Class A Certificates
would likely result in a withdrawal or reduction in the rating of the Class A
Certificates. Any such withdrawal or downgrading of the ratings of the Class A
Certificates may adversely affect the liquidity and the prices purchasers may be
willing to pay for such Certificates. The rating by the Rating Agencies of the
Class A Certificates is not a recommendation to purchase, hold or sell the Class
A Certificates, inasmuch as such rating does not comment as to the market price
or suitability for a particular investor. There is no
S-23
<PAGE> 26
assurance that the ratings will remain in place for any given period of time or
that the ratings will not be lowered or withdrawn by the Rating Agencies. In
general, the ratings address credit risk and do not address the likelihood of
prepayments.
THE CERTIFICATE INSURER
The information set forth in this section and in the financial
statements of the Certificate Insurer incorporated by reference herein as
described below have been provided by the Certificate Insurer.
[Insert brief description of Certificate Insurer.]
The consolidated financial statements of the Certificate Insurer and
its subsidiaries as of December 31, 199__ and December 31, 199__ and for the
three years 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__, and the consolidated financial
statements of the Certificate Insurer and its subsidiaries for the _____ months
ended _______________ and for the periods ending _________ and ____________
included in the Quarterly Report on Form 10-Q of [____________] for the period
ending _____________, are 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
the purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any subsequently filed document which is also
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 part of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its
subsidiaries included in documents filed by [___________] 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.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
----------------------------------------------
DECEMBER 31, 199__ [__________]
------------------ ------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets................
Liabilities....................
Capital and Surplus............
</TABLE>
<TABLE>
<CAPTION>
GAAP
----------------------------------------------
DECEMBER 31, 199__ [__________]
------------------ ------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets......................... $ $
Liabilities....................
Shareholder's Equity...........
</TABLE>
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's 199__
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the Certificate
Insurer. The address of the Certificate
S-24
<PAGE> 27
Insurer is ____________________________________. The telephone number of the
Certificate Insurer is (_____)_________.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Policy and the Certificate Insurer set
forth under the headings "DESCRIPTION OF THE CERTIFICATES -- The Policy" and
"THE CERTIFICATE INSURER." Additionally, the Certificate Insurer makes no
representation regarding the Certificates or the advisability of investing in
the Certificates.
Moody's Investors Service, Inc. rates the claims paying ability of the
Certificate Insurer "Aaa".
Standard & Poor's Rating Services, a division of the McGraw-Hill
Companies, Inc. rates the claims paying ability of the Certificate Insurer
"AAA".
Fitch Investors Service L.P. rates the claims paying ability of the
Certificate Insurer "AAA".
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its ability to
pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency. See "RATINGS" herein.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
Certificates. The Certificate Insurer does not guaranty the market price of the
Certificates nor does it guaranty that the ratings on the Certificates will not
be revised or withdrawn.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The statistical information presented in this Prospectus Supplement is
only with respect to the Initial Mortgage Loans and describes the Initial
Mortgage Loans in Loan Group 1 and Loan Group 2 and the characteristics of such
Initial Mortgage Loan as of the Cut-Off Date.
The Subsequent Mortgage Loans are intended to be purchased by the Trust
from the Seller on the Closing Date. The Initial Mortgage Loans and the
Subsequent Mortgage Loans, if available, to be purchased by the Trust will be
originated or purchased by the Seller and sold by the Seller to the Trust. The
Agreement will provide that the Mortgage Loans, following the conveyance of the
Subsequent Mortgage Loans, must in the aggregate conform to certain specified
characteristics described below under " -- Conveyance of Subsequent Mortgage
Loans."
The Mortgage Loans will be divided into two groups (each, a "Loan
Group"): "Loan Group 1" and "Loan Group 2". The Initial Mortgage Loans in such
Loan Groups are referred to herein as "Loan Group 1 Initial Mortgage Loans" and
"Loan Group 2 Initial Mortgage Loans." As of the Cut-Off Date, ___% (by
Principal Balance as of the Cut-Off Date) of the Mortgage Loans to be conveyed
to the Trust on the Closing Date will be in Loan Group 1 and the remainder will
be in Loan Group 2. The maximum amount of Subsequent Mortgage Loans to be
transferred to the Trust on the Closing Date for Loan Group 1 and Loan Group 2
is $_____________ and $____________________, respectively (each, a "Maximum
Funding Amount").
S-25
<PAGE> 28
Each Mortgage Loan in Loan Group 1 will bear interest at a fixed rate
that is calculated on the "simple interest" method. Certain of the Mortgage
Loans in Loan Group 1 will have original terms to stated maturity of up to 15
years and amortization schedules of up to 30 years ("Balloon Loans"), leaving a
substantial payment due at the stated maturity (each, a "Balloon Payment").
Each Mortgage Loan in Loan Group 2 will bear interest at an adjustable
rate (each an "ARM") that is calculated on the 'simple interest" method. The
Loan Rate borne by each Loan Group 2 Mortgage Loan is subject to adjustment on
the date set forth in the related Mortgage Note and at regular intervals
thereafter (each, a "Change Date") to equal the sum of (i) the applicable index
(the "Loan Index") and (ii) the number of basis points set forth in such
Mortgage Note (the "Gross Margin"), subject to rounding and to the effects of
the applicable Periodic Cap, the applicable Lifetime Cap and the applicable
Lifetime Floor. The "Periodic Cap" limits changes in the Loan Rate for each ARM
on each Change Date. The "Lifetime Cap" is the maximum Loan Rate that may be
borne by an ARM at any point of its life. The "Lifetime Floor" is the minimum
Loan Rate that may be borne by an ARM at any point of its life. The Loan Group 2
Mortgage Loans do not provide for negative amortization.
For all of the Initial Mortgage Loans that are ARMS: the Loan Index is
________; the Change Dates occur every _______ months after the initial Change
Date; and the Periodic Cap is generally _____ basis points. The reference for
each applicable Loan Index and the date prior to a Change Date as of which such
Loan Index is determined is set forth in the related Mortgage Note.
As of the Cut-Off Date, substantially all of the Group 2 Initial
Mortgage Loans were accruing interest at Loan Rates that are below the sum of
the related Gross Margin and the Loan Index that would otherwise have been
applicable. On the first Change Date for each such Mortgage Loan, the related
Loan Rate will adjust to the sum of the applicable Loan Index and the related
Gross Margin subject to the application of the related Periodic Caps, the
related Lifetime Cap and the related Lifetime Floor.
The sole basis for determination of whether a Mortgage is secured by a
primary residence of a borrower ("Mortgagor") will be either (a) a
representation by the Mortgagor at origination of the Mortgage Loan that the
Mortgaged Property will be used for a period of at least six months every year,
or that he intends to use the Mortgaged Property as his primary residence or (b)
that the address of the Mortgaged Property is the Mortgagor's mailing address as
reflected in the Seller's records.
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth herein, all percentages and
weighted averages set forth herein with respect to a Loan Group are approximate
and are percentages or weighted averages of the Cut-Off Date Principal Balances
of the Initial Mortgage Loans in such Loan Group.
LOAN GROUP 1 STATISTICS
The Loan Group 1 Initial Mortgage Loans consist of _____ loans, and the
related Mortgaged Properties are located in ___ states and the District of
Columbia as set forth herein. As of the Cut-Off Date, the Loan Group 1 Initial
Mortgage Loans had an aggregate Principal Balance of $_________ (the "Cut-Off
Date Loan Group 1 Initial Principal Balance"), the maximum Cut-Off Date
Principal Balance of any of the Loan Group 1 Initial Mortgage Loans was
$________ , the minimum Cut-Off Date Principal Balance thereof was $________,
and the Cut-Off Date Principal Balance of such Initial Mortgage Loans averaged
$_______. As of the Cut-Off Date, the Loan Rates on the Loan Group 1 Initial
Mortgage Loans ranged from ______ % to _____ % per annum, and the weighted
average Loan Rate for Loan Group 1 Initial Mortgage Loans was approximately
_____ % per annum. As of the Cut-Off Date, the original term to stated maturity
of the Loan Group 1 Initial Mortgage Loans ranged from ___ months to 360 months,
the remaining term to stated maturity ranged from ___ months to 360 months, the
weighted average original term to stated maturity was approximately ___ months,
the weighted average remaining term to stated
S-26
<PAGE> 29
maturity was approximately ___ months and the CLTV at origination (as defined
herein) ranged from approximately _____ % to approximately _____ % with a
weighted average CLTV at origination of approximately _____ %. Approximately
_____ % of the Loan Group 1 Initial Mortgage Loans are secured by first liens,
and approximately ______% by second liens. Approximately _____% of the Loan
Group 1 Initial Mortgage Loans require monthly payments of principal that will
fully amortize such Initial Mortgage Loans by their respective maturity dates
(assuming all payments are received on the Due Date), and approximately _____ %
of the Loan Group 1 Initial Mortgage Loans are Balloon Loans. Approximately
_____ % of the Loan Group 1 Initial Mortgage Loans (by Cut-off Date Loan Group 1
Principal Balance) have payments which, as of the Cut-off Date, are more than 30
but less than 59 days delinquent.
CUT-OFF DATE PRINCIPAL BALANCES
LOAN GROUP 1
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
RANGE OF CUT-OFF DATE PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0.01-$ 25,000.00.................. $ %
$ 25,000.01-$ 50,000.00..................
$ 50,000.01-$ 75,000.00..................
$ 75,000.01-$100,000.00..................
$100,000.01-$125,000.00..................
$125,000.01-$150,000.00..................
$150,000.01-$175,000.00..................
$175,000.01-$200,000.00..................
$200,000.01-$225,000.00..................
$225,000.01-$250,000.00..................
$250,000.01-$275,000.00..................
$275,000.01-$300,000.00..................
$325,000.01-$350,000.00..................
Total............................ 100.00%
=======
</TABLE>
GEOGRAPHIC DISTRIBUTION BY STATE(1)
LOAN GROUP 1
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona................................... $ %
Arkansas..................................
California................................
Colorado..................................
Connecticut...............................
Delaware..................................
District of Columbia......................
Florida...................................
Georgia...................................
Illinois..................................
Indiana...................................
Kansas....................................
Kentucky..................................
</TABLE>
S-27
<PAGE> 30
<TABLE>
<S> <C> <C> <C>
Maine.....................................
Maryland..................................
Massachusetts.............................
Michigan..................................
Minnesota.................................
Mississippi...............................
Missouri..................................
Nebraska..................................
Nevada....................................
New Hampshire.............................
New Jersey................................
New York..................................
North Carolina............................
Ohio......................................
Oklahoma..................................
Oregon....................................
Pennsylvania..............................
Rhode Island..............................
South Carolina............................
Tennessee.................................
Texas.....................................
Utah......................................
Vermont...................................
Virginia..................................
Washington................................
West Virginia.............................
Wisconsin.................................
Total............................ 100.00%
=======
</TABLE>
- ------------
(1) Determined by property address designated as such in the related Mortgage.
COMBINED LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 1
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
RANGE OF ORIGINAL COMBINED LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
10.01%-15.00%............................. $ %
15.01%-20.00%.............................
20.01%-25.00%.............................
25.01%-30.00%.............................
30.01%-35.00%.............................
35.01%-40.00%.............................
40.01%-45.00%.............................
45.01%-50.00%.............................
50.01%-55.00%.............................
55.01%-60.00%.............................
</TABLE>
S-28
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
60.01%-65.00%.............................
65.01%-70.00%.............................
70.01%-75.00%.............................
75.01%-80.00%.............................
80.01%-85.00%.............................
85.01%-90.00%.............................
Total............................. 100.00%
=======
</TABLE>
- ----------
(1) The original Combined Loan-to-Value Ratios ("CLTV") shown above are equal,
with respect to each Initial Mortgage Loan, to (i) the sum of (a) the
original principal balance of such Mortgage Loan at the date of origination
plus (b) the remaining balance of the senior lien(s), if any, at the date
of origination of such Mortgage Loan divided by the value of the related
Mortgaged Property, based upon the lesser of the appraisal made at the time
of origination of such Mortgage Loan or the purchase price of such
Mortgaged Property (where the proceeds are used to purchase the Mortgaged
Property). No assurance can be given that the values of such Mortgaged
Properties have remained or will remain at their levels as of the dates of
origination of the related Initial Mortgage Loans. If the residential real
estate market should experience an overall decline in property values such
that the outstanding balances of such Mortgage Loans together with the
outstanding balances of the related first liens become equal to or greater
than the value of the related Mortgaged Properties, actual losses could be
higher than those now generally experienced in the mortgage lending
industry.
S-29
<PAGE> 32
CUT-OFF DATE LOAN RATES
LOAN GROUP 1
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
RANGE OF CUT-OFF DATE LOAN RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
8.500%............................ $ %
8.501%- 9.000%...........................
9.001%- 9.500%...........................
9.501%-10.000%...........................
10.001%-10.500%...........................
10.501%-11.000%...........................
11.001%-11.500%...........................
11.501%-12.000%...........................
12.001%-12.500%...........................
12.501%-13.000%...........................
13.001%-13.500%...........................
13.501%-14.000%...........................
14.001%-14.500%...........................
14.501%-15.000%...........................
15.001%-15.500%...........................
15.501%-16.000%...........................
16.001%-16.500%...........................
16.501%-17.000%...........................
17.501%-18.000%...........................
Total............................. 100.00%
=======
</TABLE>
S-30
<PAGE> 33
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 1
<TABLE>
<CAPTION>
ORIGINAL TERMS NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
TO STATED MATURITY INITIAL INITIAL INITIAL
(IN MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1-60................................ $ %
61-120................................
121-180................................
181-240................................
241-300................................
301-360................................
Total................................ 100.00%
=======
</TABLE>
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 1
<TABLE>
<CAPTION>
RANGE OF
REMAINING MONTHS NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
TO STATED MATURITY INITIAL INITIAL INITIAL
(IN MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
46-60................................ $ %
73-84................................
109-120................................
133-144................................
169-180................................
229-240................................
289-300................................
349-360................................
Total................................ 100.00%
=======
</TABLE>
MONTHS SINCE ORIGINATION
LOAN GROUP 1
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
MONTHS SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0................................ $ %
1-6................................
7-12................................
Total................................ 100.00%
=======
</TABLE>
S-31
<PAGE> 34
PROPERTY TYPE
LOAN GROUP 1
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family.............................. $ %
Two-to-Four Family.........................
Mixed Use ................................
Four-to-Eight Family.......................
Condominium................................
Cooperative................................
Mobile Home treated as real property.......
Total................................ 100.00%
=======
</TABLE>
OCCUPANCY TYPE(1)
LOAN GROUP 1
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
OCCUPANCY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied............................. $ %
Non-Owner Occupied.........................
Total................................ 100.00%
=======
</TABLE>
- -------------
(1) Based upon representations made by the borrowers at the time of
origination of such Mortgage Loans.
S-32
<PAGE> 35
LOAN GROUP 2 STATISTICS
The Loan Group 2 Initial Mortgage Loans consist of ___ loans, and the
related Mortgaged Properties are located in ___ states. As of the Cut-Off Date,
the Loan Group 2 Initial Mortgage Loans had an aggregate Principal Balance of
$___________ (the "Cut-Off Date Loan Group 2 Initial Principal Balance"), the
maximum Cut-Off Date Principal Balance of any of the Loan Group 2 Initial
Mortgage Loans was $__________, the minimum Cut-Off Date Principal Balance
thereof was $___________ and the Cut-Off Date Principal Balance of such Initial
Mortgage Loans averaged $__________. As of the Cut-Off Date, the current Loan
Rates on the Loan Group 2 Initial Mortgage Loans ranged from _____% to _____%
per annum, and the weighted average current Loan Rate for Loan Group 2 Initial
Mortgage Loans was approximately _____% per annum. As of the Cut-Off Date, the
original term to stated maturity of the Loan Group 2 Initial Mortgage Loans
ranged from 180 months to 360 months, the remaining term to stated maturity
ranged from _____ months to 360 months, the weighted average original term to
stated maturity was approximately ___ months, the weighted average remaining
term to stated maturity was approximately ____ months and the LTV (as defined
herein) ranged from approximately _____% to approximately _____ % with a
weighted average LTV of approximately ____%. All of the Loan Group 2 Initial
Mortgage Loans are secured by first liens. All of the Loan Group 2 Initial
Mortgage Loans require monthly payments of principal that will fully amortize
such Initial Mortgage Loans by their respective maturity dates (assuming all
payments are received on the Due Date). As of the Cut-Off Date the weighted
average Gross Margin of the Loan Group 2 Initial Mortgage Loans was
approximately _____ %, the weighted average Lifetime Cap was approximately _____
% and the weighted average Lifetime Floor was approximately _____%. None of the
Initial Loan Group 2 Mortgage Loans has reached its first Change Date and the
earliest such date occurs in _____ ___.
As of the Cut-off Date, substantially all of the Group 2 Initial
Mortgage Loans were accruing interest at Loan Rates that are below the sum of
the related Gross Margin and the applicable Loan Index that would otherwise have
been applicable. On the first Change Date for each such Mortgage Loan, the
related Loan Rate will adjust to the sum of the applicable Loan Index and the
related Gross Margin subject to the application of the applicable Periodic Cap,
the related Lifetime Cap and the related Lifetime Floor. The weighted average
number of months before the next Change Date for Group 2 Initial Mortgage Loans
in the Trust is approximately 9 months. Approximately _____% of the Loan Group 2
Initial Mortgage Loans (by Cut-off Date Loan Group 2 Initial Balance) have
payments which, as of the Cut-off Date, are more than 30 but less than 59 days
delinquent.
S-33
<PAGE> 36
CUT-OFF DATE PRINCIPAL BALANCES
LOAN GROUP 2
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
RANGE OF CUT-OFF DATE PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0.01 - $ 25,000.00................... $ %
$ 25,000.01 - $ 50,000.00...................
$ 50,000.01 - $ 75,000.00...................
$ 75,000.01 - $ 100,000.00...................
$ 100,000.01 - $ 125,000.00...................
$ 125,000.00 - $ 150,000.00...................
$ 150,000.01 - $ 175,000.00...................
$ 175,000.01 - $ 200,000.00...................
$ 200,000.01 - $ 225,000.00...................
$ 225,000.01 - $ 250,000.00...................
$ 250,000.01 - $ 275,000.00...................
$ 275,000.01 - $ 300,000.00...................
$ 300,000.01 - $ 350,000.00...................
$ 375,000.01 - $ 400,000.00...................
$ 400,000.01 - $ 425,000.00...................
Total.................................. 100.00%
=======
</TABLE>
S-34
<PAGE> 37
GEOGRAPHIC DISTRIBUTION BY STATE(1)
LOAN GROUP 2
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Colorado.................................. $ %
Connecticut...............................
Florida...................................
Georgia...................................
Illinois..................................
Indiana...................................
Kentucky..................................
Maine.....................................
Maryland..................................
Massachusetts.............................
Michigan..................................
Minnesota.................................
Mississippi...............................
Missouri..................................
New Hampshire.............................
New Jersey................................
New York..................................
North Carolina............................
North Dakota..............................
Ohio......................................
Oklahoma..................................
Pennsylvania..............................
Rhode Island..............................
Texas.....................................
Virginia..................................
Washington................................
Wisconsin.................................
Total.............................. 100.00%
=======
</TABLE>
- --------
(1) Determined by property address designated as such in the related Mortgage.
LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 2
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
RANGE OF ORIGINAL LOAN TO VALUE RATIO MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
35.01%-40.00%............................ $ %
40.01%-45.00%............................
45.01%-50.00%............................
50.01%-55.00%............................
55.01%-60.00%............................
60.01%-65.00%............................
65.01%-70.00%............................
70.01%-75.00%............................
75.01%-80.00%............................
80.01%-85.00%............................
85.01%-90.00%............................
Total 100.00%
======
</TABLE>
- -----------
(1) The original Loan-to-Value Ratios ("LTV") shown above are equal, with
respect to each Initial Mortgage Loan, to the original principal
balance of such Mortgage Loan at the date of origination divided by the
value of the related Mortgaged Property, based upon the lesser of the
appraisal made at the time of origination of such Mortgage Loan or the
purchase price for such Mortgaged Property (where the proceeds are used
to purchase the Mortgaged Property). No assurance can be given that the
values of such Mortgaged Properties have remained or will remain at
their levels as of the dates of origination of the related Initial
Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding
balances of such
S-35
<PAGE> 38
Mortgage Loans together with the outstanding balances of the related
first liens become equal to or greater than the value of the related
Mortgaged Properties, the actual losses could be higher than those now
generally experienced in the mortgage lending industry.
S-36
<PAGE> 39
CUT-OFF DATE LOAN RATES
LOAN GROUP 2
<TABLE>
<CAPTION>
NUMBER OF CUT-OFF DATE % OF CUT-OFF DATE
INITIAL INITIAL INITIAL
RANGE OF CUT-OFF DATE LOAN RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
8.001%- 8.500%....................... $ %
8.501%- 9.000%.......................
9.001%- 9.500%.......................
9.501%-10.000% ......................
10.001%-10.500%.......................
10.501%-11.000% ......................
11.001%-11.500% ......................
11.501%-12.000% ......................
12.001%-12.500% ......................
12.501%-13.000% ......................
13.001%-13.500% ......................
13.501%-14.000% ......................
14.001%-14.500% ......................
16.001%-16.500% ......................
Total 100.00%
======
</TABLE>
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 2
<TABLE>
Original Terms to Stated Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Maturity (in months) Mortgage Loans Principal Balance Principal Balance
- -------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
121-180............................. $ %
181-240.............................
301-360.............................
Total.......................... 100.00%
=======
</TABLE>
S-37
<PAGE> 40
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 2
<TABLE>
<CAPTION>
Range of Remaining Months to Stated Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Maturity (in months) Mortgage Loans Principal Balance Principal Balance
- -------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
169-180............................. $ %
229-240.............................
349-360.............................
Total.......................... 100.00%
=======
</TABLE>
MONTHS SINCE ORIGINATION
LOAN GROUP 2
<TABLE>
<CAPTION>
Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Months Since Origination Mortgage Loans Principal Balance Principal Balance
- ------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0................................... $ %
1-6.................................
Total.......................... 100.00%
=======
</TABLE>
PROPERTY TYPE
LOAN GROUP 2
<TABLE>
<CAPTION>
Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family....................... $ %
Two-to-Four Family
Condominium
Total.......................... 100.00%
=======
</TABLE>
OCCUPANCY TYPE
LOAN GROUP 2
<TABLE>
<CAPTION>
Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Occupancy Type(1) Mortgage Loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied...................... $ %
Non-Owner Occupied..................
Total.......................... 100.00%
=======
</TABLE>
- ------------------
(1) Based upon representations made by the borrowers at the time of
origination of such Mortgage Loans.
S-38
<PAGE> 41
GROSS MARGIN
LOAN GROUP 2
<TABLE>
<CAPTION>
Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Range of Gross Margins Mortgage Loans Principal Balance Principal Balance
- ---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
4.001%-4.500%....................... $ %
4.501%-5.000%.......................
5.001%-5.500%.......................
5.501%-6.000%.......................
6.001%-6.500%.......................
6.501%-7.000%.......................
7.001%-7.500%.......................
7.501%-8.000%.......................
8.001%-8.500%.......................
8.501%-9.000%.......................
9.001%-9.500%.......................
9.501-%10.000%......................
10.501%-11.000%.....................
11.001%-11.500%.....................
Total.......................... 100.00%
=======
</TABLE>
LIFETIME CAP
LOAN GROUP 2
<TABLE>
<CAPTION>
Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Range of Lifetime Caps Mortgage Loans Principal Balance Principal Balance
- ---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
14.001%-14.500%..................... $ %
14.501%-15.000%.....................
15.001%-15.500%.....................
15.501%-16.000%.....................
16.001%-16.500%.....................
16.501%-17.000%.....................
17.001%-17.500%.....................
17.501%-18.000%.....................
18.001%-18.500%.....................
18.501%-19.000%.....................
19.001%-19.500%.....................
19.501-%20.000%.....................
20.501%-21.000%.....................
21.001%-21.500%.....................
Total.......................... 100.00%
=======
</TABLE>
S-39
<PAGE> 42
LIFETIME FLOORS
LOAN GROUP 2
<TABLE>
<CAPTION>
Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Range of Gross Margins Mortgage Loans Principal Balance Principal Balance
- ---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
4.001%-4.500%....................... $ %
4.501%-5.000%.......................
5.001%-5.500%.......................
5.501%-6.000%.......................
6.001%-6.500%.......................
6.501%-7.000%.......................
7.001%-7.500%.......................
7.501%-8.000%.......................
8.001%-8.500%.......................
8.501%-9.000%.......................
9.001%-9.500%.......................
9.501-%10.000%......................
10.001%-10.500%.....................
10.501%-11,000%.....................
11.001%-11.500%.....................
11.501%-12.000%.....................
12.001%-12.500%.....................
12.501%-13.000%.....................
13.001%-13.500%.....................
13.501%-14.000%.....................
16.001%-16.500%.....................
Total.......................... 100.00%
=======
</TABLE>
MONTH OF NEXT CHANGE DATE
LOAN GROUP 2
<TABLE>
<CAPTION>
Number of Initial Cut-Off Date Initial % of Cut-Off Date Initial
Month of Next Change Date Mortgage Loans Principal Balance Principal Balance
- ------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
May 199_............................ $ %
June 199_...........................
July 199_...........................
August 199_.........................
September 199_......................
October 199_........................
November 199_.......................
March 1998..........................
December 1998.......................
January 1999........................
February 1999.......................
March 1999..........................
April 1999..........................
August 1999.........................
September 1999......................
April 2000..........................
Total.......................... 100.00%
=======
</TABLE>
S-40
<PAGE> 43
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The Agreement permits the Trust to acquire up to the applicable Maximum
Funding Amount of Subsequent Mortgage Loans for Loan Group 1 and Loan Group 2,
respectively. Accordingly, the statistical characteristics of the Mortgage Loans
in the Trust will vary as of the Closing Date upon the acquisition of Subsequent
Mortgage Loans.
The obligation of the Trust to purchase Subsequent Mortgage Loans on
the Closing Date is subject to the following requirements, any of which
requirements (except for the requirement stated in clause (v) of this paragraph)
may be waived or modified in any respect by the Certificate Insurer: (i) such
Subsequent Mortgage Loan may not be 30 or more days contractually delinquent as
of the related Cut-Off Date; (ii) the remaining term to stated maturity of such
Subsequent Mortgage Loan will not exceed 30 years for fully amortizing loans or
15 years for "Balloon Loans" in Loan Group 1; (iii) such Subsequent Mortgage
Loan will be secured by a Mortgage in a first or second lien position; (iv) such
Subsequent Mortgage Loan will not have a Loan Rate less than _____%; (v) such
Subsequent Mortgage Loan will be otherwise acceptable to the Certificate
Insurer; (vi) such Subsequent Mortgage Loan shall be secured by a mortgage on
property which, at the time of the origination of such Subsequent Mortgage Loan,
has an appraised value of not more than $________ ; (vii) following the purchase
of such Subsequent Mortgage Loan by the Trust for Loan Group 1, the Mortgage
Loans in Loan Group 1 (including such Subsequent Mortgage Loan) as of the
Closing Date: (a) will have a weighted average Loan Rate of at least _____ %;
(b) will have a weighted average remaining term to stated maturity of not less
than ___ months; (c) will have a weighted average CLTV of not more than ___%;
(d) will not have more than ___% by aggregate principal balance "Balloon Loans";
(e) will have no Mortgage Loan with a principal balance in excess of $______;
(f) will have a state concentration not in excess of ___ % for any one state;
(g) will have not more than ____% in aggregate principal balance of the Mortgage
Loans concentrated in any single zip code; (h) will have no more than ____%
Mortgage Loans relating to non-owner occupied properties; and (i) will not
include Mortgage Loans in excess of ___% by aggregate principal balance secured
by Mortgages in a second lien position; and (viii) following the purchase of
such Subsequent Mortgage Loan by the Trust for Loan Group 2, the Mortgage Loans
in Loan Group 2 (including such Subsequent Mortgage Loan) as of the Closing
Date: (a) will have a weighted average Loan Rate of at least _____%; (b) will
have a weighted average remaining term to stated maturity of not less than ____
months; (c) will have a weighted average loan-to-value ratio of not more than
____ %; (d) will have no Mortgage Loan with a principal balance in excess of
$______; (e) will have a state concentration not in excess of ____% for any one
state; (f) will have not more than ____% in aggregate principal balance of the
Mortgage Loans concentrated in any single zip code; (g) will have no more than
____% Mortgage Loans relating to non-owner occupied properties; and (h) will not
have a Mortgage Loan secured by a Mortgage in a junior lien position.
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on the Class A Certificates, the
aggregate amount of distributions on the Class A Certificates and the yield to
maturity of the Class A Certificates will be related to the rate and timing of
payments of principal on the Mortgage Loans in the related Loan Group and, in
certain circumstances, the Mortgage Loans in the other Loan Group. The rate of
principal payments on the Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans and by the rate of principal
prepayments (including for this purpose prepayments resulting from refinancing,
liquidations of the Mortgage Loans due to defaults, casualties, condemnations
and repurchases by the Seller or the Master Servicer). The Mortgage Loans may be
prepaid by the Mortgagors at any time. However, Mortgage Loans secured by first
liens on Mortgaged Properties in ______ are
S-41
<PAGE> 44
subject to a prepayment penalty for the first 12 months following origination.
In addition, Mortgage Loans secured by Mortgaged Properties in other
jurisdictions may be subject to prepayment penalties to the extent permitted by
law.
THE VARIABLE RATE CERTIFICATES
The yield to investors in the Class A-7 Certificates will be sensitive
to, among other things, the level of the Loan Index and the Certificate Index.
As described herein, the Certificate Rate for the Class A-7 Certificates may in
no event exceed the lesser of the Class A-7 Formula Rate and the Loan Group 2
Net Funds Cap, which depends, in large part, on the Loan Rates of the Loan Group
2 Mortgage Loans in effect at the beginning of the related Due Period. Although
each of the Mortgage Loans in Loan Group 2 bears interest at an adjustable rate,
such rate is subject to a Periodic Rate Cap, a Lifetime Floor and a Lifetime
Cap. If the Loan Index changes substantially between Change Dates, the adjusted
Loan Rate on the related Mortgage Loan may not equal the Loan Index plus the
related Gross Margin due to the constraint of such caps and floors. In such
event, the related Loan Rate will be less than would have been the case in the
absence of such caps. In addition, the Loan Rate applicable to any Change Date
will be based on the Loan Index related to the Change Date. Thus, if the value
of the Loan Index with respect to a Mortgage Loan rises, the lag in time before
the corresponding Loan Rate increases will, all other things being equal, slow
the upward adjustment of the Loan Group 2 Net Funds Cap. Furthermore, Mortgage
Loans that have not reached their first Change Date are more likely to be
subject to the Periodic Rate Cap on their first Change Date. See "DESCRIPTION OF
THE MORTGAGE LOANS" herein.
Although the Loan Rates on the Mortgage Loans in Loan Group 2 are
subject to adjustment, the Loan Rates adjust less frequently than the
Certificate Rate and adjust by reference to the Loan Index. Changes in the
Certificate Index may not correlate with changes in the Loan Index and either
may not correlate with prevailing interest rates. It is possible that an
increased level of Certificate Index could occur simultaneously with a lower
level of prevailing interest rates, which would be expected to result in faster
prepayments, thereby reducing the weighted average life of the Class A-7
Certificates.
Although the Agreement provides a mechanism to pay any Class A-7 Basis
Risk Carryover Amount, there is no assurance that funds will be available to pay
such amount. In addition, the Policy will not cover the payment of, and the
ratings assigned to the Class A-7 Certificates do not address the likelihood of
the payment of, any such amount.
PREPAYMENT CONSIDERATIONS
Prepayments, liquidations and purchases of the Mortgage Loans in a Loan
Group (including any optional purchase by the Servicer of a Delinquent Mortgage
Loan and any optional purchase of the remaining Mortgage Loans in connection
with the termination of the Trust, in each case as described herein) will result
in distributions on the related Classes of Class A Certificates then entitled to
distributions of principal which would otherwise be distributed over the
remaining terms of such Mortgage Loans. Since the rate of payment of principal
of the Mortgage Loans will depend on future events and a variety of factors, no
assurance can be given as to such rate or the rate of principal prepayments. The
extent to which the yield to maturity of a Class of Class A Certificates in
either Certificate Group may vary from the anticipated yield will depend upon
the degree to which a Certificate of such Class is purchased at a discount or
premium, and the degree to which the timing of payments thereon is sensitive to
prepayments, liquidations and purchases of the Mortgage Loans in the related
Loan Group. An additional factor affecting the yield to maturity of the Class A
Certificates is the overcollateralization amount. The overcollateralization in
either Certificate Group will accelerate the amortization of the related Class A
Certificates relative to the amortization of the Mortgage Loans in the related
Loan Group because all Excess Spread received on the Mortgage Loans in such Loan
Group will be distributed to the related Class A Certificateholders as long as
the amount of overcollateralization is less than the required level of
overcollateralization.
S-42
<PAGE> 45
The rate of prepayment on the Mortgage Loans cannot be predicted. Home
equity loans such as the Mortgage Loans have been originated in significant
volume only during the past few years and the Seller is unaware of any publicly
available studies or statistics on the rate of prepayment of such home equity
loans. Generally, home equity loans are not viewed by borrowers as permanent
financing. Accordingly, the Mortgage Loans may experience a higher rate of
prepayment than traditional first mortgage loans. The prepayment experience of
the Trust with respect to the Mortgage Loans may be affected by a wide variety
of factors, including economic conditions, prevailing interest rate levels, the
availability of alternative financing and homeowner mobility and changes
affecting the deductibility for Federal income tax purposes of interest payments
on home equity loans. The increased availability of credit to borrowers with
impaired or limited credit profiles may affect the prepayment experience on the
Mortgage Loans. As borrowers re-establish or establish an acceptable credit
profile such borrowers may be able to refinance their loans at lower rates
reflecting their improved credit profiles. Substantially all of the Mortgage
Loans contain "due-on-sale" provisions and the Servicer is required by the
Agreement to enforce such provisions, unless such enforcement is not permitted
by applicable law. The enforcement of a "due-on-sale" provision will have the
same effect as a prepayment of the related Mortgage Loan. See "CERTAIN LEGAL
ASPECTS OF LOANS--Due-on-Sale Clauses in Home Equity Loans" in the Prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the Mortgage Loans in Loan Group
1 is affected by prevailing market rates for mortgage loans of a comparable term
and risk level. When the market interest rate is below the mortgage coupon,
mortgagors may have an increased incentive to refinance their mortgage loans.
Depending on prevailing market rates, the future outlook for market rates and
economic conditions generally, some mortgagors may sell or refinance mortgaged
properties in order to realize their equity in the mortgaged properties, to meet
cash flow needs or to make other investments.
All of the Mortgage Loans in Loan Group 2 are adjustable-rate mortgage
loans. As is the case with conventional fixed-rate mortgage loans,
adjustable-rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable-rate mortgage loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed-rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their adjustable-rate
mortgage loans to "lock in" a lower fixed interest rate. However, no assurance
can be given as to the level of prepayments that the Mortgage Loans will
experience.
In addition to the foregoing factors affecting the weighted average
lives of the Class A Certificates, the use of Excess Spread to pay principal of
the Class A Certificates to the extent required by the Agreement will result in
acceleration of the Class A-1 and Class A-7 Certificates as applicable relative
to the amortization of the Mortgage Loans in the related Loan Group in the early
months of the transaction and may accelerate the first date on which each other
Class of Group 1 Certificates will begin to receive distributions of principal.
This acceleration feature creates overcollateralization which results from the
excess of the aggregate Principal Balance of the Mortgage Loans in a Loan Group
over the Certificate Group Principal Balance of the related Certificate Group.
Once the required level of overcollateralization for a Certificate Group is
reached, the acceleration feature will cease, unless necessary to maintain the
required level of overcollateralization for such Certificate Group.
PAYMENT DELAY FEATURE OF FIXED RATE CERTIFICATES
The effective yield to the Certificateholders of each Class of Fixed
Rate Certificates will be lower than the yield otherwise produced by the
Certificate Rate for each such Class and the purchase price of such Certificates
because distributions will not be payable to the Certificateholders until the
25th day of the month following the month of accrual (without any additional
distribution of interest or earnings thereon in respect of such delay).
S-43
<PAGE> 46
MANDATORY PREPAYMENT
In the event that on the Closing Date the aggregate principal balance
of the Mortgage Loans in a Loan Group is less than the related Certificate Group
Principal Balance, the holders of the Class A-1 Certificates in the case of
Certificate Group 1 and the holders of the Class A-7 Certificates in the case of
Certificate Group 2 will receive, on the first Distribution Date, an additional
distribution allocable to principal in an amount equal to the difference, if
any, between the aggregate Principal Balance of all Mortgage Loans in the
related Loan Group as of the Cut-Off Date and the related Certificate Group
Principal Balance. Although no assurances can be given, the Seller intends that
the principal amount of Mortgage Loans in each Loan Group in the Trust on the
Closing Date will equal the related Certificate Group Principal Balance.
Accordingly, there should be no material principal prepayment to the
Certificateholders due to a lack of Subsequent Mortgage Loans.
INITIAL DISTRIBUTION DATE
With respect to a certain number of the Loan Group 1 Initial Mortgage
Loans and the Loan Group 2 Initial Mortgage Loans, the related Class A
Certificateholders will receive a distribution of principal reflecting two
installments of principal during the first Due Period. As a result, such Class A
Certificateholders will receive a larger payment in respect of principal on the
initial Distribution Date than would have been the case if the first Due Period
were a one-month period.
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will
increase the yield on Class A Certificates purchased at a price less than par
and will decrease the yield on Class A Certificates purchased at a price greater
than par. The effect on an investor's yield due to principal payments on the
Mortgage Loans occurring at a rate that is faster (or slower) than the rate
anticipated by the investor in the period immediately following the issuance of
the Certificates will not be entirely offset by a subsequent like reduction (or
increase) in the rate of principal payments. The weighted average life of the
Class A Certificates will also be affected by the amount and timing of
delinquencies and defaults on the Mortgage Loans and the recoveries, if any, on
Liquidated Mortgage Loans and foreclosed properties.
The "weighted average life" of a Certificate refers to the average
amount of time that will elapse from the date of issuance to the date each
dollar in respect of principal of such Certificate is repaid. The weighted
average life of any Class of the Class A Certificates will be influenced by,
among other factors, the rate at which principal payments are made on the
Mortgage Loans, including final payments made upon the maturity of the Balloon
Loans.
Prepayments on Mortgage Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of the pool of mortgage loans for the life of such
mortgage loans. A 100% Prepayment Assumption (the "Prepayment Assumption")
assumes a conditional prepayment rate ("CPR") of 4.0% per annum of the
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional 1.455% (precisely 16/11 percent per
annum) in each month thereafter until the twelfth month; beginning in the
twelfth month and in each month thereafter during the life of the mortgage
loans, a conditional prepayment rate of 20% per annum each month is assumed. As
used in the table below, 0% Prepayment Assumption assumes a conditional
prepayment rate equal to 0% of the applicable Prepayment Assumption, i.e., no
prepayments. Correspondingly, 120% Prepayment Assumption assumes prepayment
rates equal to 120% of the Prepayment Assumption, and so forth. The Prepayment
Assumption 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. The Representative believes that
no existing statistics of which it is aware provide a
S-44
<PAGE> 47
reliable basis for holders of Class A Certificates to predict the amount or the
timing of receipt of prepayments on the Mortgage Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Principal Balances outstanding and weighted average lives of
the Certificates set forth in the tables. In addition, since the actual Mortgage
Loans in the Trust have characteristics which differ from those assumed in
preparing the tables set forth below, the distributions of principal on the
Certificates may be made earlier or later than as indicated in the tables.
For the purposes of the tables below, it is assumed that: (i) the
Mortgage Loans consist of pools of loans with the level-pay and balloon
characteristics as set forth below, (ii) the amount of interest accrued on the
Mortgage Loans is reduced by amounts sufficient to pay servicing fees, trustee
fees and the premium for the Policy, (iii) the Closing Date for the Class A
Certificates is _______ __, 199__, (iv) distributions on the Class A
Certificates are made on the 25th day of each month regardless of the date on
which the Distribution Date actually occurs, commencing in _____ 199__, and are
made in accordance with the priorities described herein, (v) the scheduled
monthly payments of principal and interest on each Mortgage Loan will be timely
delivered on the first day of each month (with no defaults) commencing in the
calendar month following their delivery, (vi) all prepayments are prepayments in
full received on the first day of each month commencing in the calendar month
following their delivery with 30 days of accrued interest, (vii) the Mortgage
Loan prepayment rates are a multiple of the related Prepayment Assumption,
(viii) the prepayment assumed to be received during the first Due Period has
been increased to reflect that the first Due Period is longer than subsequent
Due Periods, (ix) the optional termination is not exercised, (x) each Class of
Class A Certificates has the respective Certificate Rate and initial Class
Principal Balance as set forth herein, (xi) the overcollateralization levels for
the Initial Mortgage Loans apply to the Subsequent Mortgage Loans, are set
initially as specified in the Agreement, and thereafter decrease in accordance
with the provisions of the Agreement, (xii) the Loan Index is ______% on each
Change Date, (xiii) the Certificate Index for each Interest Period will be
______%, and (xiv) the maximum amount of Subsequent Mortgage Loans is purchased
by the Trust on the Closing Date.
<TABLE>
<CAPTION>
ORIGINAL. ORIGINAL REMAINING
TERM TO AMORTIZATION TERM TO
PRINCIPAL LOAN MATURITY TERM MATURITY
AMORTIZATION METHODOLOGY BALANCE RATE (MONTHS) (MONTHS) (MONTHS)
- ------------------------ ------- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C>
GROUP 1 MORTGAGE LOANS
Level Pay......................... $ %
Level Pay......................... $ %
Level Pay......................... $ %
Level Pay......................... $ %
Balloon........................... $ %
</TABLE>
<TABLE>
<CAPTION>
NUMBER PERIODIC PERIOD
ORIGINAL REMAINING OF MONTHS RATE CAP RATE CAP
CURRENT TERM TO TERM TO TO NEXT (FIRST (SUBSEQUENT
PRINCIPAL LOAN MATURITY MATURITY GROSS RATE RESET RESET
BALANCE RATE (MONTHS) (MONTHS) MARGIN CHANGE DATE) DATES)
--------- ------- -------- --------- ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP 2 MORTGAGE
LOANS
Level Pay.... $ % % % %
Level Pay.... $ % % % %
Level Pay.... $ % % % %
Level Pay.... $ % % % %
Level Pay.... $ % % % %
Level Pay.... $ % % % %
</TABLE>
S-45
<PAGE> 48
Subject to the foregoing discussion and assumptions, the following
tables set forth the percentages of the initial Class Principal Balance of each
Class of Class A Certificates that would be outstanding after each of the dates
shown at various percentages of Prepayment Assumption and the corresponding
weighted average lives.
S-46
<PAGE> 49
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
------------------------------------- -----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 120% 150% 200% 0% 50% 100% 120% 150% 200%
- ----------------- -- --- ---- ---- ---- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.
March 25, 1998
March 25, 1999
March 25, 2000
March 25, 2001
March 25, 2002
March 25, 2003
March 25, 2004
March 25, 2005
March 25, 2006
March 25, 2007
March 25, 2008
March 25, 2009
March 25, 2010
March 25, 2011
March 25, 2012
March 25, 2013
March 25, 2014
March 25, 2015
March 25, 2016
March 25, 2017
March 25, 2018
March 25, 2019
March 25, 2020
March 25, 2021
March 25, 2022
March 25, 2023
March 25, 2024
March 25, 2025
March 25, 2026
March 25, 2027
Weighted Average
Life (years)*
</TABLE>
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
------------------------------------ ------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 120% 150% 200% 0% 50% 100% 120% 150% 200%
- ----------------- -- --- ---- ---- ---- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.
March 25, 1998
March 25, 1999
March 25, 2000
March 25, 2001
March 25, 2002
March 25, 2003
March 25, 2004
March 25, 2005
March 25, 2006
March 25, 2007
March 25, 2008
March 25, 2009
March 25, 2010
March 25, 2011
March 25, 2012
March 25, 2013
March 25, 2014
March 25, 2015
March 25, 2016
March 25, 2017
March 25, 2018
March 25, 2019
March 25, 2020
March 25, 2021
March 25, 2022
March 25, 2023
March 25, 2024
March 25, 2025
March 25, 2026
March 25, 2027
Weighted Average
Life (years)*
</TABLE>
- ----------
* The weighted average life of a Certificate of any Class is determined
by (i) multiplying the amount of each distribution in reduction of the
related Certificate Principal Balance by the number of years from the
date of issuance of the Certificate to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the highest
related Certificate Principal Balance of the Certificate.
S-47
<PAGE> 50
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION - (CONTINUED)
<TABLE>
<CAPTION>
Distribution Date Class A-5 Class A-6 Class A-7
----------------- --------------------- -----------------------
<S> <C> <C> <C>
Initial Percentage..............
March 25, 1998..................
March 25, 1999..................
March 25, 2000..................
March 25, 2001..................
March 25, 2002..................
March 25, 2003..................
March 25, 2004..................
March 25, 2005..................
March 25, 2006..................
March 25, 2007..................
March 25, 2008..................
March 25, 2009..................
March 25, 2010..................
March 25, 2011..................
March 25, 2012..................
March 25, 2013..................
March 25, 2014..................
March 25, 2015..................
March 25, 2016..................
March 25, 2017..................
March 25, 2018..................
March 25, 2019..................
March 25, 2020..................
March 25, 2021..................
March 25, 2022..................
March 25, 2023..................
March 25, 2024..................
March 25, 2025..................
March 25, 2026..................
March 25, 2027..................
Weighted Average Life (years)*..
</TABLE>
- --------------------
* The weighted average life of a Certificate of any Class is determined
by (i) multiplying the amount of each distribution in reduction of the
related Certificate Principal Balance by the number of years from the
date of issuance of the Certificate to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the highest
related Certificate Principal Balance of the Certificate.
S-48
<PAGE> 51
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A form of
the Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the Prospectus is a part. The following
summaries together with the information in the Prospectus under the headings
"DESCRIPTION OF THE SECURITIES" and "THE AGREEMENTS" describe the material
provisions of the Agreement. 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. Wherever particular sections or defined terms of
the Agreement are referred to, such sections or defined terms are hereby
incorporated herein by reference.
GENERAL
The Class A Certificates will be issued in denominations of $25,000 and
integral multiples of $1,000 in excess thereof and will evidence specified
undivided interests in the Trust. The property of the Trust will consist of, to
the extent provided in the Agreement: (i) the Mortgage Loans; (ii) payments
received after the Cut-Off Date, other than payments of interest on the Initial
Mortgage Loans due on or before __________; (iii) Mortgaged Properties relating
to the Mortgage Loans that are acquired by foreclosure or deed in lieu of
foreclosure together with all collections thereon and proceeds thereof; (iv) the
Collection Account and the Distribution Account and such assets deposited
therein from time to time and any investment proceeds thereof; and (v) the
Initial Interest Coverage Account and Funding Account and funds on deposit
therein. In addition, the Seller has caused the Certificate Insurer to issue an
irrevocable and unconditional certificate guaranty insurance policy (the
"Policy") for the benefit of the Holders of the Senior Certificates pursuant to
which it will guarantee payments to such Senior Certificateholders as described
herein. Definitive Certificates (as defined under "DESCRIPTION OF THE
SECURITIES--Book-Entry Securities" in the Prospectus), if issued, will be
transferable and exchangeable at the corporate trust office of the Trustee,
which will initially act as Certificate Registrar. See "--Book-Entry
Certificates" below. No service charge will be made for any registration of
exchange or transfer of Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups ("Loan Group 1" and "Loan Group 2," respectively, and each a "Loan
Group"). Distributions on the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6 and Class S Certificates (collectively, the "Group 1
Certificates") will be calculated by reference to the Mortgage Loans assigned to
Loan Group 1. Distributions on the Class A-7 Certificates will be calculated by
reference to the Mortgage Loans assigned to Loan Group 2. The principal balance
of a Class of Class A Certificates (each, a "Class Principal Balance") on any
Distribution Date is equal to the applicable Class Principal Balance on the
Closing Date minus the aggregate of amounts actually distributed as principal to
the holders of such Class of Class A Certificates prior to such date. On any
date, the "Certificate Group Principal Balance" is the aggregate of the Class
Principal Balances of the Certificates in such Certificate Group on such date.
The Person in whose name a Certificate is registered as such in the
Certificate Register is referred to herein as a "Certificateholder."
The "Percentage Interest" of a Class A Certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of such Certificate by the Class Principal Balance for the related
Class of Class A Certificates as of the Cut-Off Date.
SEPARATE REMIC STRUCTURE
For federal income tax purposes, the Trust other than the Funding
Account and the Initial Interest Coverage Account created by the Agreement will
include two or more segregated asset pools, each of which will be treated as a
separate REMIC. The assets of REMIC I will generally consist of the Mortgage
Loans. The assets of each other
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<PAGE> 52
REMIC will generally consist of uncertified regular interests issued by a REMIC,
which in the aggregate will correspond to the Certificates.
BOOK-ENTRY CERTIFICATES
The Class A Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
the Class A Certificates ("Certificate Owners") will hold their Class A
Certificates through the Depository Trust Company ("DTC") in the United States,
or Cedel or Euroclear in Europe, if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates which equal
the aggregate principal balance of the Class A Certificates and will initially
be registered in the name of Cede & Co., the nominee of DTC. Cedel and Euroclear
will hold omnibus positions on behalf of their participants through customers"
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in customers"
securities accounts in the depositaries" names on the books of DTC. Citibank
will act as depositary for Cedel and Chase will act as depositary for Euroclear
(in such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing Certificate
Principal Balances of $25,000 and in integral multiples of $1,000 in excess
thereof. Unless and until Definitive Certificates are issued, it is anticipated
that the only "Certificateholder" of the Class A Certificates will be Cede &
Co., as nominee of DTC. Certificate Owners will not be Certificateholders as
that term is used in the Agreement. Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC. For a description
of the features of the book-entry registration system, see "DESCRIPTION OF THE
SECURITIES--Book-Entry Securities" in the Prospectus. For information with
respect to tax documentation procedures relating to the Certificates, see
"FEDERAL INCOME TAX CONSEQUENCES--Federal Income Tax Consequences to Foreign
Investors" and "--Backup Withholding" herein and "GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES--Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Neither the Seller, the Master Servicer nor the Trustee 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 Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
ASSIGNMENT OF MORTGAGE LOANS
On the Closing Date the Seller will transfer to the Trust all of its
right, title and interest in and to each Mortgage Loan, the related mortgage
note, mortgages and other related documents (collectively, the "Related
Documents"), including all payments received after the Cut-Off Date other than
payments of interest on the Initial Mortgage Loans due on or before ___________.
The Trustee, concurrently with such initial transfer, will deliver the
Certificates to the Seller. Each Mortgage Loan transferred to the Trust will be
identified on a schedule (the "Mortgage Loan Schedule") delivered to the Trustee
pursuant to the Agreement. Such schedule will include information as to the
Principal Balance of each Mortgage Loan as of the Cut-Off Date, as well as
information with respect to the Loan Rate.
The Agreement will require that, within the time period specified
therein, the Seller will deliver to the Trustee (or a custodian, as the
Trustee's agent for such purpose) the Mortgage Loans endorsed to the Trustee and
the Related Documents. In lieu of delivery of original mortgages, if such
original is not available, the Seller may deliver true and correct copies
thereof.
Under the terms of the Agreement, the Seller will promptly and in no
event later than 30 days after the Closing Date prepare and record assignments
of the mortgages related to each Mortgage Loan in favor of the
S-50
<PAGE> 53
Trustee (unless opinions of counsel satisfactory to the Rating Agencies and the
Certificate Insurer are delivered to the Trustee and the Certificate Insurer to
the effect that recordation of such assignments is not required in the relevant
jurisdictions to protect the interests of the Trustee in the Mortgage Loans). If
the recording information with respect to any assignment of Mortgage is
unavailable within 30 days of the Closing Date, such assignment will be prepared
and recorded within 30 days after receipt of such information, but in no event
later than one year after the Closing Date.
Within 30 days of the Closing Date the Trustee will review the Mortgage
Loans and the Related Documents pursuant to the Agreement and if any Mortgage
Loan or Related Document is found to be defective in any material respect (a
"Defective Mortgage Loan") and such defect is not cured within 90 days following
notification thereof to the Seller and the Representative by the Trustee, the
Representative will be obligated to either (i) cause an Eligible Substitute
Mortgage Loan to be substituted for such Mortgage Loan; however, such
substitution is permitted only within two years of the Closing Date and may not
be made unless an opinion of counsel is provided to the effect that such
substitution will not disqualify either REMIC as a REMIC or result in a
prohibited transaction tax under the Code or (ii) purchase such Mortgage Loan at
a price (the "Purchase Price") equal to the outstanding Principal Balance of
such Mortgage Loan as of the date of purchase, plus unpaid interest thereon from
the date interest was last paid or with respect to which interest was advanced
and not reimbursed through the end of the calendar month in which the purchase
occurred, computed at the Loan Rate, net of the Servicing Fee if the
Representative is the Master Servicer, plus if the Representative is not the
Master Servicer the amount of any unreimbursed Servicing Advances made by the
Master Servicer. The Purchase Price will be deposited in the Collection Account
on or prior to the next succeeding Determination Date after such obligation
arises. The obligation of the Representative to repurchase or substitute for a
Defective Mortgage Loan is the sole remedy regarding any defects in the Mortgage
Loans and Related Documents available to the Trustee or the Certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage
Loan, the Representative will be required to deposit in the Collection Account
on or prior to the next succeeding Determination Date after such obligation
arises an amount (the "Substitution Adjustment") equal to the excess of the
Principal Balance of the related Defective Mortgage Loan over the Principal
Balance of such Eligible Substitute Mortgage Loan.
An "Eligible Substitute Mortgage Loan" is a mortgage loan to be
substituted for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding principal balance after deducting all
scheduled principal payments due in the month of such substitution (or in the
case of a substitution of more than one Mortgage Loan for a Defective Mortgage
Loan, an aggregate Principal Balance), not in excess of, and not more than 5%
less than, the Principal Balance of the Defective Mortgage Loan; (ii) have a
Loan Rate not less than the Loan Rate of the Defective Mortgage Loan and not
more than 1% in excess of the Loan Rate of such Defective Mortgage Loan; (iii)
have a mortgage of the same or higher level of priority as the mortgage relating
to the Defective Mortgage Loan; (iv) have a remaining term to maturity not more
than six months earlier and not later than the remaining term to maturity of the
Defective Mortgage Loan; and (v) comply with each representation and warranty as
to the Mortgage Loans set forth in the Agreement (deemed to be made as of the
date of substitution).
The Representative will make certain representations and warranties as
to the accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-Off Date Principal Balance
and the Loan Rate). In addition, the Representative will represent and warrant,
on the Closing Date, that, among other things: (i) at the time of transfer to
the Trust, the Seller has transferred or assigned all of its right, title and
interest in each Mortgage Loan and the Related Documents, free of any lien; and
(ii) each Mortgage Loan complied, at the time of origination, in all material
respects with applicable state and federal laws. Upon discovery of a breach of
any such representation and warranty which materially and adversely affects the
interests of the Certificateholders or the Certificate Insurer in the related
Mortgage Loan and Related Documents, the Representative will have a period of 60
days after discovery or notice of the breach to effect a cure. If the breach
S-51
<PAGE> 54
cannot be cured within the 60-day period, the Representative will be obligated
to (i) cause an Eligible Substitute Mortgage Loan to be substituted for such
Mortgage Loan or (ii) purchase such Mortgage Loan from the Trust. The same
procedure and limitations that are set forth above for the substitution or
purchase of Defective Mortgage Loans as a result of deficient documentation
relating thereto will apply to the substitution or purchase of a Mortgage Loan
as a result of a breach of a representation or warranty in the Agreement that
materially and adversely affects the interests of the Certificateholders or the
Certificate Insurer.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The Master Servicer will establish and maintain in the name of the
Trustee a separate trust account (the "Collection Account") for the benefit of
the holders of the Certificates. The Collection Account will be an Eligible
Account (as defined herein). Subject to the investment provisions described in
the following paragraphs, upon receipt by the Servicer of amounts in respect of
the Mortgage Loans (excluding amounts representing the Servicing Fee,
reimbursement for Monthly Advances and Servicer Advances and insurance proceeds
to be applied to the restoration or repair of a Mortgaged Property or similar
items and amounts in respect of interest due on or before _________ __, 199__),
the Master Servicer will deposit, or cause the Sub-Servicer to deposit, such
amounts in the Collection Account. Amounts so deposited may be invested in
Eligible Investments (as described in the Agreement) maturing no later than one
Business Day prior to the date on which the amount on deposit therein is
required to be deposited in the Distribution Account or on such Distribution
Date if approved by the Rating Agencies and the Certificate Insurer.
The Trustee will establish an account (the "Distribution Account") into
which will be deposited amounts withdrawn from the Collection Account for
distribution to Certificateholders on each Distribution Date. The Distribution
Account will be an Eligible Account. Amounts on deposit therein (other than
Insured Payments) may be invested in Eligible Investments maturing on or before
the Business Day prior to the related Distribution Date.
An "Eligible Account" is a segregated account that is (i) maintained
with a depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies and whose
accounts are fully insured by either the Savings Association Insurance Fund
("SAIF") or the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation established by such fund with a minimum long-term unsecured debt
rating of A2 by Moody's and A by Standard & Poor's, and which is any of (A) a
federal savings and loan association duly organized, validly existing and in
good standing under the federal banking laws, (B) an institution duly organized,
validly existing and in good standing under the applicable banking laws of any
state, (C) a national banking association duly organized, validly existing and
in good standing under the federal banking laws, (D) a principal subsidiary of a
bank holding company, and in each case of (A)-(D) above, approved in writing by
the Certificate Insurer; (ii) a segregated trust account maintained with the
corporate trust department of a federal or state chartered depository
institution or trust company, having capital and surplus of not less than
$50,000,000, acting in its fiduciary capacity or (iii) otherwise acceptable to
each Rating Agency and the Certificate Insurer as evidenced by a letter from
each Rating Agency and the Certificate Insurer to the Trustee, without reduction
or withdrawal of the then current ratings of the Certificates.
Eligible Investments are specified in the Agreement and are limited to
investments which meet the criteria of the Rating Agencies from time to time as
being consistent with their then current ratings of the Certificates.
ADVANCES
Not later than the close of business on the Determination Date for each
Distribution Date, the Master Servicer will remit to the Trustee for deposit in
the Collection Account an amount, to be distributed on the related Distribution
Date, equal to the sum of the interest accrued on each Mortgage Loan through the
related Due Date but not received by the Master Servicer or the applicable
Sub-Servicer as of the close of business on the last day of the
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<PAGE> 55
related Due Period (net of the Servicing Fee) (the "Monthly Advance"). Such
obligation of the Master Servicer continues with respect to each Mortgage Loan
until such Mortgage Loan becomes a Liquidated Mortgage Loan.
In the course of performing its master servicing obligations, the
Master Servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (i) the preservation, restoration and protection
of the Mortgaged Properties, (ii) any enforcement or judicial proceedings,
including foreclosures, and (iii) the management and liquidation of Mortgaged
Properties acquired in satisfaction of the related Mortgage. Each such
expenditure will constitute a "Servicing Advance."
The Master Servicer's right to reimbursement for Servicing Advances is
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 or the applicable
Sub-Servicer from the related Mortgagor or otherwise relating to the Mortgage
Loan in respect of which such unreimbursed amounts are owed. The Master
Servicer's right to reimbursement for Monthly Advances is limited to late
collections of interest on any Mortgage Loan and to Liquidation Proceeds and
Insurance Proceeds on the related Mortgage Loan. The Master Servicer's right to
such reimbursements is prior to the rights of Certificateholders.
Notwithstanding the foregoing, the Master Servicer is not required to
make any Monthly Advance or Servicing Advance if in the good faith judgment and
sole discretion of the Master Servicer, the Master Servicer determines that such
advance will not be ultimately recoverable from collections received from the
Mortgagor in respect of the related Mortgage Loan or other recoveries in respect
of such Mortgage Loan (a "Nonrecoverable Advance"). However, if any Servicing
Advance or Monthly Advance is determined in good faith by the Master Servicer to
be non-recoverable from such sources, the amount of such Non-Recoverable
Advances may be reimbursed to the Master Servicer from other amounts on deposit
in the Collection Account.
DISTRIBUTION DATES
On each Distribution Date, the Holders of the Senior Certificates will
be entitled to receive, from amounts then on deposit in the Distribution
Account, to the extent of funds available therefor in accordance with the
priority and in the amounts described below under "--Distributions,"
distributions in an aggregate amount equal to the sum of (a) the related Class
Interest Distribution for each Class of Senior Certificates and (b) the Class A
Principal Distribution for each Certificate Group. Distributions will be made
(i) in immediately available funds to holders of Class A Certificates holding
Certificates the aggregate principal balance of which is at least $1,000,000, by
wire transfer or otherwise, to the account of such Certificateholder at a
domestic bank or other entity having appropriate facilities therefor, if such
Certificateholder has so notified the Trustee, or (ii) by check mailed to the
address of the person entitled thereto as it appears on the register (the
"Certificate Register") maintained by the Trustee as registrar (the "Certificate
Registrar").
DEPOSITS TO THE DISTRIBUTION ACCOUNT
No later than 11:00 a.m. (New York time) two Business Days prior to
each Distribution Date, the following amounts in respect of a Loan Group and the
related Due Period are required to be deposited into the Distribution Account
and will constitute the "Available Funds" for the related Certificate Group for
such Distribution Date: (i) scheduled and unscheduled payments of principal and
interest on the Mortgage Loans in such Loan Group (net of amounts representing
the Servicing Fee with respect to each Mortgage Loan in the related Loan Group
and reimbursement for related Monthly Advances and Servicing Advances); (ii) Net
Liquidation Proceeds and Insurance Proceeds with respect to the Mortgage Loans
in such Loan Group (net of amounts applied to the restoration or repair of a
Mortgaged Property); (iii) the Purchase Price for repurchased Defective Mortgage
Loans with respect to the Mortgage Loans in such Loan Group and any related
Substitution Adjustment Amounts; (iv)
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<PAGE> 56
payments from the Servicer in connection with (a) Monthly Advances, (b)
Prepayment Interest Shortfalls and (c) the termination of the Trust with respect
to the Mortgage Loans in such Loan Group as provided in the Agreement; (v) any
amounts paid under the Policy in respect of the related Certificate Group; (vi)
transfers from the Initial Interest Coverage Account of funds for the payment of
interest on the Class A Certificates; and (vii) in respect of the initial
Distribution Date, an amount equal to the amount by which the related
Certificate Group Principal Balance exceeds the aggregate Principal Balance of
all Mortgage Loans in such Loan Group of the related Cut-Off Date.
DISTRIBUTIONS
On each Distribution Date the Trustee will withdraw from the
Distribution Account the sum of (a) the Available Funds with respect to the
Group 1 Certificates and (b) the Available Funds with respect to the Group 2
Certificates (such sum, the "Amount Available"), and make the following
disbursements and transfers as described below and to the extent of the Amount
Available (except that amounts paid under the Policy will only be available for
distribution to Holders of the Senior Certificates):
A. With respect to the Group 1 Certificates, the Available Funds with
respect to such Certificate Group in the following order of priority:
(i) to the Trustee, the Trustee fee for Loan Group 1 for such
Distribution Date and to the Certificate Insurer, the amount owing to
the Certificate Insurer under the Insurance Agreement for the premium
payable in respect of the Group 1 Certificates;
(ii) concurrently to the Holders of the Class S, Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates,
an amount equal to the related Class Interest Distribution for such
Distribution Date;
(iii) to the Holders of the Class A-6 Certificates, the
product of (x) the applicable Priority Percentage and (y) the product
of (A) the Pro-Rata Percentage and (B) the Class A Principal
Distribution (other than the portion of the Class A Principal
Distribution constituting Distributable Excess Spread), until the Class
Principal Balance thereof is reduced to zero;
(iv) sequentially, to the Holders of the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and Class A-6 Certificates, in that
order, until the respective Class Principal Balance of each such Class
is reduced to zero, the remaining Class A Principal Distribution (other
than the portion of the Class A Principal Distribution constituting the
Distributable Excess Spread) for such Distribution Date; and
(v) to the Certificate Insurer, the amount owing to the
Certificate Insurer under the Insurance Agreement for reimbursement for
prior draws made on the Policy in respect of the Group 1 Certificates.
B. With respect to the Group 2 Certificates, the Available Funds with
respect to such Certificate Group in the following order of priority:
(i) to the Trustee, the Trustee fee for Loan Group 2 for such
Distribution Date and to the Certificate Insurer, the amount owing to
the Certificate Insurer under the Insurance Agreement for the premium
payable in respect of the Group 2 Certificates;
(ii) to the Holders of the Class A-7 Certificates, an amount
equal to the Class Interest Distribution for the Class A-7 Certificates
for such Distribution Date;
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<PAGE> 57
(iii) to the Holders of the Class A-7 Certificates, the
related Class A Principal Distribution for the Class A-7 Certificates
(other than the portion of the Class A Principal Distribution
constituting the Distributable Excess Spread) for such Distribution
Date; and
(iv) to the Certificate Insurer, the amount owing to the
Certificate Insurer under the Insurance Agreement for reimbursement for
prior draws made on the Policy in respect of the Group 2 Certificates.
C. On any Distribution Date, to the extent Available Funds for a
Certificate Group are insufficient to make the distributions specified in A or B
above, Available Funds for the other Certificate Group remaining after making
the distributions required to be made pursuant to A or B, as applicable, for
such other Certificate Group shall be distributed to the extent of such
insufficiency in accordance with the priorities for distribution set forth in
the subclause above with respect to the Certificate Group experiencing such
insufficiency.
D. The related remaining Available Funds, up to the related
Distributable Excess Spread for such Distribution Date as follows: (i) to the
Holders of the Class A-6 Certificates, the product of (x) the applicable
Priority Percentage, and (y) the product of (A) the Pro-Rata Percentage and (B)
the Distributable Excess Spread, until the Class Principal Balance thereof is
reduced to zero; and (ii) sequentially, to the Holders of the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates, in that order,
until the respective Class Principal Balance of each such Class is reduced to
zero.
E. To the Holders of the Class A-7 Certificates, to the extent of the
related Available Funds remaining, the related Distributable Excess Spread for
such Distribution Date, until the Class A-7 Principal Balance thereof is reduced
to zero.
F. After making the distributions referred to in subclauses A, B, C, D
and E above, the Trustee shall make distributions in the following order of
priority, to the extent of the balance of the Amount Available:
(i) (a) the excess of the related Distributable Excess Spread
over the amount thereof distributed pursuant to subclause D above as
follows: to the Holders of the Class A-6 Certificates, the product of
(x) the applicable Priority Percentage, (y) the Pro-Rata Percentage and
(z) such excess, until the Class Principal Balance thereof is reduced
to zero; and (ii) sequentially, to the Holders of the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates, in
that order, until the Class Principal Balance of each such Class is
reduced to zero, and (b) to the Holders of the Class A-7 Certificates,
until the Class Principal Balance thereof is reduced to zero, the
excess of the related Distributable Excess Spread for such Distribution
Date over the amount distributed to such Certificateholders pursuant to
subclause E above on such Distribution Date;
(ii) to the Master Servicer, the amount of any accrued and
unpaid Servicing Fee;
(iii) to the Master Servicer, the amount of Nonrecoverable
Advances not previously reimbursed;
(iv) to the Certificate Insurer, any other amounts owing to
the Certificate Insurer under the Insurance Agreement;
(v) to the Holders of the Class A-7 Certificates, the Class
A-7 Basis Risk Carryover Amount but only from and to the extent of
remaining Excess Spread from Loan Group 2; and
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<PAGE> 58
(vi) to the Holders of one or more Classes of Certificates
which are not offered hereby.
THE CERTIFICATE RATE
The Certificate Rate for each class of Fixed Rate Certificates is set
forth on the cover page hereof.
The Certificate Rate for the Class A-7 Certificates for the first
Distribution Date is ________% per annum. The Certificate Rate on any subsequent
Distribution Date with respect to the Class A-7 Certificates will equal the
lesser of (A) Class A-7 Formula Rate and (B) the Loan Group 2 Net Funds Cap for
such Distribution Date. The "Class A-7 Formula Rate" is the sum of the
Certificate Index as of the related LIBOR Determination Date plus _____ % (or
_____% for each Distribution Date occurring after the Optional Termination
Date.) The "Loan Group 2 Net Funds Cap" for any Distribution Date will equal the
product of (x) 360/365 and (y) the difference between (A) the weighted average
of the Loan Rates of the Loan Group 2 Mortgage Loans as of the first day of the
related Due Period, weighted on the basis of the related Principal Balances as
of such date and (B) the sum of (i) the Servicing Fee Rate and the rates at
which the Trustee fee and the premium payable to the Certificate Insurer with
respect to the Group 2 Certificates are calculated and (ii) commencing with the
thirteenth Distribution Date, _____% per annum.
With respect to each Distribution Date, the "Certificate Index" will
equal the interbank offered rate for one-month United States dollar deposits in
the London market as quoted on Telerate Page 3750 as of 11:00 A.M., London time,
on the second LIBOR Business Day prior to the first day of the related Interest
Period. "Telerate Page 3750" means the display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks). If
such rate does not appear on such page (or such other page as may replace that
page on that service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be selected by the
Trustee after consultation with the Servicer), the rate will be the Reference
Bank Rate. The "Reference Bank Rate" will be determined on the basis of the
rates at which deposits in U.S. Dollars are offered by the reference banks
(which shall be three major banks that are engaged in transactions in the London
interbank market, selected by the Trustee after consultation with the Servicer)
as of 11:00 A.M., London time, on the day that is two LIBOR Business Days prior
to the immediately preceding Distribution Date to prime banks in the London
interbank market for a period of one month in amounts approximately equal to the
sum of the Class Principal Balance of the Variable Rate Certificates then
outstanding. The Trustee will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Trustee after consultation with the Servicer, as
of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the sum of the Class Principal Balances of the Variable Rate Certificates
then outstanding. If no such quotations can be obtained, the rate will be LIBOR
for the prior Distribution Date. "LIBOR Business Day" means any day other than
(i) a Saturday or a Sunday or (i) a day on which banking institutions in the
State of New York or in the city of London, England are required or authorized
by law to be closed.
The Certificate Rate on any Distribution Date for the Class S
Certificates will equal the average of the Strip Rates, weighted on the basis of
the Class Principal Balances of the related Classes of Group 1 Certificates
immediately prior to such Distribution Date. The Strip Rates are as follows:
<TABLE>
<CAPTION>
Class Strip Rate
------ ----------
<S> <C>
A-1 %
A-2 %
</TABLE>
S-56
<PAGE> 59
<TABLE>
<S> <C>
A-3 %
A-4 %
A-5 %
A-6 %
</TABLE>
The "Interest Period" means, with respect to each Distribution Date and
the Fixed Rate Certificates, the period from the first day of the calendar month
preceding the month of such Distribution Date through the last day of such
calendar month. Interest on the Fixed Rate Certificates in respect of any
Distribution Date will accrue during the related Interest Period on the basis of
a 360-day year consisting of twelve 30-day months.
The "Interest Period" means, with respect to each Distribution Date and
the Variable Rate Certificates, the period from the Distribution Date in the
month preceding the month of such Distribution Date (or, in the case of the
first Distribution Date, from the Closing Date) through the day before such
Distribution Date. Interest on the Variable Rate Certificates in respect of any
Distribution Date will accrue during the related Interest Period on the basis of
a 360-day year and the actual number of days elapsed.
The "Class A-7 Basis Risk Carryover Amount" as of any Distribution Date
is equal to the sum of (A) if on such Distribution Date the Certificate Rate for
the Class A-7 Certificates is based upon the Loan Group 2 Net Funds Cap, the
excess of (i) the amount of interest the Class A-7 Certificates would otherwise
be entitled to receive on such Distribution Date had such rate been calculated
at the applicable Class A-7 Formula Rate for such Distribution Date over (ii)
the amount of interest payable on the Class A-7 Certificates at the Loan Group 2
Net Funds Cap for such Distribution Date and (B) the Class A-7 Basis Risk
Carryover Amount for all previous Distribution Dates not previously paid
together with interest thereon at a rate equal to the applicable Class A-7
Formula Rate for such Distribution Date. The Policy does not cover the payment,
nor do the ratings assigned to the Class A-7 Certificates address the likelihood
of the payment, of any Class A-7 Basis Risk Carryover Amount.
INTEREST
With respect to any Distribution Date, the amount of interest to be
distributed on the Senior Certificates, to the extent of funds available
therefor in accordance with the priorities described above under
"--Distributions," is the sum of the Class Interest Distributions for each Class
of Senior Certificates. For each Distribution Date and each class of Senior
Certificates, the "Class Interest Distribution" is the sum of (a) interest for
the related Interest Period at the related Certificate Rate on the related Class
Principal Balance or, in the case of the Class S Certificates, the Notional
Balance (the "Class Monthly Interest Distributable Amount") and (b) any Class
Interest Carryover Shortfall for such Class of Senior Certificates for such
Distribution Date. As to any Distribution Date and Class of Senior Certificates,
"Class Interest Carryover Shortfall" is the sum of (i) the excess of the related
Class Monthly Interest Distributable Amount for the preceding Distribution Date
and any outstanding Class Interest Carryover Shortfall with respect to such
Class on such preceding Distribution Date, over the amount in respect of
interest that is actually distributed to the Holders of such Class on such
preceding Distribution Date plus (ii) one month's interest on such excess, to
the extent permitted by law, at the related Certificate Rate. The interest
entitlement described in (a) above will be reduced by such Class" pro rata share
of Civil Relief Act Interest Shortfalls, if any, for such Distribution Date.
Civil Relief Act Interest Shortfalls will not be covered by payments under the
Policy. The Class Monthly Interest Distributable Amount does not include any
Class A-7 Basis Risk Carryover Amount.
On each Distribution Date, the Class Interest Distribution for each
Class of Senior Certificates in a Certificate Group will be distributed on an
equal priority and any shortfall in the amount required to be distributed as
interest thereon to each such Class will be allocated between such Classes pro
rata based on the amount that would have been distributed on each such Class in
the absence of such shortfall.
PRINCIPAL
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<PAGE> 60
"Class A Principal Distribution" means, with respect to any
Distribution Date and Certificate Group, the sum of the related Class A Monthly
Principal Distributable Amount for such Distribution Date and any Class A
Principal Shortfall for such Distribution Date; provided, however, that the
Class A Principal Distribution will not exceed the related Certificate Group
Principal Balance. On any Distribution Date, the Class A Principal Distribution
will be distributed as described below.
"Class A Monthly Principal Distributable Amount" means, with respect to
any Distribution Date and Certificate Group, to the extent of funds available
therefor as described herein, the amount equal to the sum of the following
amounts (without duplication) with respect to the immediately preceding Due
Period (as defined below): (i) each payment of principal on a Mortgage Loan in
the related Loan Group received by the Master Servicer or a Sub-Servicer during
such Due Period, including all full and partial principal prepayments, (ii) the
Principal Balance as of the end of the immediately preceding Due Period of each
Mortgage Loan in the related Loan Group that became a Liquidated Mortgage Loan
for the first time during the related Due Period, (iii) the portion of the
Purchase Price allocable to principal of all repurchased Defective Mortgage
Loans in the related Loan Group with respect to such Due Period, (iv) any
Substitution Adjustment Amounts received on or prior to the previous
Determination Date and not yet distributed with respect to the related Loan
Group, (v) the amount, if any, required to be distributed on such Distribution
Date to satisfy the required level of overcollateralization for the related Loan
Group for such Distribution Date (the "Distributable Excess Spread") and (vi)
with respect to the initial Distribution Date, the amount by which the related
Certificate Group Principal Balance exceeds the aggregate Principal Balance of
the Mortgage Loans in the related Loan Group as of the Cut-Off Date.
If the required level of overcollateralization for a Certificate Group
is reduced below the then existing amount of overcollateralization (described
below) or if the required level of overcollateralization is satisfied, the
amount of the Class A Monthly Principal Distributable Amount for such
Certificate Group will be correspondingly reduced by the amount of such
reduction or by the amount necessary such that the overcollateralization will
not exceed the required level of overcollateralization after giving effect to
the distribution in respect of principal to be made on such Distribution Date.
"Class A Principal Shortfall Amount" means for any Distribution Date and
Certificate Group, the amount, if any, by which the related Certificate Group
Principal Balance exceeds the related Loan Group Principal Balance at the end of
the related Due Period after giving effect to all distributions of the related
Class A Monthly Principal Distributable Amount (exclusive of Distributable
Excess Spread) and draws under the Policy for such Distribution Date.
The application of Excess Spread to a Certificate Group as described
below is intended to create overcollateralization to provide a source of
additional cashflow to cover losses on the Mortgage Loans. If the amount of
losses in a particular Due Period exceeds the amount of Excess Spread for the
related Distribution Date, the amount distributed in respect of principal will
be reduced. A draw on the Policy in respect of principal will not be made until
the Certificate Group Principal Balance for a Certificate Group exceeds the
aggregate Principal Balance of the Mortgage Loans in the related Loan Group. See
"--The Policy" herein. Accordingly, there may be Distribution Dates on which
Class A Certificateholders receive little or no distributions in respect of
principal.
On each Distribution Date following an Insurer Default, net losses
realized in respect of Mortgage Loans as to which the Master Servicer has
determined that all amounts which it expects to receive have been received will
first reduce the amount of overcollateralization. In addition, on any
Distribution Date if an Insurer Default has occurred and is continuing, the
Class A Principal Distribution with respect to the Group 1 Certificates will be
applied to the distribution of principal of each such Class outstanding on a pro
rata basis in accordance with the Class Principal Balance of each such Class.
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<PAGE> 61
The "Priority Amount" for any Distribution Date will equal the product
of (i) the applicable Priority Percentage, and (ii) the product of (a) the
percentage equivalent of a fraction, the numerator of which is the Class
Principal Balance of the Class A-6 Certificates and the denominator of which is
the Certificate Group Principal Balance of Certificate Group 1 (the "Pro-Rata
Percentage") and (b) the Class A Principal Distribution for Certificate Group 1
for such Distribution Date. The "Priority Percentage" for any Distribution Date
will be as follows:
<TABLE>
<CAPTION>
Distribution Dates Priority Percentage
------------------ -------------------
<S> <C>
______________-___________________ %
______________-___________________ %
______________-___________________ %
______________-___________________ %
__________________________________ %
</TABLE>
"Due Period" means, (a) with respect to the first Determination Date
(i) for collections of principal the period from and including _________, 199__
through and including _______ __, 199__ and (ii) for collections of interest the
period from and including __________, 199__ through and including ________ __,
199__ and (b) with respect to each Determination Date thereafter for collections
of both interest and principal the period from and including the sixteenth day
of the month preceding the month of such Determination Date to and including the
fifteenth day of the month of such Determination Date.
A "Liquidated Mortgage Loan," as to any Distribution Date, is a
Mortgage Loan with respect to which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Agreement, as of the
end of the preceding Due Period, that all Liquidation Proceeds which it expects
to recover with respect to such Mortgage Loan (including the disposition of the
related REO) have been received.
"Excess Spread" means, with respect to any Distribution Date and Loan
Group, the positive excess, if any, of (x) Available Funds (as defined herein)
for the related Certificate Group for such Distribution Date over (y) the
portion thereof required to be distributed pursuant to subclauses A and C with
respect to the Group 1 Certificates and subclauses B and C with respect to the
Group 2 Certificates, in each case as set forth under the heading "DESCRIPTION
OF CERTIFICATES--Distributions" on such Distribution Date.
An "Insurer Default" will occur in the event the Certificate Insurer
fails to make a payment required under the Policy or if certain events of
bankruptcy or insolvency occur with respect to the Certificate Insurer.
THE POLICY
The following information 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 Policy, thereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Insured
Payment will be received by [NAME OF TRUSTEE], or its successor, as trustee for
the Owners (the "Trustee"), 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 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 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.
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<PAGE> 62
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability), any Civil Relief Act Interest Shortfalls or any
Class A-7 Basis Risk Carryover Amount.
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
Fiscal Agent (as described below) 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 Senior Certificates against the
debtor that 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 Owners and not any Owner directly
unless such Owner has returned principal or interest paid on the Senior
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
Policy no later than 12:00 noon, New York City time, on the later of the
Distribution Date on which the related Deficiency Amount is due or the second
Business Day following receipt in New York, New York on a Business Day by
[________________________], as Fiscal Agent for the Certificate Insurer or any
successor fiscal agent appointed by the Certificate Insurer (the "Fiscal Agent")
of a Notice (as described below); provided that if such Notice is received after
12:00 noon, New York City time, on such Business Day, it will be deemed to be
received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making a claim under the Policy, it shall be deemed not to have been received
by the Fiscal Agent for purposes of this paragraph, and the Certificate Insurer
or the 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 Policy unless otherwise stated therein
will be disbursed by the 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 Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to the Owners for any acts of the
Fiscal Agent or any failure of the Certificate Insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement, dated as of
________ __, 199__, among Avco ABS Receivables Corp., as Seller, Avco Financial
Services Management Company, as Master Servicer and Representative, and the
Trustee, as trustee, without regard to any amendment or supplement thereto
unless such amendment or modification has been approved in writing by the
Certificate Insurer.
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<PAGE> 63
"Business Day" means any day other than a Saturday, a Sunday or a day
on which the Certificate Insurer or banking institutions in New York City or the
city in which either the corporate trust office of the Trustee under the
Agreement is located are authorized or obligated by law or executive order to
close.
"Deficiency Amount" means for any Distribution Date the excess, if any,
of (A) (i) Class Monthly Interest Distributable Amount for each Class of Senior
Certificates (net of any Civil Relief Act Interest Shortfalls with respect to
the related Loan Group) plus any Class Interest Carryover Shortfall for each
Class of Senior Certificates and (ii) the Guaranteed Principal Amount over (B)
Available Funds with respect to the related Loan Group (after giving effect to
the cross-collateralization provisions in Section 5.01 (a)(iii) of the Agreement
and without regard to any Insured Payments to be made as of such Distribution
Date). The Policy will not cover payment of any Class A-7 Basis Risk Carryover
Amount.
"Guaranteed Principal Amount" means for any Distribution Date (a) the
amount, if any, by which the Certificate Group Principal Balance of each
Certificate Group exceeds the related Loan Group Principal Balance at the end of
the previous month (after giving effect to all distributions of principal on the
related Class A Certificates on such Distribution Date) and (b) with respect to
the Group 1 Certificates and the Group 2 Certificates, on the Distribution Date
in _____ ___ (after giving effect to all other distributions of principal on the
Group 1 Certificates and the Group 2 Certificates, respectively), an amount
equal to the applicable Certificate Group Principal Balance.
"Insured Payment" means (i) as of any Distribution Date, any Deficiency
Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing (in the case of a telephonic notice) by telecopy, substantially in
the form of Exhibit A attached to the 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 Holder (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Senior Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the Senior 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 Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policy, without giving effect to any subsequent
amendment or modification to the Agreement unless such amendment or modification
has been approved in writing by the Certificate Insurer.
Any notice under the Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Certificate Insurer shall specify to the Trustee in writing.
The notice address of the Fiscal Agent is ___________________________,
Attention: Municipal Registrar and Paying Agency, or such other address as the
Fiscal Agent shall specify to the Trustee in writing.
The 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.
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<PAGE> 64
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy
is not refundable for any reason including payment, or provision being made for
payment, prior to the maturity of the Class A Certificates.
OVERCOLLATERALIZATION PROVISIONS
The Agreement requires that, on each Distribution Date, the Excess
Spread will be applied on such Distribution Date as an accelerated payment of
principal on the Class or Classes of Class A Certificates then entitled to a
distribution of the Class A Principal Distribution. This has the effect of
accelerating the amortization of the Class A Certificates in the related
Certificate Group relative to the amortization of the Mortgage Loans in the
related Loan Group.
The required level of overcollateralization will be satisfied as of
each Distribution Date when the aggregate of the Principal Balances of the
Mortgage Loans in a Loan Group at the end of the previous Due Period exceeds the
related Certificate Group Principal Balance after distribution of principal on
the related Distribution Date by an amount specified in the Agreement.
Thereafter, the level of overcollateralization necessary to satisfy the required
level of overcollateralization may be increased or decreased from time to time
based on the loss and delinquency experience of the Mortgage Loans in accordance
with the provisions of the Agreement. In addition, the required level of
overcollateralization may be decreased, in the sole discretion of the
Certificate Insurer and with the prior consent of each Rating Agency, as low as
zero, which would have the effect of reducing the amortization of the Class A
Certificates below what it otherwise would have been.
CROSSCOLLATERALIZATION PROVISIONS
Certain Available Funds with respect to each Loan Group will be
available to cover certain shortfalls and to create overcollateralization with
respect to the Class A Certificates relating to the other Loan Group as
described above under the caption "--Distributions."
INITIAL INTEREST COVERAGE ACCOUNT
On the Closing Date cash will be deposited in the Initial Interest
Coverage Account, which account will be in the name of and maintained by the
Trustee and will be part of the Trust. The amount on deposit in the Initial
Interest Coverage Account, including reinvestment income thereon, will be used
by the Trustee to fund, on the initial Distribution Date, the amount of interest
accruing at the weighted average Certificate Rate of all Senior Certificates on
the amount by which the aggregate Class Principal Balance of the Class A
Certificates as of the Closing Date exceeds the Cut-Off Date Principal Balance
of the Initial Mortgage Loans. Any amounts remaining in the Initial Interest
Coverage Account after the initial Distribution Date and not needed for such
purpose will be paid to the Seller and will not thereafter be available for
distribution to the Holders of the Class A Certificates. The Initial Interest
Coverage Account will terminate immediately following the first Distribution
Date.
Amounts on deposit in the Initial Interest Coverage Account will be
invested in Eligible Investments. The Initial Interest Coverage Account will not
be an asset of any REMIC.
FUNDING ACCOUNT
On the Closing Date, it is expected that each Maximum Funding Amount of
Subsequent Mortgage Loans will be transferred to the Trust for Loan Group 1 and
Loan Group 2, respectively. See "DESCRIPTION OF THE
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<PAGE> 65
MORTGAGE LOANS--Conveyance of Subsequent Mortgage Loans." In the event that less
than such amounts of Subsequent Mortgage Loans are transferred to the Trust for
each Loan Group, respectively, an aggregate cash amount equal to the excess of
the applicable Maximum Funding Amount over the aggregate Cut-Off Date Principal
Balances of the related Subsequent Mortgage Loans for such Loan Groups,
respectively, will be deposited by the Seller in an account which will be in the
name of, and maintained by, the Trustee on behalf of the Trust (the "Funding
Account"). Any amounts on deposit in the Funding Account in respect of each Loan
Group will be transferred by the Trustee on the first Distribution Date into the
Distribution Account, and will be distributed as a principal prepayment to
Certificateholders of the related Certificate Group then entitled to
distributions of principal. See "RISK FACTORS--The Subsequent Mortgage Loans"
and "PREPAYMENT AND YIELD CONSIDERATIONS." Any reinvestment income earned on
amounts on deposit in the Funding Account is required to be paid to the Seller.
The Funding Account will terminate immediately after the first Distribution Date
and will not be an asset of any REMIC.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to Certificateholders, the Trustee
will forward to each Certificateholder a statement setting forth, among other
items:
(i) the aggregate amount of the distribution to each Class of
Certificates on such Distribution Date;
(ii) the amount of the distribution set forth in paragraph (i)
above in respect of interest and the amount thereof in respect of any
Class Interest Carryover Shortfall, and the amount of any Class
Interest Carryover Shortfall remaining;
(iii) the amount of the distribution set forth in paragraph
(i) above in respect of principal and the amount thereof in respect of
the Class A Principal Carryover Shortfall, and any remaining Class A
Principal Carryover Shortfall;
(iv) the amount of Distributable Excess Spread for each Loan
Group paid as principal;
(v) the Guaranteed Principal Amount for such Distribution
Date;
(vi) the amount paid under the Policy for such Distribution
Date in respect of the Class Interest Distribution of each Class of
Senior Certificates and the portion of the Guaranteed Principal Amount
paid to the Class A Certificates;
(vii) the Servicing Fee;
(viii) the Pool Principal Balance, the Loan Group 1 Principal
Balance and the Loan Group 2 Principal Balance, in each case as of the
close of business on the last day of the preceding Due Period;
(ix) the Certificate Group Principal Balance of each
Certificate Group and Class Principal Balance of each Class of Class A
Certificates in the Certificate Group after giving effect to payments
allocated to principal above;
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<PAGE> 66
(x) the amount of overcollateralization relating to each Loan
Group as of the close of business on the Distribution Date, after
giving effect to distributions of principal on such Distribution Date;
(xi) the number and aggregate Principal Balances of the
Mortgage Loans as to which the minimum monthly payment is delinquent
for 30-59 days, 60-89 days and 90 or more days, respectively, as of the
end of the preceding month;
(xii) the book value of any real estate which is acquired by
the Trust through foreclosure or grant of deed in lieu of foreclosure;
(xiii) the amounts of net losses for such Due Period and the
cumulative amount of net losses to date;
(xiv) the weighted average Loan Rate on the Mortgage Loans and
specifying such weighted average Loan Rate for each Loan Group as of
the first day of the month prior to the Distribution Date; and
(xv) the Certificate Rate on the Variable Rate Certificates
for such Distribution Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as a dollar amount per Certificate with a
$1,000 denomination.
Within 60 days after the end of each calendar year, the Trustee will
forward to each Person, if requested in writing by such Person, who was a
Certificateholder during the prior calendar year a statement containing the
information set forth in clauses (ii) and (iii) above aggregated for such
calendar year.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date for each Class of Class A
Certificates is set forth under "SUMMARY--Final Scheduled Distribution Dates"
herein. The Final Scheduled Distribution Dates for the Class A Certificates
(other than the Class A-5, Class A-6 and Class A-7 Certificates) are based on a
0% Prepayment Assumption with no Excess Spread used to make accelerated payments
of principal to the holders of the related Class A Certificates and the
assumptions set forth above under "PREPAYMENT AND YIELD CONSIDERATIONS--Weighted
Average Lives." The Final Scheduled Distribution Date for the Class A-5, Class
A-6 and Class A-7 Certificates is the ___th Distribution Date after the month of
the latest maturing Mortgage Loan in either Loan Group. It is expected that the
last actual Distribution Date for each Class of Class A Certificates will occur
significantly earlier than such Final Scheduled Distribution Dates. See
"PREPAYMENT AND YIELD CONSIDERATIONS."
SERVICING COMPENSATION, PAYMENT OF EXPENSES AND PREPAYMENT INTEREST SHORTFALLS
With respect to each Due Period, the Master Servicer will receive from
interest payments in respect of the Mortgage Loans a portion of such interest
payments as a monthly Servicing Fee in the amount equal to_____% per annum (the
"Servicing Fee Rate") on the Principal Balance of each Mortgage Loan as of the
first day of each such Due Period. All assumption fees, late payment charges and
other fees and charges, to the extent collected from borrowers, will be retained
by the Master Servicer as additional servicing compensation. The Master Servicer
will pay any fees due the Sub-Servicers from the Servicing Fee.
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The Master Servicer's right to reimbursement for unreimbursed Servicing
Advances is 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 Master Servicer's right to reimbursement
for unreimbursed Monthly Advances shall be limited to late collections of
interest on any Mortgage Loan and to Liquidation Proceeds and Insurance Proceeds
on the related Mortgage Loan. The Master Servicer's right to such reimbursements
is prior to the rights of Certificateholders. However, if any Servicing Advance
or Monthly Advance is determined by the Master Servicer to be non-recoverable
from such sources, the amount of such non-recoverable advances may be reimbursed
to the Master Servicer from other amounts on deposit in the Collection Account.
Not later than the Determination Date, the Master Servicer is required
to remit to the Trustee, without any right of reimbursement, an amount equal to,
with respect to each Mortgage Loan as to which a principal prepayment in full
was received during the related Due Period, the lesser of (a) the excess, if
any, of the sum of 30 days" interest on the Principal Balance of such Mortgage
Loan at the Loan Rate (or at such lower rate as may be in effect for such
Mortgage Loan because of application of the Civil Relief Act) minus the sum of
the Servicing Fees for such Mortgage Loan, over the amount of interest actually
paid by the related Mortgagor in connection with such principal prepayment (with
respect to all such Mortgage Loans, the "Prepayment Interest Shortfall") and (b)
the sum of the Servicing Fees received by the Master Servicer in the most
recently ended Due Period.
Civil Relief Act Interest Shortfalls will not be covered by the Policy,
although Prepayment Interest Shortfalls, after application of the Servicing Fee,
will be so covered. The Servicer is not obligated to offset any of the Servicing
Fee against, or to provide any other funds to cover, any Civil Relief Act
Interest Shortfalls. See "RISK FACTORS--Payments on the Mortgage Loans" in this
Prospectus Supplement.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery on or before the last business day
of the fifth month following the end of each fiscal year of the Master Servicer,
beginning in 199__, to the Trustee, the Certificate Insurer and the Rating
Agencies of an annual statement signed by an officer of the Master Servicer to
the effect that the Master Servicer has fulfilled its material obligations under
the Agreement throughout the preceding fiscal year, except as specified in such
statement.
On or before the last business day of the fifth month following the end
of each fiscal year of the Master Servicer, beginning in 199__, the Master
Servicer will furnish a report prepared by a firm of nationally recognized
independent public accountants (who may also render other services to the Master
Servicer or the Sub-Servicers) to the Trustee, the Certificate Insurer and the
Rating Agencies to the effect that such firm has examined certain documents and
the records relating to servicing of the Mortgage Loans under the Uniform Single
Attestation Program for Mortgage Bankers and such firm's conclusion with respect
thereto.
The Master Servicer's fiscal year is the calendar year.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Agreement provides that the Master Servicer may not resign from its
obligations and duties thereunder, except in connection with a permitted
transfer of servicing, unless (i) such duties and obligations are no longer
permissible under applicable law as evidenced by an opinion of counsel delivered
to the Certificate Insurer or (ii) upon the satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor master servicer to
the Trustee in writing and such proposed successor master servicer is reasonably
acceptable to the Trustee; (b) the Rating Agencies have confirmed to the Trustee
that the appointment of such proposed successor
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master servicer as the Master Servicer will not result in the reduction or
withdrawal of the then current rating of the Certificates; and (c) such proposed
successor master servicer is reasonably acceptable to the Certificate Insurer.
No such resignation will become effective until the Trustee or a successor
master servicer has assumed the Master Servicer's obligations and duties under
the Agreement.
The Master Servicer will enter into Sub-Servicing Agreements with the
Originators pursuant to which each Originator will sub-service the Mortgage
Loans originated or purchased by it. Notwithstanding any such arrangement, the
Master Servicer will remain liable and obligated to the Trustee and the
Certificateholders for the Master Servicer's duties and obligations under the
Agreement, without any diminution of such duties and obligations and as if the
Master Servicer itself were performing such duties and obligations.
Any corporation into which the Master 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 corporation
succeeding to the business of the Master Servicer shall be the successor of the
Master Servicer under the Agreement, without the execution or filing of any
paper or any further act on the part of any of the parties to the Agreement,
anything in the Agreement to the contrary notwithstanding.
EVENTS OF DEFAULT
"Events of Default" will consist of: (i) (A) any failure by the Master
Servicer to make any required Monthly Advance or (B) any other failure of the
Master Servicer to deposit in the Collection Account or the Distribution Account
any deposit required to be made under the Agreement, which failure continues
unremedied for three Business Days after payment was required to be made; (ii)
any failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Agreement which, in each
case, materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer and continues unremedied for 30 days after knowledge
or the giving of written notice of such failure to the Master Servicer by the
Trustee, or to the Master Servicer and the Trustee by the Certificate Insurer or
Certificateholders evidencing at least 25% of the Voting Rights; (iii) any
failure by the Master Servicer to make any required Servicing Advance, which
failure continues unremedied for a period of 30 days after knowledge or the
giving of written notice of such failure to the Master Servicer by the Trustee,
or to the Master Servicer and the Trustee by the Certificate Insurer or
Certificateholders evidencing at least 25% of the Voting Rights; and (iv)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings relating to the Master Servicer and certain
actions by the Master Servicer indicating insolvency, reorganization or
inability to pay its obligations.
If any Monthly Advance is not made by 12:00 noon, New York City time, on
the second Business Day preceding the applicable Distribution Date, the Trustee
or a successor Master Servicer will immediately assume the duties of the Master
Servicer.
Upon removal or resignation of the Master Servicer, the Trustee will be
the successor master servicer (the "Successor Master Servicer "). The Trustee,
as Successor Master Servicer, will be obligated to make Monthly Advances and
Servicing Advances unless it determines reasonably and in good faith that such
advances would not be recoverable. If, however, the Trustee is unwilling or
unable to act as Successor Master Servicer, or if the majority of
Certificateholders (with the consent of the Certificate Insurer) or the
Certificate Insurer so requests, the Trustee may appoint, or petition a court of
competent jurisdiction to appoint, subject to the approval of the Certificate
Insurer, any established mortgage loan servicing institution acceptable to the
Certificate Insurer having a net worth of not less than $25,000,000 as the
Successor Master Servicer in the assumption of all or any part of the
responsibilities, duties or liabilities of the Master Servicer.
In addition, the Certificate Insurer may terminate the Master Servicer
upon the occurrence of a Trigger Event. Trigger Events will consist of, among
other things, (i) any failure by the Master Servicer to pay when due
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any amount payable by it under the Agreement or the Insurance Agreement which
results in a drawing under the Policy, (ii) failure of the Master Servicer to
satisfy certain financial tests; and (iii) the loss and delinquency performance
of the Mortgage Loans exceeding certain levels.
RIGHTS UPON AN EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the Trustee,
Certificateholders holding Certificates evidencing at least 51% of the Voting
Rights in the Trust (with the consent of the Certificate Insurer) or the
Certificate Insurer may terminate all of the rights and obligations of the
Master Servicer under the Agreement and in and to the Mortgage Loans, whereupon
the Trustee will succeed to all the responsibilities, duties and liabilities of
the Master Servicer under the Agreement and will be entitled to similar
compensation arrangements. In the event that the Trustee would be obligated to
succeed the Master Servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
housing and home finance institution or other mortgage loan or home equity loan
servicer with all licenses and permits required to perform its obligations under
the Agreement and having a net worth of at least $25,000,000 and acceptable to
the Certificate Insurer to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee will be obligated to act in
such capacity unless prohibited by law. Such successor will be entitled to
receive the same compensation that the Master Servicer would otherwise have
received (or such lesser compensation as the Trustee and such successor may
agree). A receiver or conservator for the Master Servicer may be empowered to
prevent the termination and replacement of the Master Servicer if the only Event
of Default that has occurred is an Insolvency Event.
AMENDMENT
The Agreement may be amended from time to time by the Seller, the
Master Servicer, the Representative and the Trustee and with the consent of the
Certificate Insurer, but without the consent of the Certificateholders, to cure
any ambiguity, to correct or supplement any provisions therein which may be
inconsistent with any other provisions of the Agreement, to add to the duties of
the Master Servicer to comply with any requirements imposed by the Internal
Revenue Code or any regulation thereunder, or to add or amend any provisions of
the Agreement as required by the Rating Agencies in order to maintain or improve
any rating of the Senior Certificates (it being understood that, after obtaining
the ratings in effect on the Closing Date, none of the Seller, the Trustee, the
Certificate Insurer or the Master Servicer is obligated to obtain, maintain, or
improve any such rating) or to add any other provisions with respect to matters
or questions arising under the Agreement which shall not be inconsistent with
the provisions of the Agreement, provided that such action will not, as
evidenced by an opinion of counsel, materially and adversely affect the
interests of any Certificateholder or the Certificate Insurer; provided, that
any such amendment will not be deemed to materially and adversely affect the
Certificateholders and no such opinion will be required to be delivered if the
person requesting such amendment obtains a letter from the Rating Agencies
stating that such amendment would not result in a downgrading of the then
current rating of the Senior Certificates. The Agreement may also be amended
from time to time by the Seller, the Master Servicer, the Representative and the
Trustee, with the consent of Certificateholders holding Certificates evidencing
at least 51% of the Voting Rights of each Class affected thereby (or 51% of all
of the Voting Rights if all Classes are affected) and the Certificate Insurer,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or of modifying in any manner
the rights of the Certificateholders, provided that no such amendment will (i)
reduce in any manner the amount of, or delay the timing of, collections of
payments on the Certificates or distributions or payments under the Policy which
are required to be made on any Certificate without the consent of the
Certificateholder or (ii) reduce the aforesaid percentage required to consent to
any such amendment, without the consent of the holders of all Senior
Certificates then outstanding.
TERMINATION; PURCHASE OF MORTGAGE LOANS
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The Trust will terminate on the Distribution Date following the later
of (A) payment in full of all amounts owing to the Certificate Insurer unless
the Certificate Insurer shall otherwise consent and (B) the earliest of (i) the
Distribution Date on which the aggregate Class Principal Balance of the Class A
Certificates has been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Master Servicer of the Mortgage Loans, as described below and (iv) the
Distribution Date in __________, on which date the Policy will be available to
pay the Group Principal Balance of the outstanding Group 1 Certificates and the
Group 2 Certificates.
Subject to provisions in the Agreement concerning adopting a plan of
complete liquidation, the Master Servicer may, at its option, terminate the
Agreement on any Distribution Date following the Due Period during which the
aggregate Principal Balance of the Mortgage Loans is less than 10% of the sum of
the Principal Balances of the Initial Mortgage Loans and Subsequent Mortgage
Loans as of the Cut-Off Date (the "Optional Termination Date") by purchasing all
of the outstanding Mortgage Loans and REO Properties at a price equal to the sum
of the outstanding Pool Balance (subject to reduction of the purchase price
based in part on the appraised value of any REO Property included in the Trust
if such appraised value is less than the Principal Balance of the related
Mortgage Loan, as provided in the Agreement) and accrued and unpaid interest
thereon at the weighted average of the Loan Rates through the end of the related
Due Period together with all amounts due and owing to the Certificate Insurer.
Any such purchase shall be accomplished by deposit into the Collection
Account of the purchase price specified above.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
The Master Servicer has the option to purchase from the Trust any
Mortgage Loan 90 days or more delinquent at a purchase price equal to the
outstanding 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
Loan Rate.
Notwithstanding the foregoing, unless the Certificate Insurer consents,
the Master Servicer may only exercise its option with respect to the Mortgage
Loan or Mortgage Loans that have been delinquent for the longest period at the
time of such repurchase. If the Certificate Insurer fails to respond to the
Master Servicer 's request for consent within 10 Business Days after receipt
thereof, the Master Servicer may repurchase the Mortgage Loan or Mortgage Loans
proposed to be repurchased without the consent of, or any further action by, the
Certificate Insurer.
VOTING RIGHTS
Under the Agreement, the Voting Rights will be allocated as follows:
95% to the Class A Certificates; 2% to the Class S Certificates; and 1% to each
of the Class X, Class R-1 and Class R-2 Certificates. Voting Rights allocated to
the Class A Certificates will be allocated among such Classes in proportion to
their respective Class Principal Balances. Voting Rights allocated to a Class of
Certificates will be further allocated among the Certificates of such Class on
the basis of their respective Percentage Interests. So long as no Certificate
Insurer Default is continuing, the Certificate Insurer will be entitled to
exercise the Voting Rights of the Senior Certificates.
THE TRUSTEE
[Name of Trustee], a __________ banking association with its principal
place of business in California, will be named Trustee pursuant to the
Agreement.
The Trustee may have banking relationships with the Seller and the
Master Servicer.
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The Trustee may resign at any time, in which event the Representative
will be obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. The Representative may also remove the Trustee if the Trustee ceases to
be eligible to continue as such under the Agreement or if the Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Representative will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders evidencing at least 51% of the Voting Rights have made
written requests 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 has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to exercise any of the
trusts or powers vested in it by the 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 Certificateholders, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the cost, expenses and
liabilities which may be incurred therein or thereby.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Seller to acquire the Mortgage Loans from the Originators, who
in turn will use such net proceeds for general corporate purposes, including
repayment of financing for the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
Separate elections will be made to treat certain assets of the Trust
(exclusive of the Initial Interest Coverage Account and the Funding Account) as
a "real estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The
Class A Certificates will be designated as "regular interests" in a REMIC. See
"FEDERAL INCOME TAX CONSEQUENCES--Taxation of the REMIC and its Holders" in the
Prospectus.
The Class A Certificates generally will be treated as debt instruments
issued by a REMIC for federal income tax purposes. Income on the Class A must be
reported under an accrual method of accounting.
The Class A Certificates may, depending on their issue price, be issued
with original issue discount ("OID") for federal income tax purposes. In such
event, holders of such Certificates will be required to include OID in income as
it accrues under a constant yield method, in advance of the receipt of cash
attributable to such income. The OID Regulations do not contain provisions
specifically interpreting Code Section 1272(a)(6). Until the Treasury issues
guidance to the contrary, the Trustee intends to base its computation on Code
Section 1272(a)(6) and the OID Regulations as described in the Prospectus.
However, because no regulatory guidance currently exists under Code Section
1272(a)(6), there can be no assurance that such methodology represents the
correct manner of calculating OID.
The yield used to calculate accruals of OID with respect to the Class A
Certificates with OID will be the original yield to maturity of such
Certificates, determined by assuming that the Mortgage Loans in Loan Group 1 and
Loan Group 2 will prepay in accordance with 120% and 125%, respectively, of the
Prepayment Assumption. No representation is made as to the actual rate at which
the Mortgage Loans will prepay.
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A reasonable application of the principles of the OID Regulations to
the Variable Rate Certificates generally would be to report all income with
respect to such Certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
Certificate Index will remain constant for purposes of determining the original
yield to maturity of such Class of Certificates and projecting future
distributions on such Certificates, thereby treating such Certificates as fixed
rate instruments to which the original issue discount computation rules
described in the Prospectus can be applied, and (ii) by accounting for any
positive or negative variation in the actual value of the applicable index in
any period from its assumed value as a current adjustment to original issue
discount with respect to such period.
The Class A Certificates will be treated as regular interests in a
REMIC under section 860G of the Code. Accordingly, the Class A Certificates will
be treated as (i) assets described in section 7701(a)(19)(C) of the Code, and
(ii) "real estate assets" within the meaning of section 856(c)(5) of the Code,
in each case to the extent described in the Prospectus. Interest on the Class A
Certificates will be treated as interest on obligations secured by mortgages on
real property within the meaning of section 856(c)(3)(B) of the Code to the same
extent that the Class A Certificates are treated as real estate assets.
See "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Class A Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under certain circumstances,
fails to provide the Trustee or their broker with a certified statement, under
penalty of perjury, that they are not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Class A Certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the Class A Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). As long as the only "Class A Certificateholder" of record is
Cede, as nominee for DTC, Certificate Owners and the IRS will receive tax and
other information including the amount of interest paid on such Certificates
owned from Participants and Indirect Participants rather than from the Trustee.
(The Trustee, however, will respond to requests for necessary information to
enable Participants, Indirect Participants and certain other persons to complete
their reports.) Each non-exempt Certificate Owner will be required to provide,
under penalty of perjury, a certificate on IRS Form W-9 containing his or her
name, address, correct Federal taxpayer identification number and a statement
that he or she is not subject to backup withholding. Should a nonexempt
Certificate Owner fail to provide the required certification, the Participants
or Indirect Participants (or the Paying Agent) will be required to withhold 31%
of the interest (and principal) otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income tax
liability. Such amounts will be deemed distributed to the affected Certificate
Owner for all purposes of the Certificates, the Agreement and the Policy.
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FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income
tax treatment of holders that are not United States persons ("Foreign
Investors"). The term "Foreign Investor" means any person other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity organized in or under the laws of the United States or any state or
political subdivision thereof or (iii) an estate the income of which is
includible in gross income for United States federal income tax purposes,
regardless of its source or a trust if a court within the United States is able
to exercise primary supervision of the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that the
beneficial owner of the instrument is a Foreign Investor. The Class A
Certificates will be issued in registered form, therefore if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, no withholding tax will apply
to the Class A Certificates.
For the Class A Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 signed under penalty
of perjury by the Certificate Owner stating that the Certificate Owner is a
Foreign Investor and providing such Certificate Owner's name and address. The
statement must be received by the withholding agent in the calendar year in
which the interest payment is made, or in either of the two preceding calendar
years.
A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on the
sale, exchange, or redemption of such Class A Certificate, provided that (i)
such gain is not effectively connected with a trade or business carried on by
the Certificate Owner in the United States, (ii) in the case of a Certificate
Owner that is an individual, such Certificate Owner is not present in the United
States for 183 days or more during the taxable year in which such sale, exchange
or redemption occurs and (iii) in the case of gain representing accrued
interest, the conditions described in the immediately preceding paragraph are
satisfied.
STATE TAXES
The Seller makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Class A Certificates under the tax
laws of any state. Investors considering an investment in the Certificates
should consult their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Class A Certificates should consult with its counsel with respect to the
potential consequences under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code, of the Plans acquisition and ownership
of such Certificates. See "ERISA CONSIDERATIONS" in the Prospectus.
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The U.S. Department of Labor has granted an administrative exemption to
[Name of Underwriter]. (Prohibited Transaction Exemption _____; ___ Fed. Reg.
_____ (199__)) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which [Name of
Underwriter] or any of its affiliates is the sole underwriter or the manager or
co-manager of the underwriting syndicate; and (2) the servicing, operation and
management of such asset-backed pass-through trusts, provided that the general
conditions and certain other conditions set forth in the Exemption are
satisfied. The Exemption will apply to the acquisition, holding and resale of
the Class A Certificates by a Plan provided that certain conditions (certain of
which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
are the following:
(1) The acquisition of the Class A Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable to
the investing Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Class A Certificates
acquired by the Plan are not subordinated to the rights and interests evidenced
by other certificates of the Trust;
(3) The Class A Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's, Moody's, or Duff &
Phelps Credit Rating Co.;
(4) The sum of all payments made to and retained by the Underwriters in
connection with the distribution of the Class A Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of all
payments made to and retained by the Seller pursuant to the sale of the Mortgage
Loans to the Trust represents not more than the fair market value of such
Mortgage Loans; the sum of all payments made to and retained by the Master
Servicer represent not more than reasonable compensation for the Master
Servicer's services under the Agreement and reimbursement of the Master
Servicer's reasonable expenses in connection therewith;
(5) The Trustee is not an affiliate of the Underwriters, the Seller,
the Master Servicer, the Certificate Insurer, the Representative, any borrower
whose obligations under one or more Mortgage Loans constitute more than 5% of
the aggregate unamortized principal balance of the assets in the Trust, or any
of their respective affiliates (the "Restricted Group"); and
(6) The Plan investing in the Class A Certificates is 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.
It is expected that the Exemption will apply to the acquisition and
holding of the Class A Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met.
Any Plan fiduciary considering whether to purchase any Class A
Certificates 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. Among other things, before
purchasing any Class A Certificates, a fiduciary of a Plan subject to the
fiduciary responsibility provisions of ERISA or an employee benefit plan subject
to the prohibited transaction provisions of the Code should make its own
determination as to the availability of the exemptive relief provided in the
Exemption, and also consider the availability of any other prohibited
transaction exemptions.
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LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Group 1 Certificates
will be rated in the highest rating category of the Rating Agencies, the Group 1
Certificates will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), because not all
of the Mortgages securing the Mortgage Loans are first mortgages. Accordingly,
many institutions with legal authority to invest in comparably rated securities
based on first mortgage loans may not be legally authorized to invest in the
Group 1 Certificates, which, because they evidence interests in a pool that
includes junior mortgage loans, are not "mortgage related securities" under
SMMEA. See "LEGAL INVESTMENT" in the Prospectus.
The Group 2 Certificates will constitute "mortgage related securities"
for purposes of SMMEA for so long as they are rated in one of the two highest
rating categories by one or more nationally recognized statistical rating
organizations. As such, the Group 2 Certificates will be legal investments for
certain entities to the extent provided in SMMEA, subject to state laws
overriding SMMEA. In addition, institutions whose investment activities are
subject to review by federal or state regulatory authorities may be or may
become subject to restrictions, which may be retroactively imposed by such
regulatory authorities, on the investment by such institutions in certain forms
of mortgage related securities. Furthermore, certain states have enacted
legislation overriding the legal investment provisions of SMMEA. In addition,
institutions whose activities are subject to review by federal or state
regulatory authorities may be or may become subject to restrictions, which may
be retroactively imposed by such regulatory authorities, on the investment by
such institutions in certain forms of mortgage related securities.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated _____ __, 199__ (the "Underwriting Agreement"), among the
Seller, the Representative and the Underwriters named below (the
"Underwriters"), the Seller has agreed to sell to the Underwriters and each of
the Underwriters has severally agreed to purchase from the Seller the principal
amount of Class A Certificates set forth below opposite their respective names.
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class A-5 Class A-6
Underwriter Certificates Certificates Certificates Certificates Certificates Certificates
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
[Name of Underwriter].. $ $ $ $ $ $
[Name of Underwriter].. ____________ ____________ ____________ ____________ ____________ ____________
Total...... $ $ $ $ $ $
</TABLE>
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<TABLE>
<CAPTION>
Class A-7
Underwriter Certificates
<S> <C>
[Name of Underwriter]............... $
[Name of Underwriter]............... ____________
Total................... $
</TABLE>
The Seller has been advised that the Underwriters propose initially to
offer the Class A Certificates to certain dealers at such price less a selling
concession not to exceed the percentage of the Certificate denomination set
forth below, and that the Underwriters may allow and such dealers may reallow a
reallowance discount not to exceed the percentage of the Certificate
denomination set forth below:
<TABLE>
<CAPTION>
Class of Certificate Selling Concession Reallowance Discount
- -------------------- ------------------ --------------------
<S> <C> <C>
Class A-1 % %
Class A-2 % %
Class A-3 % %
Class A-4 % %
Class A-5 % %
Class A-6 % %
Class A-7 % %
</TABLE>
After the initial public offering, the public offering price, such
concessions and such discounts may be changed.
The Seller has been advised by the Underwriters that they presently
intend to make a market in the Class A Certificates offered hereby; however, no
Underwriter is obligated to do so, any market-making may be discontinued at any
time, and there can be no assurance that an active public market for the Class A
Certificates will develop.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with the Regulation M under the Exchange Act. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the Class A Certificates in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriters to reclaim a selling concession
from a syndicate member when the Class A Certificates originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Class A Certificates to
be higher than it would otherwise be in the absence of such transaction.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Seller nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Class A Certificates.
In
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addition, neither the Seller nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreement provides that the Representative will
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended.
EXPERTS
The consolidated financial statements of [Certificate Insurer] as of
December 31, 199__ and 199__ and for each of the three years in the period ended
December 31, 199__, incorporated by reference in this Prospectus Supplement have
been audited by [ ______________], independent accountants, as set forth in
their report thereon, incorporated by reference herein in reliance upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates will be
passed upon for the Seller and Master Servicer by Stroock & Stroock & Lavan LLP,
New York, New York, for the Underwriters by________________________
_______________, and for the Certificate Insurer by _________________.
RATINGS
CERTIFICATES
It is a condition to issuance that the Class A Certificates receive
ratings of "AAA" by Standard & Poor's, "AAA" by Fitch and "Aaa" by Moody's.
A securities rating addresses the likelihood of the receipt by Class A
Certificateholders of distributions on the Mortgage Loans to which they are
entitled. The rating takes into consideration the characteristics of the
Mortgage Loans and the structural and legal aspects associated with the Class A
Certificates. The ratings on the Class A Certificates do not, however,
constitute statements regarding the likelihood or frequency of prepayments on
the Mortgage Loans or the possibility that Class A Certificateholders might
realize a lower than anticipated yield due to prepayments. The ratings do not
address the likelihood of the payment of any Class A-7 Basis Risk Carryover
Amount.
The ratings assigned to the Class A Certificates will depend primarily
upon the creditworthiness of the Certificate Insurer. Any reduction in a rating
assigned to the claims-paying ability of the Certificate Insurer below the
ratings initially assigned to the Class A Certificates may result in a reduction
of one or more of the ratings assigned to the Class A Certificates.
A securities 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 securities rating should be evaluated
independently of similar ratings on different securities.
CERTIFICATE INSURER
Moody's Investors Service, Inc. ("Moody's") rates the claims paying
ability of the Certificate Insurer "Aaa". Insurance companies rated Aaa offer
exceptional financial security. While the financial strength of these companies
is likely to change, such changes as can be visualized are most unlikely to
impair their fundamentally strong position.
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Standard & Poor's Rating Services ("S&P") rates the claims paying
ability of the Certificate Insurer "AAA". "AAA" is the highest rating assigned
by S&P. Capacity to pay claims is extremely strong.
Fitch Investors Service, L.P. ("Fitch") rates the claims paying ability
of the Certificate Insurer "AAA". AAA is the highest claims paying ability. Risk
factors are negligible.
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INDEX OF PRINCIPAL TERMS
Set forth below are the pages on which certain principal terms are
first defined. Additional defined terms can be found in THE GLOSSARY OF TERMS
beginning on page 93 of the Prospectus.
<TABLE>
<CAPTION>
Terms Page
- ----- ----
<S> <C>
Agreement......................................................................4
Amount Available..............................................................49
ARM............................................................................7
Available Funds...............................................................49
Balloon Loans..................................................................7
Balloon Payment................................................................7
Book-Entry Certificates.......................................................46
Business Day..................................................................56
Cede...........................................................................8
Cedel..........................................................................8
Certificate Group..............................................................5
Certificate Group Principal Balance............................................5
Certificate Index..............................................................9
Certificate Insurer...........................................................15
Certificate Owners............................................................46
Certificate Rate...............................................................5
Certificate Register..........................................................49
Certificate Registrar.........................................................49
Certificateholder.............................................................46
Certificates...................................................................1
Change Date....................................................................7
Chase..........................................................................8
Citibank.......................................................................8
Civil Relief Act..............................................................17
Civil Relief Act Interest Shortfalls..........................................17
Class..........................................................................1
Class A Certificates...........................................................1
Class A Monthly Principal Distributable Amount................................12
Class A Principal Distribution................................................53
Class A Principal Shortfall Amount............................................12
Class A-7 Formula Rate.........................................................9
Class Interest Carryover Shortfall............................................10
Class Interest Distribution...................................................52
Class Monthly Interest Distributable Amount...................................53
Class Principal Balance........................................................5
Class R-1.....................................................................63
Class R-2.....................................................................63
Closing Date...................................................................1
CLTV..........................................................................27
Code..........................................................................18
Collection Account............................................................48
Compensating Interest.........................................................22
CPR...........................................................................41
</TABLE>
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<TABLE>
<S> <C>
Cut-Off Date...................................................................4
Cut-Off Date Initial Pool Principal Balance....................................6
Cut-Off Date Loan Group 1 Initial Principal Balance...........................25
Cut-Off Date Loan Group 2 Initial Principal Balance...........................31
Cut-Off Date Principal Balance.................................................4
Defective Mortgage Loans......................................................12
Deficiency Amount.............................................................55
Determination Date............................................................16
Distributable Excess Spread...................................................53
Distribution Account..........................................................48
Distribution Date..............................................................3
DTC............................................................................8
Due Period....................................................................13
Eligible Account..............................................................48
Eligible Substitute Mortgage Loan.............................................47
ERISA.........................................................................65
Euroclear......................................................................8
European Depositaries..........................................................8
Events of Default.............................................................60
Excess Spread.................................................................14
Exemption.....................................................................65
Final Distribution Date.......................................................15
First Liens...................................................................21
Fiscal Agent..................................................................55
Fixed Rate Certificates........................................................5
Funding Account................................................................4
GAAP..........................................................................23
Gross Margin..................................................................24
Group 1 Certificates...........................................................5
Group 2 Certificates...........................................................3
Guaranteed Principal Amount...................................................56
Initial Interest Coverage Account..............................................4
Initial Mortgage Loans.........................................................3
Insured Payment...............................................................56
Insurer Default...............................................................54
Interest Period...............................................................52
LIBOR Business Day............................................................52
Lifetime Cap...................................................................7
Lifetime Floor.................................................................7
Liquidated Mortgage Loan......................................................54
Loan Group.....................................................................3
Loan Group 1...................................................................3
Loan Group 1 Initial Mortgage Loans............................................6
Loan Group 1 Principal Balance.................................................4
Loan Group 2...................................................................3
Loan Group 2 Initial Mortgage Loans............................................6
Loan Group 2 Net Funds Cap.....................................................9
Loan Group 2 Principal Balance.................................................4
Loan Group Principal Balance...................................................5
Loan Index.....................................................................7
</TABLE>
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<TABLE>
<S> <C>
Loan Rate......................................................................7
Master Servicer................................................................3
Maximum Funding Amount.........................................................3
Monthly Advance...............................................................16
Moody's.......................................................................19
Mortgage Loan Schedule........................................................46
Mortgage Loans.................................................................4
Mortgage Pool..................................................................3
Mortgaged Properties...........................................................4
Mortgagor.....................................................................25
Net Simple Interest Shortfall.................................................22
Nonrecoverable Advance........................................................49
Notice........................................................................56
Notional Balance..............................................................11
Optional Termination Date.....................................................17
Originators....................................................................6
Owner.........................................................................56
Percentage Interest...........................................................45
Periodic Cap...................................................................7
Plan..........................................................................18
Policy.........................................................................1
Pool Balance...................................................................4
Preference Amount.............................................................56
Prepayment Assumption.........................................................41
Prepayment Interest Shortfall.................................................17
Principal Balance..............................................................5
Priority Amount...............................................................13
Priority Percentage...........................................................13
Purchase Price................................................................47
Rating Agency.................................................................19
Record Date...................................................................10
Related Documents.............................................................46
Relevant Depositary...........................................................46
REMIC..........................................................................3
Representative.................................................................4
Restricted Group..............................................................66
SAP...........................................................................23
Seller.........................................................................3
Senior Certificates............................................................1
Servicing Advance.............................................................48
Servicing Fee.................................................................16
Servicing Fee Rate............................................................59
Simple Interest Loans.........................................................22
SMMEA.........................................................................18
Standard & Poor's.............................................................19
Strip Rates....................................................................9
Subsequent Mortgage Loans......................................................3
Sub-Servicer..................................................................12
Sub-Servicing Agreement........................................................6
Substitution Adjustment.......................................................47
</TABLE>
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<TABLE>
<S> <C>
Trust..........................................................................3
Trustee........................................................................4
Underwriters..................................................................67
Underwriting Agreement........................................................67
Variable Rate Certificates.....................................................5
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Home
Equity Loan Asset-Backed Certificates, Series 199_-_ (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold such Global Securities through any of The Depository Trust Company
("DTC"), Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset-Backed
Certificates issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors" interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Home Equity Loan
Asset-Backed Certificates issues. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
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Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset-Backed Certificates issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, on the basis of either the actual number
of days in such accrual period and a year assumed to consist of 360 days or a
360-day year of twelve 30-day months as applicable to the related class of
Global Securities. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the following
month. Payment will then be made by the respective Depositary of the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Cedel or Euroclear cash debt will be valued instead as of
the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the
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respective Depositary, as appropriate, to deliver the Global Securities to the
DTC Participant's account against payment. Payment will include interest accrued
on the Global Securities from and including the last coupon payment to and
excluding the settlement date on the basis of either the actual number of days
in such accrual period and a year assumed to consist of 360 days or a 360-day
year of twelve 30-day months as applicable to the related class of Global
Securities. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) S-borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) S-borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) S-staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers" securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
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Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source or a trust if a court within the United States is able
to exercise primary supervision of the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Seller
or the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
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PROSPECTUS
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
(ISSUABLE IN SERIES)
------------------------
AVCO ABS RECEIVABLES CORP.
(SELLER)
AVCO FINANCIAL SERVICES MANAGEMENT COMPANY
(MASTER SERVICER)
AVCO FINANCIAL SERVICES, INC.
(REPRESENTATIVE)
------------------------
The Asset-Backed Certificates (the "Certificates") and the Asset-Backed
Notes (the "Notes" and, collectively with the Certificates, the "Securities")
described herein may be sold from time to time in one or more series (each, a
"Series") in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each series (each a "Series") of Securities will include either
one or more classes of Certificates or, if Notes are issued as part of a Series,
one or more Classes of Notes and one or more Classes of Certificates, as set
forth in the related Prospectus Supplement. Certain capitalized terms used
herein are defined in "GLOSSARY OF TERMS" beginning on page 93.
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR MATERIAL RISKS TO BE
CONSIDERED IN PURCHASING THE SECURITIES.
The Certificates of a Series will evidence undivided interests in
certain assets deposited into a trust (each, a "Trust Fund") by Avco ABS
Receivables Corp. (the "Seller") pursuant to a Pooling and Servicing Agreement
or a Trust Agreement, as described herein. The Notes of a Series will be issued
and secured pursuant to an Indenture and will represent indebtedness of the
related Trust Fund. The Trust Fund for a Series of Securities will include (a)
Primary Assets, which may include one or more pools of closed-end home equity
loans (the "Home Equity Loans"), secured by first or second mortgages on one- to
four-family residential or mixed use properties, (b) certain monies received or
due thereunder on or after the date specified in the related Prospectus
Supplement (the "Cut-off Date") net of certain amounts payable to Avco Financial
Services Management Company, as master servicer (the "Master Servicer") of the
Home Equity Loans, (c) if specified in the related Prospectus Supplement, funds
on deposit in one or more pre-funding accounts and/or capitalized interest
accounts and (d) reserve funds, letters of credit, surety bonds, insurance
policies or other forms of credit support as described herein and in the related
Prospectus Supplement. Amounts on deposit in a pre-funding account for any
Series will be used to purchase additional Home Equity Loans during the funding
period specified in the related Prospectus Supplement in the manner specified
therein. The amount initially deposited in a pre-funding account for a Series of
Securities will not exceed fifty percent of the aggregate principal amount of
such Series of Securities.
Each Series of Securities will be issued in one or more classes (each, a
"Class"). Interest on and principal of the Securities of a Series will be
payable on the date or dates specified in the related Prospectus Supplement
(each, a "Distribution Date"), at the times, at the rates, in the amounts and in
the order of priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with
respect to the amount, percentage (which may be 0%) and timing of distributions
of principal, interest or both and one or more Classes may be subordinated to
other Classes with respect to distributions of principal, interest or both as
described herein and in the related Prospectus Supplement. The Primary Assets
and other assets comprising the Trust Fund may be divided into one or more Asset
Groups and each Class of the related Series will evidence beneficial ownership
of the corresponding Asset Group, as applicable.
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<PAGE> 88
The Seller, the Master Servicer, or such other entity that is specified
in the related Prospectus Supplement, may, at its option, cause an early
termination of one or more Classes of Securities by purchasing all or part of
the Primary Assets remaining in the Trust Fund on or after a specified date, or
on or after such time as the aggregate principal balance of the Securities of
the Series or the Primary Assets relating to such Series, as specified in the
related Prospectus Supplement, is less than the amount or percentage, not more
than 25%, specified in the related Prospectus Supplement. See "DESCRIPTION OF
THE SECURITIES--Optional Redemption, Purchase or Termination."
The rate of reduction of the aggregate principal balance of each Class
of a Series may depend principally upon the rate of payment (including
prepayments) with respect to the Home Equity Loans. A rate of prepayment lower
or higher than anticipated will affect the yield on the Securities of a Series
in the manner described herein and in the related Prospectus Supplement. Under
certain limited circumstances described herein and in the related Prospectus
Supplement, a Series of Securities may be subject to termination or redemption.
If specified in the related Prospectus Supplement, one or more elections
may be made to treat certain assets comprising the Trust Fund for a Series as a
"real estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes. See "FEDERAL INCOME TAX CONSEQUENCES."
There currently is no secondary market for the Securities. There can be
no assurance that any such market will develop or, if it does develop, that it
will continue.
---------------------------------------
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND CERTIFICATES OF A SERIES
EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST FUND ONLY AND ARE NOT
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE SELLER, THE TRUSTEE,
THE MASTER SERVICER, THE REPRESENTATIVE OR BY ANY OF THEIR RESPECTIVE
AFFILIATES OR, UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT, BY ANY OTHER PERSON OR ENTITY. THE ONLY OBLIGATIONS
OF THE REPRESENTATIVE AND THE ORIGINATORS WITH RESPECT TO ANY
SERIES OF SECURITIES WILL BE PURSUANT TO CERTAIN
REPRESENTATIONS AND WARRANTIES SET FORTH
IN THE RELATED AGREEMENT AS DESCRIBED
HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
---------------------------------------
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 PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------------------
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
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The date of this Prospectus is ____________, 199__.
3
<PAGE> 90
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate, and
authorized denominations of each Class of such Securities; (ii) certain
information concerning the Primary Assets; (iii) the terms of any Enhancement
(as defined herein) with respect to such Series; (iv) the terms of any insurance
related to the Primary Assets; (v) information concerning any other assets in
the related Trust Fund, including any Reserve Fund; (vi) the Final Scheduled
Distribution Date (as defined herein) of each Class of such Securities; (vii)
the method to be used to calculate the amount of interest and principal required
to be applied to the Securities of each Class of such Series on each
Distribution Date, the timing of the application of interest and principal and
the order of priority of the application of such interest and principal to the
respective Classes and the allocation of interest and principal to be so
applied; (viii) the Distribution Dates and any Assumed Reinvestment Rate (as
defined herein); (ix) the amount, if any, deposited in the Pre-Funding Account
(as defined herein) available to purchase additional Home Equity Loans, the
length of the Pre-Funding Period (as defined herein) and the criteria for
determining which additional Home Equity Loans may become part of the Trust
Fund; (x) additional information with respect to the plan of distribution of
such Securities; and (xi) whether one or more REMIC elections will be made with
respect to some or all of the Trust Fund for such Series and if so, the
designation of the Securities offered hereunder as regular interests or residual
interests in a REMIC.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust Fund for a
Series of Securities are required under the related Agreements to be forwarded
to Holders. Unless otherwise specified in the related Prospectus Supplement,
such reports will not be examined and reported on by an independent public
accountant. If so specified in the Prospectus Supplement for a Series of
Securities, such Series or one or more Classes of such Series will be issued in
book-entry form. In such event, (i) owners of beneficial interests in such
Securities will not be considered "Holders" under the Agreements and will not
receive such reports directly from the related Trust Fund; rather, such reports
will be furnished to such owners through the participants and indirect
participants of the applicable book-entry system and (ii) references herein to
the rights of "Holders" shall refer to the rights of such owners as they may be
exercised indirectly through such participants. See "THE AGREEMENTS--Reports to
Holders."
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part of
the Registration Statement, 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 Office located as follows,
Midwest Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and
Northeast Regional Office, Seven World Trade Center, New York, New York 10048.
The Commission maintains an Internet Web site that contains reports, proxy and
information statements and other information regarding the registrants that file
electronically with the Commission, including the Seller. The address of such
Internet Web site is (http://www.sec.gov).
Each Trust Fund will be required to file certain reports with the
Commission pursuant to the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). The Seller and the Representative intend to
cause each Trust Fund to suspend filing such reports if and when such reports
are no longer required under the Exchange Act.
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<PAGE> 91
No person has been authorized to give any information or to make any
representation 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 Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the 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.
The Representative on behalf of any Trust Fund will provide without
charge to each person to whom this Prospectus is delivered, on the written or
oral request of such person, a copy of any or all of the documents referred to
above that have been or may be incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Such requests should be directed to Chief
Financial Officer, Avco Financial Services, Inc., 600 Anton Boulevard, Costa
Mesa, CA 92626 (telephone: (714) 435-1200; facsimile: (714) 445-7875).
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<PAGE> 92
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
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 Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the "GLOSSARY OF TERMS" beginning on page __.
SECURITIES OFFERED.......... Asset-Backed Certificates (the "Certificates")
and Asset-Backed Notes (the "Notes").
Certificates are issuable from time to time in
Series pursuant to a Pooling and Servicing
Agreement or Trust Agreement. Each Certificate
of a Series will evidence an interest in the
Trust Fund for such Series, or in an Asset Group
specified in the related Prospectus Supplement.
Notes are issuable from time to time in a Series
pursuant to an Indenture. Each Series of
Securities will consist of one or more Classes,
one or more of which may be Classes of Compound
Interest Securities, Planned Amortization Class
("PAC") Securities, Variable Interest
Securities, Zero Coupon Securities, Principal
Only Securities, Interest Only Securities,
Senior Securities or Subordinate Securities
(each of which is generally described in the
"GLOSSARY OF TERMS"). Each Class may differ in,
among other things, the amounts allocated to and
the priority of principal and interest payments,
Final Scheduled Distribution Dates, Distribution
Dates and interest rates. The Securities of each
Class will be issued in fully registered form in
the denominations specified in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, the Securities or
certain Classes of such Securities offered
thereby may be available in book-entry form
only. The related Prospectus Supplement will set
forth whether there will be an application to
list any Class of Securities on an exchange or
to quote the securities in the automated
quotation system of a registered securities
association.
ISSUER...................... The Trust Fund created pursuant to the
applicable Pooling and Servicing Agreement or
Trust Agreement, as applicable.
SELLER...................... Avco ABS Receivables Corp., a Nevada
corporation, with its principal executive
offices located at 1727-B Charleston, Las Vegas,
Nevada 89104, and a telephone number of (702)
474-6282. See "THE SELLER."
MASTER SERVICER............. Avco Financial Services Management Company, a
Delaware corporation with its principal
executive offices located at 600 Anton
Boulevard, Costa Mesa, California 92626, and a
telephone number of (714) 445-1200. See "THE
MASTER SERVICER."
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<PAGE> 93
REPRESENTATIVE.............. Avco Financial Services, Inc., a Delaware
corporation with its principal executive offices
located at 600 Anton Boulevard, Costa Mesa,
California 92626 and a telephone number of (714)
435-1200. See "THE REPRESENTATIVE."
ORIGINATORS AND
SUB-SERVICERS............... The Home Equity Loans will be originated or
acquired by affiliates of the Representative and
the Master Servicer (each such affiliate, an
"Originator") and sold by such Originators to
the Seller. Each Originator (or such other
entity, if any, specified in the related
Prospectus Supplement) will sub-service the Home
Equity Loans originated or purchased by it
pursuant to separate sub-servicing agreements
(each a "Sub-Servicing Agreement") between the
Master Servicer and the applicable Originator.
INTEREST PAYMENTS........... Interest payments on the Securities of a Series
entitled by their terms to receive interest will
be made on each Distribution Date, to the extent
set forth in, and at the applicable rate
specified in (or determined in the manner set
forth in), the related Prospectus Supplement.
The interest rate on Securities of a Series may
be variable or change with changes in the rates
of interest on the related Home Equity Loans
and/or as prepayments occur with respect to such
Home Equity Loans. Interest Only Securities may
be assigned a "Notional Amount" which is used
solely for convenience in expressing the
calculation of interest and for certain other
purposes and does not represent the right to
receive any distributions allocable to
principal. Principal Only Securities may not be
entitled to receive any interest payments or may
be entitled to receive only nominal interest
payments. Interest payable on the Securities of
a Series on a Distribution Date will include all
interest accrued during the period specified in
the related Prospectus Supplement. See
"DESCRIPTION OF THE SECURITIES--Payments of
Interest."
PRINCIPAL PAYMENTS.......... All payments of principal of a Series of
Securities will be made in an aggregate amount
determined as set forth in the related
Prospectus Supplement and will be paid at the
times and will be allocated among the Classes of
such Series in the order and amounts, and will
be applied either on a pro rata or a random lot
basis among all Securities of any such Class,
all as specified in the related Prospectus
Supplement.
FINAL SCHEDULED
DISTRIBUTION DATE
OF THE SECURITIES.......... The Final Scheduled Distribution Date with
respect to each Class of Notes is the date no
later than the date on which principal thereof
will be fully paid and with respect to each
Class of Certificates is the date after which no
Certificates of
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<PAGE> 94
such Class are expected to remain outstanding,
in each case calculated on the basis of the
assumptions applicable to such Series described
in the related Prospectus Supplement. The Final
Scheduled Distribution Date of a Class may equal
the maturity date of the Primary Asset in the
related Trust Fund which has the latest stated
maturity or will be determined as described
herein and in the related Prospectus Supplement.
The actual final Distribution Date of the
Securities of a Series will depend primarily
upon the rate of payment (including prepayments,
liquidations due to default, the receipt of
proceeds from casualty insurance policies and
repurchases) of the Home Equity Loans in the
related Trust Fund. In general, the actual final
Distribution Date of any Security is likely to
occur earlier and may occur substantially
earlier or, with respect to a Class of
Certificates, may occur later than its Final
Scheduled Distribution Date as a result of the
application of prepayments to the reduction of
the principal balances of the Securities and as
a result of defaults on the Primary Assets. The
rate of payments on the Home Equity Loans, in
the Trust Fund for a Series will depend on a
variety of factors, including certain
characteristics of such Home Equity Loans and
the prevailing level of interest rates from time
to time, economic, demographic, tax and legal
factors and servicing decisions. No assurance
can be given as to the actual prepayment
experience with respect to a Series. See "RISK
FACTORS--Yield May Vary" and "DESCRIPTION OF THE
SECURITIES--Weighted Average Life of the
Securities."
OPTIONAL TERMINATION........ The Seller, the Master Servicer, or such other
entity that is specified in the related
Prospectus Supplement, may, at its option, cause
an early termination of one or more Classes of
Securities by purchasing all or part of the
Primary Assets remaining in the Trust Fund on or
after a specified date, or on or after such time
as the aggregate principal balance of the
Securities of the Series or the Primary Assets
relating to such Series, as specified in the
related Prospectus Supplement, is less than the
amount or percentage, not more than 25%,
specified in the related Prospectus Supplement.
See "DESCRIPTION OF THE SECURITIES--Optional
Redemption, Purchase or Termination."
SECURITIES INVOLVE
RISKS...................... An investment in the Securities of any Series
involves material risks and should only be
considered by investors which, either alone or
together with their investment advisors, have
the ability to understand such risks. See "RISK
FACTORS" beginning on page 19 herein.
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<PAGE> 95
THE TRUST FUND.............. The Trust Fund for a Series of Securities will
consist of one or more of the assets described
below, as described in the related Prospectus
Supplement.
A. PRIMARY ASSETS.......... The Primary Assets for a Series may consist of
any combination of the following assets, to the
extent and as specified in the related
Prospectus Supplement.
HOME EQUITY
LOANS................... Primary Assets for a Series will consist, in
whole or in part, of "closed-end" home equity
loans secured by first or second mortgages (the
"Home Equity Loans"). The Home Equity Loans may,
as specified in the related Prospectus
Supplement, have various payment
characteristics, including balloon or other
irregular payment features, and may accrue
interest at a fixed rate or an adjustable rate.
Some Home Equity Loans may be delinquent or
non-performing as specified in the related
Prospectus Supplement. The Home Equity Loans
will be originated or acquired by the
Originators in the ordinary course of their
business. The Home Equity Loans will be
nonconventional loans. Additional Home Equity
Loans may be periodically added to the Trust
Fund, or may be removed from time to time if
certain asset tests are met, all as described
herein under "THE TRUST FUNDS" and in the
related Prospectus Supplement.
The Home Equity Loans will be secured by
mortgages or deeds of trust or other similar
security instruments creating a lien on a
Mortgaged Property, which may be subordinated to
one or more senior liens on such Mortgaged
Property, as described herein under "THE TRUST
FUNDS" and in the related Prospectus Supplement.
The related Prospectus Supplement will describe
certain characteristics of the Home Equity Loans
for a Series, including, without limitation, and
to the extent relevant: (a) the aggregate unpaid
principal balance of the Home Equity Loans; (b)
the range and weighted average Home Equity Loan
Rate on the Home Equity Loans and in the case of
adjustable rate Home Equity Loans, the range and
weighted average of the Current Home Equity Loan
Rates and the Lifetime Rate Caps, if any; (c)
the range and the average outstanding principal
balance of the Home Equity Loans; (d) the
weighted average original and remaining
term-to-stated maturity of the Home Equity Loans
and the range of original and remaining
terms-to-stated maturity, if applicable; (e) the
range of Combined Loan-to-Value Ratios of the
Home Equity Loans, computed in the manner
described in the related Prospectus Supplement;
(f) the percentage (by principal balance as of
the Cut-off Date) of Home Equity Loans that
accrue interest at
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<PAGE> 96
adjustable or fixed interest rates; (g) any
enhancement relating to the Home Equity Loans;
(h) the geographic distribution of the Mortgaged
Properties securing the Home Equity Loans; (i)
the use and type of each Mortgaged Property
securing a Home Equity Loan; (j) the lien
priority of the Home Equity Loans; and (k) the
delinquency status and year of origination of
the Home Equity Loans.
B. COLLECTION, CERTIFICATE
AND DISTRIBUTION
ACCOUNTS................. All payments on or with respect to the Primary
Assets for a Series, net of amounts permitted to
be retained by the Master Servicer or
Sub-Servicer pursuant to the Agreement, will be
remitted by the Master Servicer or Sub-Servicer
directly to an account (the "Collection Account"
or the "Certificate Account") to be established
for such Series. The Trustee will be required to
apply a portion of the amount in the Collection
Account or the Certificate Account, to the
payment of certain amounts payable to the Master
Servicer or Sub-Servicer under the related
Agreement and any other person specified in the
Prospectus Supplement, and to deposit a portion
of the amount in the Collection Account into one
or more separate accounts (each, a "Distribution
Account") to be established for such Series,
each in the manner and at the times established
in the related Prospectus Supplement. All
amounts deposited in such Distribution Account
(or, if there is no Distribution Account,
amounts remaining in the Certificate Account)
will be available for (i) application to the
payment of principal of and interest on such
Series of Securities (or such Class or Classes
specified in the related Prospectus Supplement)
on the next Distribution Date, (ii) the making
of adequate provision for future payments on
certain Classes of Securities and (iii) any
other purpose specified in the related
Prospectus Supplement. After applying the funds
in the Collection Account or the Certificate
Account as described above, any funds remaining
in such Accounts may be paid over to the Master
Servicer, the Sub-Servicer, the Seller, any
provider of Enhancement with respect to such
Series (an "Enhancer") or any other person
entitled thereto in the manner and at the times
established in the related Prospectus
Supplement.
C. PRE-FUNDING AND
CAPITALIZED
INTEREST ACCOUNTS........ A Trust Fund may include one or more segregated
trust accounts (each, a "Pre-Funding Account")
for the related Series. On the closing date for
such a Series, a portion of the proceeds of the
sale of the Securities of such Series (such
amount, the "Pre-Funded Amount") will be
deposited in the Pre-Funding Account and may be
used to purchase additional Primary Assets
during the period of time, not to exceed six
months, specified in the Agreement and described
in the related Prospectus Supplement (the
"Pre-Funding Period").
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<PAGE> 97
The Primary Assets to be so purchased will be
required to have certain characteristics
specified in the related Prospectus Supplement.
If any Pre-Funded Amount remains on deposit in
the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied
in the manner specified in the related
Prospectus Supplement to prepay the Classes of
Notes and/or the Certificates of the applicable
Series specified in the related Prospectus
Supplement. The amount initially deposited in a
Pre-Funding Account for a Series of Securities
will not exceed fifty percent of the aggregate
principal amount of such Series of Securities.
If a Pre-Funding Account is established, one or
more segregated trust accounts (each, a
"Capitalized Interest Account") may be
established for the related Series. On the
closing date for such Series, a portion of the
proceeds of the sale of the Securities of such
Series may be deposited in the Capitalized
Interest Account and used to fund the excess, if
any, of (x) the sum of (i) the amount of
interest accrued on the Classes of Securities of
such Series specified in the related Prospectus
Supplement and (ii) if specified in the related
Prospectus Supplement, certain fees or expenses
during the Pre-Funding Period such as Trustee
fees and credit enhancement fees, over (y) the
amount of interest available therefor from the
Primary Assets in the Trust Fund. If so
specified in the related Prospectus Supplement,
amounts on deposit in the Capitalized Interest
Account may be released to the Seller prior to
the end of the Pre-Funding Period subject to the
satisfaction of certain tests specified in the
related Prospectus Supplement. Any amounts on
deposit in the Capitalized Interest Account at
the end of the Pre-Funding Period that are not
necessary for such purposes will be distributed
to the person specified in the related
Prospectus Supplement.
SPECIAL PAYMENT FEATURES.... A portion of the aggregate principal balance of
the Home Equity Loans at any time may be
"balloon loans" that provide for the payment of
the unamortized principal balance of such Home
Equity Loan in a single payment at maturity
("Balloon Loans"). Such Balloon Loans provide
for equal monthly payments, consisting of
principal and interest, generally based on a
30-year amortization schedule, and a single
payment of the remaining balance of the Balloon
Loan generally 5, 7, 10, or 15 years after
origination. See "RISK FACTORS--Risk of Higher
Default Rates for Home Equity Loans with Balloon
Loans."
REVOLVING PERIOD AND
AMORTIZATION PERIOD;
RETAINED INTEREST.......... If the related Prospectus Supplement so
provides, there may be a period commencing on
the date of issuance of a Class or Classes of
Notes and/or Certificates of a Series and ending
on
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<PAGE> 98
the date set forth in the related Prospectus
Supplement (each, a "Revolving Period") during
which limited or no principal payments will be
made to one or more Classes of Notes and/or
Certificates of the related Series as are
identified in such Prospectus Supplement. Some
or all collections of principal otherwise
allocated to such Classes of Notes or
Certificates may be (i) utilized during the
Revolving Period to acquire additional Primary
Assets which satisfy the criteria described
under "THE TRUST FUNDS" and the criteria set
forth in the Agreement and described in the
related Prospectus Supplement, (ii) held in an
account and invested in Eligible Investments for
later distribution to Securityholders, (iii)
applied to those Notes or Certificates for such
Series, if any, specified in the related
Prospectus Supplement as then are in
amortization, or (iv) otherwise applied to
another Series if specified in the related
Prospectus Supplement.
An "Amortization Period" is the period during
which an amount of principal is payable to
Holders of Securities which, during the
Revolving Period, were not otherwise entitled to
such payments. If so specified in the related
Prospectus Supplement, during an Amortization
Period all or a portion of principal collections
on the Primary Assets may be applied as
specified above for a Revolving Period and, to
the extent not so applied, will be distributed
to the Classes of Notes and/or Certificates for
such Series specified in the related Prospectus
Supplement as then being entitled to payments of
principal. In addition, if so specified in the
related Prospectus Supplement, amounts deposited
in certain accounts for the benefit of one or
more Classes of Notes or Certificates for such
Series may be released from time to time or on a
specified date and applied as a payment of
principal on such Classes of Notes and/or
Certificates. The related Prospectus Supplement
will set forth the circumstances which will
result in the commencement of an Amortization
Period.
Each Series which has a Revolving Period may
also issue to the Representative or one of its
affiliates a certificate evidencing an undivided
beneficial interest (a "Retained Interest") in
such Series not represented by the other
Securities issued by the related Trusts, the
value of such Retained Interest will fluctuate
as the amount of Notes and Certificates of the
related Series of Securities outstanding is
reduced.
ENHANCEMENT................. If and to the extent specified in the related
Prospectus Supplement, enhancement with respect
to a Series or any Class of Securities may
include any one or more of the following: a
financial guaranty insurance policy,
overcollateralization, a letter of credit, a
cash reserve fund, insurance policies, one or
more Classes of Subordinate
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<PAGE> 99
Securities, derivative products or other forms
of credit enhancement, or any combination
thereof (collectively, "Enhancement"). The
Enhancement with respect to any Series or any
Class of Securities may be structured to provide
protection against delinquencies and/or losses
on the Primary Assets, against changes in
interest rates, or other risks, to the extent
and under the conditions specified in the
related Prospectus Supplement. Forms of
Enhancement may provide for one or more Classes
of Securities to be paid in foreign currencies.
Any form of Enhancement will have certain
limitations and exclusions from coverage
thereunder, which will be described in the
related Prospectus Supplement. Further
information regarding any Enhancer, including
financial information when material, will be
included in the related Prospectus Supplement.
See "ENHANCEMENT." With respect to any Series of
Securities including one or more Classes of
Notes, distributions in respect of the
Certificates may be subordinated in priority of
payment to payments on the Notes, to the extent
specified in the related Prospectus Supplement.
Enhancement for a Series may include one or more
of the following types of Enhancement or such
other type of Enhancement specified in the
related Prospectus Supplement.
A. FINANCIAL GUARANTY
INSURANCE POLICY......... Issued by a monoline insurance company and
which, subject to the terms of such policy, will
guarantee timely payment of interest on, and
ultimate (as opposed to timely) payment of
principal, of the applicable Class or Classes of
Securities.
B. OVERCOLLATERALIZATION.... Overcollateralization equals the excess of the
aggregate principal balance of the Primary
Assets over the aggregate principal balance of
the Securities. Overcollateralization may take
the form of the initial or subsequent deposit of
Primary Assets to create such excess or may
build over time from the application of certain
excess cash amounts generated by the Primary
Assets to accelerate the amortization of the
applicable Class or Classes of Securities.
C. LETTER OF CREDIT......... Issued by a bank or other financial institution
in a maximum amount which may be permanently
reduced as draws are made or may be replenished
as previous draws are repaid from certain excess
cash amounts generated by the Primary Assets.
Draws may be made to cover shortfalls generally
in collections, with respect to particular types
of shortfalls such as those due to particular
types of losses or with respect to specific
situations such as shortfalls in amounts
necessary to pay current interest.
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<PAGE> 100
D. CASH RESERVE FUND........ Partially or fully funded on the date of
issuance or may be funded over time from certain
excess cash amounts generated by the Primary
Assets. Withdrawals may be made in circumstances
similar to those for which draws may be made on
a letter of credit.
E. INSURANCE POLICIES...... Insure a portion of the Home Equity Loans
against credit losses, bankruptcy losses, fraud
losses or special hazard losses not covered by
typical homeowners insurance policies
F. SUBORDINATE SECURITIES... Securities may be subordinated in the right to
receive distributions to one or more other
Classes of Securities of the same Series, some
or all of which may themselves be subordinated
to other Classes of such Series. Subordination
may be with respect to distributions of
interest, principal or both. In addition, all or
portions of certain types of losses on the
Primary Assets may be allocated to one or more
Classes of the Subordinate Securities prior to
the allocation thereof to other Classes of
Subordinate Certificates and/or the Senior
Securities of the applicable Series. As a
result, holders of Subordinate Securities have a
greater risk of loss and consequently a
diminution in yield.
G. DERIVATIVE PRODUCTS...... May include a swap to convert floating or fixed
rate payments, as applicable, on the Primary
Assets into fixed or floating rate payments, as
applicable, on the Securities or a cap or floor
agreement intended to provide protection against
changes in floating rates of interest payable on
the Primary Assets and/or the Securities.
CREDIT QUALITY OF
HOME EQUITY LOANS........... Throughout 70 years of operating history, the
Originator has focused on lending to middle and
lower middle income individuals who have an
established credit history and who typically
have equity in their homes. See "RISK FACTORS--
Underwriting Standards May Affect Performance"
and "THE REPRESENTATIVE," and "THE HOME EQUITY
LOAN PROGRAM - General" and " -- Underwriting
Standards" herein. The Originators have in the
past and will in the future change their
underwriting guidelines and procedures when, in
their business judgment, competition or other
conditions in their market so warrant. As a
result, Home Equity Loans originated at
different times may reflect different
underwriting guidelines and be of different
credit quality. However, any such differences
will be reflected in the levels of Enhancement
for the related Series of Securities.
SERVICING................... The Master Servicer will be responsible for
servicing, managing and making collections on
the Home Equity Loans for a Series. The Master
Servicer will enter into sub-servicing
agreements with the Originators or such other
entities as may
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be named in a Prospectus Supplement (each a
"Sub-Servicer"). Such sub-servicing arrangements
will not relieve the Master Servicer of any
liability it might otherwise have, had the
sub-servicing arrangement not been entered into.
In addition, the Master Servicer or a
Sub-Servicer, if so specified in the related
Prospectus Supplement, will act as custodian and
will be responsible for maintaining custody of
the Home Equity Loans and related documentation
on behalf of the Trustee. Advances with respect
to delinquent payments of principal and/or
interest on a Home Equity Loan ("Delinquency
Advances") will be made by the Master Servicer
or a Sub-Servicer if and only to the extent
described in the related Prospectus Supplement.
Such advances will be intended to provide
liquidity only and will be reimbursable to the
extent specified in the related Prospectus
Supplement, from scheduled payments of principal
and/or interest, late collections, or from the
proceeds of liquidation of the related Home
Equity Loans or from other recoveries relating
to such Home Equity Loans (including any
insurance proceeds or payments from other credit
support) or, to the extent specified in the
related Prospectus Supplement, from payments or
proceeds from other Home Equity Loans. If and to
the extent specified in the related Prospectus
Supplement, the Master Servicer or a
Sub-Servicer will be entitled to advance its own
funds to pay for any related expenses of
foreclosure and disposition of any liquidated
Home Equity Loan or related Mortgaged Property
(the "Servicer Advances"). See "SERVICING OF
HOME EQUITY LOANS--Advances and Limitations
Thereon." The Master Servicer or such
Sub-Servicer will be entitled to be reimbursed
for any such Servicer Advances as specified in
the related Prospectus Supplement. In performing
these functions, the Master Servicer and
Sub-Servicer will exercise the same degree of
skill and care that it customarily exercises
with respect to similar Home Equity Loans owned
or serviced by it. Under certain limited
circumstances, the Master Servicer may resign or
be removed, in which event either the Trustee or
a third-party servicer will be appointed as
successor master servicer. The Master Servicer
will receive a periodic fee as servicing
compensation (the "Servicing Fee") and may, as
specified in the related Prospectus Supplement,
receive certain additional compensation. The
Master Servicer will pay any fees due the
Sub-Servicers from the Servicing Fee. See
"SERVICING OF HOME EQUITY LOANS--Servicing
Compensation and Payment of Expenses."
FEDERAL INCOME
TAX CONSEQUENCES
A. DEBT SECURITIES AND
REMIC RESIDUAL
SECURITIES.............. The federal income tax consequences to
Securityholders will vary depending upon whether
one or more elections are made
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to treat the Trust Fund or specified portions
thereof as a REMIC under the provisions of the
Internal Revenue Code of 1986, as amended (the
"Code"). The Prospectus Supplement for each
Series of Securities will specify whether such
an election will be made. If a REMIC election is
made, Securities representing regular interests
in a REMIC (a "Regular Interest") will generally
be taxable to holders in the same manner as
evidences of indebtedness issued by the REMIC.
Stated interest on such regular interests will
be taxable as ordinary income and taken into
account using the accrual method of accounting,
regardless of the holder's normal accounting
method.
Securities that are Compound Interest
Securities, Zero Coupon Securities or Interest
Only Securities will, and certain other Classes
of Securities may, be issued with original issue
discount that is not de minimis. In such cases,
the Holder will be required to include original
issue discount in gross income as it accrues,
which may be prior to the receipt of cash
attributable to such income. If a Security is
issued at a premium, the Holder may be entitled
to make an election to amortize such premium on
a constant yield method.
If a Prospectus Supplement indicates that one or
more REMIC elections will be made with respect
to the related Trust Fund or certain assets of
the related Trust Fund, assuming that such
elections are timely made and all of the
provisions of the applicable Agreement are
complied with, Stroock & Stroock & Lavan LLP,
special tax counsel to the Seller ("Federal Tax
Counsel") is of the opinion that (a) each
segregated pool of assets specified as a REMIC
in such Agreement will constitute a REMIC for
federal income tax purposes, (b) the Class or
Classes of Securities of the related Series
which are designated as "regular interests" in
such Prospectus Supplement will be considered
"regular interests" in a REMIC for federal
income tax purposes and (c) the Class of
Securities of the related Series which is
designated as the "residual interest" in such
Prospectus Supplement will be considered the
sole class of "residual interests" in the
applicable REMIC for federal income tax
purposes. A REMIC will not be subject to
entity-level tax. Rather, the taxable income or
net loss of a REMIC will be taken into account
by the holders of residual interests (a
"Residual Interest"). In certain circumstances,
the Holder of a Residual Interest may have REMIC
taxable income or tax liability attributable to
REMIC taxable income for a particular period in
excess of cash distributions for such period or
have an after-tax return that is less than the
after-tax return on comparable debt instruments.
In addition, a portion (or, in some cases, all)
of the income from a Residual Interest (i) may
not be subject to offset by losses from other
activities or
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<PAGE> 103
investments, (ii) for a Holder that is subject
to tax under the Code on unrelated business
taxable income, may be treated as unrelated
business taxable income and (iii) for a foreign
holder, may not qualify for exemption from or
reduction of withholding. In addition, (i)
Residual Interests are subject to transfer
restrictions and (ii) certain transfers of
Residual Interests will not be recognized for
federal income tax purposes. Further, individual
holders are subject to limitations on the
deductibility of expenses of the REMIC. See
"FEDERAL INCOME TAX CONSEQUENCES."
To the extent the material federal income tax
consequences differ from those disclosed herein,
Federal Tax Counsel will file a tax opinion and
related consent with the Commission.
B. NON-REMIC
PASS-THROUGH SECURITIES... If a Prospectus Supplement indicates that a
Trust Fund will be treated as a grantor trust
for federal income tax purposes, assuming
compliance with all of the provisions of the
applicable Agreement, Federal Tax Counsel is of
the opinion that (a) the Trust Fund will be
considered to be a grantor trust under Subpart
E, Part I of Subchapter J of the Code and will
not be considered to be an association taxable
as a corporation and (b) a Holder of the related
Certificates will be treated for federal income
tax purposes as the owner of an undivided
interest in the Primary Assets included in the
Trust Fund. If so provided in the Prospectus
Supplement, holders of Securities of such Series
("Pass-Through Securities") will be treated as
owning directly rights to receive certain
payments of interest or principal, or both, on
the Primary Assets held in the Trust Fund for
such Series. All income with respect to a
Stripped Security (as defined herein) will be
accounted for as original issue discount and,
unless otherwise specified in the related
Prospectus Supplement, will be reported by the
Trustee on an accrual basis, which may be prior
to the receipt of cash associated with such
income.
C. OWNER TRUST SECURITIES.... If a Prospectus Supplement indicates that one or
more Classes of Securities of the related Series
are to be treated as indebtedness for federal
income tax purposes, assuming that all of the
provisions of the applicable Agreement are
complied with, Federal Tax Counsel is of the
opinion that the Securities so designated will
be considered indebtedness for federal income
tax purposes. If a Prospectus Supplement
indicates that a Trust Fund is to be treated as
a partnership, assuming that all the provisions
of the applicable Agreement are complied with,
Federal Tax Counsel is of the opinion that the
Trust Fund will not be treated as an
association, taxable mortgage pool, or a
publicly traded partnership taxable as a
corporation. Each Noteholder, by the acceptance
of a Note of a given Series, will agree to treat
such Note as indebtedness,
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<PAGE> 104
and each Certificateholder, by the acceptance of
a Certificate of a given Series, will agree to
treat the related Trust Fund for Federal tax
purposes as a partnership in which such
Certificateholder is a partner if there is more
than one Certificateholder for federal income
tax purposes, or to disregard the Trust as an
entity separate from the Certificateholder if
there is only one Certificateholder for federal
income tax purposes. Alternative
characterizations of such Trust Fund and such
Certificates are possible, but would not result
in materially adverse tax consequences to
Certificateholders. See "FEDERAL INCOME TAX
CONSEQUENCES."
Generally, gain or loss will be recognized on a
sale of Securities in the amount equal to the
difference between the amount realized and the
seller's tax basis in the Securities sold. The
material federal income tax consequences for
investors associated with the purchase,
ownership and disposition of the Securities are
set forth herein under "FEDERAL INCOME TAX
CONSEQUENCES." The material federal income tax
consequences for investors associated with the
purchase, ownership and disposition of
Securities of any particular Series will be set
forth under the heading "FEDERAL INCOME TAX
CONSEQUENCES" in the related Prospectus
Supplement. See "FEDERAL INCOME TAX
CONSEQUENCES."
ERISA CONSIDERATIONS........ Subject to the considerations discussed under
"ERISA CONSIDERATIONS" herein and in the related
Prospectus Supplement, the Notes may be eligible
for purchase by employee benefit plans subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). See "ERISA
CONSIDERATIONS" herein and in the related
Prospectus Supplement.
LEGAL INVESTMENT............ Securities of each Series offered by this
Prospectus and the related Prospectus Supplement
will not constitute "mortgage related
securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). See "LEGAL
INVESTMENT."
RATINGS..................... It will be a requirement for issuance of any
Series that each Class of Securities offered by
this Prospectus and the related Prospectus
Supplement be rated by at least one Rating
Agency in one of its four highest applicable
rating categories. The rating or ratings
applicable to Securities of each Series offered
hereby and by the related Prospectus Supplement
will be as set forth in the related Prospectus
Supplement. A securities rating should be
evaluated independently of similar ratings on
different types of securities. In general, a
securities rating
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<PAGE> 105
addresses the likelihood that Holders will
receive the distributions to which they are
entitled. A securities rating is not a
recommendation to buy, hold or sell securities
and does not address the effect that the rate of
prepayments on the Home Equity Loans for a
Series may have on the yield to investors in the
Securities of such Series. There is no assurance
that the rating initially assigned to such
Securities will not be subsequently lowered or
withdrawn by the Rating Agency. In the event the
rating initially assigned to any Securities is
subsequently lowered for any reason, no person
or entity will be obligated to provide any
credit enhancement in addition to the
Enhancement, if any, specified in the related
Prospectus Supplement. See "RISK
FACTORS--Ratings Are Not Recommendations."
REGISTRATION OF
SECURITIES.................. Securities may be represented by global
certificates and notes registered in the name of
Cede & Co. ("Cede"), as nominee of the
Depository Trust Company ("DTC") or another
nominee. In such case, Securityholders will not
be entitled to receive definitive certificates
and/or notes representing such interests, except
in certain circumstances described in the
related Prospectus Supplement. See "DESCRIPTION
OF THE SECURITIES -- BOOK-ENTRY SECURITIES"
herein.
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<PAGE> 106
RISK FACTORS
Investors should consider, among other things, the following risk
factors in connection with the purchase of the Securities.
LACK OF SECONDARY MARKET LIMITS LIQUIDITY. There will be no market for
the Securities of any Series prior to the issuance thereof, and there can be no
assurance that a secondary market will develop or, if it does develop, that it
will provide Holders with liquidity of investment or will continue for the life
of the Securities of such Series. Further, if the Securities of a Series are not
listed on an exchange or quoted in the automated quotation system of a
registered securities association, investors may have limited liquidity. See
"PLAN OF DISTRIBUTION."
PRIMARY ASSETS ARE ONLY SOURCE OF REPAYMENT. The Securities of a Series
will be payable solely from the assets of the Trust Fund for such Securities and
any related Enhancement. There will be no recourse to the Seller, the Master
Servicer, the Representative or any other person for any default on the Notes or
any failure to receive distributions on the Certificates. Further, certain
Primary Assets and/or any balance remaining in the Collection Account,
Certificate Account or Distribution Account immediately after making all
payments due on the Securities of such Series and other payments specified in
the related Prospectus Supplement, may be promptly released or remitted to the
Seller, the Master Servicer, the Enhancer or any other person entitled thereto
and will no longer be available for making payments to Holders. Consequently,
Holders of Securities of each Series must rely solely upon payments with respect
to the Primary Assets and the other assets constituting the Trust Fund for a
Series of Securities, including, if applicable, any amounts available pursuant
to any Enhancement for such Series, for the payment of principal of and interest
on the Securities of such Series.
Holders of Notes will be required under the Indenture to proceed only
against the Primary Assets and other assets constituting the related Trust Fund
in the case of a default with respect to such Notes and may not proceed against
any assets of the Seller, the Master Servicer or the Representative. There is no
assurance that the market value of the Primary Assets or any other assets for a
Series will at any time be equal to or greater than the aggregate principal
amount of the Securities of such Series then outstanding, plus accrued interest
thereon. Moreover, upon an event of default under the Indenture for a Series of
Notes and a sale of the assets in the Trust Fund or upon a sale of the assets of
a Trust Fund for a Series of Certificates, the Trustee, the Master Servicer, the
Enhancer, if any, and any other service provider specified in the related
Prospectus Supplement generally will be entitled to receive the proceeds of any
such sale to the extent of unpaid fees and other amounts owing to such persons
under the related Agreement prior to distributions to Holders of Securities.
Upon any such sale, the proceeds thereof may be insufficient to pay in full the
principal of and interest on the Securities of such Series.
LIMITED PROTECTION AGAINST LOSSES. Although any Enhancement is intended
to reduce the risk of delinquent payments or losses to Holders entitled to the
benefit thereof, the amount of such Enhancement will be limited, as set forth in
the related Prospectus Supplement, and will decline and could be depleted under
certain circumstances prior to the payment in full of the related Series of
Securities. As a result Holders may suffer losses. See "ENHANCEMENT."
UNDERWRITING STANDARDS MAY AFFECT PERFORMANCE. As described herein under
"THE HOME EQUITY LOAN PROGRAM -- Underwriting Standards," the Originators'
underwriting standards generally are less stringent than those of traditional
Fannie Mae or Freddie Mac with respect to a borrower's credit history and in
certain other respects. A borrower's past credit history may not preclude an
Originator from making a loan; however, it generally will reduce the size (and
consequently the Combined Loan-to-Value Ratio) of the loan that an Originator is
willing to make. As a result of this approach to underwriting, the Home Equity
Loans may experience higher rates of delinquencies, defaults and foreclosures
than mortgage loans underwritten in a more traditional manner.
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<PAGE> 107
SUBORDINATION. The rights of holders of the Subordinate Securities, if
any, of a Series to receive distributions with respect to collections on the
Home Equity Loans will be subordinate to the rights of the holders of certain
more senior Classes of Securities. Accordingly, the yields to maturity of the
Subordinate Securities, if any, will be sensitive, in varying degrees, to
defaults on the Home Equity Loans (and the timing thereof). Investors should
fully consider the risks associated with an investment in the Subordinate
Securities, if any, including the possibility that such investors may not fully
recover their initial investment as a result of Realized Losses on the related
Home Equity Loans. The Subordinate Securities may not be entitled to any
principal distributions until the date specified in the related Prospectus
Supplement. As a result, the weighted average lives of the Subordinate
Securities will be longer than would be the case if distributions of principal
were to be allocated on a pro rata basis among the Senior and Subordinate
Securities. As a result of the longer weighted average lives of the Subordinate
Securities, the Subordinate Securities have a greater risk of suffering a loss
on their investments.
JUNIOR LIENS CREATE ADDITIONAL RISK OF LOSS. If the Home Equity Loans in
a Trust Fund are secured primarily by junior liens subordinate to the rights of
the mortgagee under the related senior mortgage(s) or deed(s) of trust, the
proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding balance of such Home Equity Loans only to
the extent that the claims of such senior mortgagees or beneficiaries have been
satisfied in full, including any related foreclosure costs. In addition, a
junior mortgagee may not foreclose on the Mortgaged Property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees at or prior to the foreclosure sale or undertake the obligation to
make payments on the senior mortgages in the event the mortgagor is in default
thereunder. The Trust Fund will not have any source of funds to satisfy the
senior mortgages or deeds of trust or make payments due to the senior mortgagees
or beneficiaries.
PROPERTY VALUES MAY BE INSUFFICIENT. There are several factors that
could adversely affect the value of the Mortgaged Properties such that the
outstanding balance of the related Home Equity Loan, together with any senior
financing on the Mortgaged Properties, would equal or exceed the value of the
Mortgaged Properties. Among the factors that could adversely affect the value of
the Mortgaged Properties are an overall decline in the residential real estate
market in the areas in which the Mortgaged Properties are located or a decline
in the general condition of the Mortgaged Properties as a result of failure of
borrowers to maintain adequately the Mortgaged Properties or of natural
disasters that are not necessarily covered by insurance, such as earthquakes and
floods. The Originator is not obligated to maintain hazard insurance policies,
and does not currently pay hazard insurance premiums if a mortgagor has not paid
insurance premiums to maintain in effect the hazard insurance policy for the
related Mortgaged Property. As a result, there may be Mortgaged Properties not
covered by hazard insurance policies. See "HOME EQUITY LOAN PROGRAMS --
Servicing." Any such decline could extinguish the value of a junior interest in
a Property before having any effect on the related senior interest therein. If
such a decline occurs, the actual rates of delinquencies, foreclosure and losses
on the junior Home Equity Loans could be higher than those currently experienced
in the mortgage and home improvement lending industry in general.
YIELD MAY VARY. The yield to maturity experienced by a Holder of
Securities may be affected by the rate of payment of principal of the Home
Equity Loans. The timing of principal payments of the Securities of a Series
will be affected by a number of factors, including the following: (i) the extent
of prepayments of the Home Equity Loans; (ii) the manner of allocating principal
payments among the Classes of Securities of a Series as specified in the related
Prospectus Supplement; and (iii) the exercise by the party entitled thereto of
any right of optional termination. See "DESCRIPTION OF THE SECURITIES--Weighted
Average Life of the Securities." The rate of prepayments may be affected by the
characteristics of the Home Equity Loans, such as the loans-to-value ratios,
interest rates and purposes of such loans, the prevailing level of interest
rates, demographic, tax, and legal factors and servicing decisions. Prepayments
may also result from repurchases of Home Equity Loans, due to material breaches
of the Representative's and the Originators' representations and warranties.
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Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues during the calendar month
prior to a Distribution Date, the effective yield to Holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
Security were to accrue through the day immediately preceding each Distribution
Date, and the effective yield (at par) to Holders will be less than the
indicated coupon rate. See "DESCRIPTION OF THE SECURITIES--Payments of
Interest."
INSUFFICIENT ADDITIONAL PRIMARY ASSETS MAY ADVERSELY AFFECT YIELD. The
ability of a Trust Fund to invest in additional Home Equity Loans during the
related Pre-Funding Period will be dependent on the ability of the Originators
to originate or acquire Home Equity Loans that satisfy the requirements for
transfer to the Trust Fund specified in the related Prospectus Supplement. The
ability of the Originators to originate or acquire such Loans will be affected
by a variety of factors, including the prevailing level of market interest
rates, unemployment levels and consumer perceptions of general economic
conditions. If the principal balance of additional Primary Assets delivered to
the Trust Fund during the Pre-Funding Period is less than the Pre-Funded Amount,
the Holders of the Securities of the related Series will receive a prepayment of
principal as and to the extent described in the related Prospectus Supplement.
Any such principal prepayment may adversely affect the yield to maturity of the
applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONDITIONS. Real property pledged
as security to a lender may be subject to certain environmental risks. Under the
laws of certain states, contamination of a property may give rise to a lien on
the property to assure the costs of clean-up. In several states, such a lien has
priority over the lien of an existing mortgage or owner's interest against such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"), a lender may be liable, as an "owner" or "operator," for costs of
addressing releases or threatened releases of hazardous substances that require
remedy at a property, if agents or employees of the lender have become
sufficiently involved in the operations of the borrower, regardless of whether
or not the environmental damage or threat was caused by a prior owner. A lender
also risks such liability on foreclosure of the Mortgaged Property.
CONSUMER PROTECTION LAWS MAY AFFECT HOME EQUITY LOANS. Applicable state
laws generally regulate interest rates and other charges and require certain
disclosures. 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 Home Equity 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 the Master Servicer
or a Sub-Servicer to collect all or part of the principal of or interest on the
Home Equity Loans, may entitle the borrower to a refund of amounts previously
paid and, in addition, could subject the owner of the Home Equity Loan to
damages and administrative enforcement.
The Home Equity 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
borrowers regarding the terms of the Home Equity 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;
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(iii) the Americans with Disabilities Act, which, among other
things, prohibits discrimination on the basis of disability in the full
and equal enjoyment of the goods, services, facilities, privileges,
advantages or accommodations of any place of public accommodation; and
(iv) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the Master Servicer or a Sub-Servicer to collect all or part of the
principal of or interest on the Home Equity Loans and in addition could subject
the Trust Fund to damages and administrative enforcement. The Home Equity Loans
may be subject to the Home Ownership and Equity Protection Act of 1994 (the
"Act") which amended the Truth in Lending Act as it applies to mortgages subject
to the Act. The Act requires certain additional disclosures, specifies the
timing of such disclosures and limits or prohibits inclusion of certain
provisions in mortgages subject to the Act. The Act also provides that any
purchaser or assignee of a mortgage covered by the 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 under the Act from an assignee is the
remaining amount of indebtedness plus the total amount paid by the borrower in
connection with the Home Equity Loan. If the Trust Fund includes Home Equity
Loans subject to the Act, it will be subject to all of the claims and defenses
which the borrower could assert against the applicable Originator. Any violation
of the Act which would result in such liability would be a breach of the
Originators' and the Representative's representations and warranties, and the
applicable Originator or the Representative would be obligated to cure,
repurchase or, if permitted by the Agreement, substitute for the Home Equity
Loan in question. In addition, numerous other federal and state statutory
provisions, including the federal bankruptcy laws, the Soldiers' and Sailors'
Civil Relief Act of 1940 and state debtor relief laws, may also adversely affect
the Master Servicer's or a Sub-Servicer's ability to collect the principal of or
interest on the Home Equity Loans and also would affect the interests of the
Securityholders in such Home Equity Loans if such laws result in the Home Equity
Loans being uncollectible. See "CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS."
RISK OF HIGHER DEFAULT RATES FOR HOME EQUITY LOANS WITH BALLOON LOANS. A
portion of the aggregate principal balance of the Home Equity Loans at any time
may be "balloon loans" that provide for the payment of the unamortized principal
balance of such Home Equity Loan in a single payment at maturity ("Balloon
Loans"). Such Balloon Loans provide for equal monthly payments, consisting of
principal and interest, generally based on a 30-year amortization schedule, and
a single payment of the remaining balance of the Balloon Loan generally 5, 7,
10, or 15 years after origination. Amortization of a Balloon Loan based on a
scheduled period that is longer than the term of the loan results in a remaining
principal balance at maturity that is substantially larger than the regular
scheduled payments. The Seller does not have any information regarding the
default history or prepayment history of payments on Balloon Loans. Because
borrowers of Balloon Loans are required to make substantial single payments upon
maturity, it is possible that the default risk associated with the Balloon Loans
is greater than that associated with fully-amortizing Home Equity Loans.
INSOLVENCY OF SELLER OR ORIGINATORS MAY CAUSE LOSSES. The Originators
intend that their transfer of the Primary Assets to the Seller and the Seller
intends that its subsequent transfer of the Primary Assets to a Trust Fund will
each constitute a sale, and the Originators, the Seller and the Trust Fund will
agree to treat each such transfer as a sale. In the event of the insolvency of
an Originator or the Seller, the trustee in bankruptcy or the Originator or the
Seller (as applicable), as debtor-in-possession, may attempt to recharacterize
such a sale as a loan by the Trust Fund to the Originator or the Seller, as
applicable, secured by the pledge of the related Primary Assets. If such an
attempt were to be successful, Holders of Securities could receive a prepayment
of all or part of their Securities. Any such prepayment would adversely affect
the yield on such Securities and could result in a loss. Even if such an attempt
were to be unsuccessful, Holders of Securities could experience delays in
distributions which would adversely affect the yield on the related Securities.
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RATINGS ARE NOT RECOMMENDATIONS. It will be a condition to the issuance
of a Series of Securities that each Class be rated in one of the four highest
rating categories by the Rating Agency identified in the related Prospectus
Supplement. Any such rating would be based on, among other things, the adequacy
of the value of the Primary Assets and any Enhancement with respect to such
Series. In general, a securities rating addresses the likelihood that Holders
will receive the distributions to which they are entitled. Such rating should
not be deemed a recommendation to purchase, hold or sell Securities, inasmuch as
it does not address market price or suitability for a particular investor and
does not address the likelihood of prepayments or the possibility that investors
may receive a lower than anticipated yield. There is also no assurance that any
such rating will remain in effect for any given period of time or may not be
lowered or withdrawn entirely by the Rating Agency if in its judgment
circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Primary Assets,
such rating might also be lowered or withdrawn, among other reasons, because of
an adverse change in the financial or other condition of an Enhancer or a change
in the rating of such Enhancer's long term debt. Any such reduction or
withdrawal in the rating assigned to the Securities may adversely affect the
liquidity of and yield on such Securities.
THE SELLER
Avco ABS Receivables Corp. (the "Seller") was incorporated in the State
of Nevada on November 7, 1997, and is a wholly-owned subsidiary of Avco
Financial Services, Inc. The Seller maintains its principal offices at 1727-B
Charleston, Las Vegas, Nevada 89104. Its telephone number is (702) 474-6282.
The Seller does not have, nor is it expected in the future to have, any
significant assets.
THE REPRESENTATIVE
Avco Financial Services, Inc., a Delaware corporation ("AFS, Inc.," the
"Representative" or the "Parent") is a consumer finance company that has
engaged, through its United States subsidiaries, in originating, acquiring and
servicing retail installment sales contracts, secured and unsecured consumer
finance loans since 1927 and consumer closed end loans secured by first and
second mortgages ("Closed-End Home Equity Loans") since 1968. More recently, it
has also purchased revolving sales accounts and made revolving consumer and real
estate loans. Throughout its operating history, the Representative and all of
its United States consumer finance subsidiaries have focused on lending to
individuals who have demonstrated reasonably good credit histories and the
capacity to repay the moneys lent to them. The Parent and all of its
subsidiaries make Closed-End Home Equity Loans to these borrowers for a variety
of purposes, including debt consolidation. The Closed-End Home Equity Loans are
secured by first or second mortgages on one- to four-family residential
properties. As of December 31, 1997, AFS, Inc. and all of its subsidiaries had
approximately 7,900 employees and 1,199 finance offices located throughout the
United States, the commonwealth of Puerto Rico, the Virgin Islands, Australia,
Canada, Hong Kong, India, Ireland, New Zealand, Spain, Sweden and the United
Kingdom.
The Representative's headquarters are located at 600 Anton Boulevard,
Costa Mesa, California 92626. Its telephone number is (714) 435-1200.
THE MASTER SERVICER
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<PAGE> 111
Avco Financial Services Management Company (the "Master Servicer") was
incorporated in the State of Delaware on December 1, 1964, and is wholly-owned
subsidiary of Avco Financial Services, Inc. The Master Servicer maintains its
principal offices at 600 Anton Boulevard, Costa Mesa, California 92626. Its
telephone number is (714) 435-1200.
At December 31, 1997, the Master Servicer serviced a portfolio of
1,316,522 of Closed-End Home Equity Loans. 67% of the portfolio was serviced in
the Branch Offices and 33% was serviced in the Central Mortgage Center.
HOME EQUITY LOAN PROGRAM
The Home Equity Loans will have been originated or purchased by the
United States consumer finance subsidiaries of Avco Financial Services, Inc.
(collectively and individually the "Originator") in accordance with the
underwriting criteria specified below under "Underwriting Standards" and
"Specific Underwriting Criteria; Underwriting Programs." The Home Equity Loans
will have been transferred from the Originators to the Seller.
GENERAL
The Originator originates Closed-End Home Equity Loans through its full
service offices and supporting sales offices ("Branch Offices"), and acquires
Closed-End Home Equity Loans through its central mortgage center (the "Central
Mortgage Center") from Brokers and Correspondents.
As of December 31, 1997, the Originator had 715 Branch Offices in all
states of the United States except Arkansas, Kansas, Mississippi, Oklahoma and
Vermont. As of December 31, 1997, the Central Mortgage Center had 6 sales
offices ("Sales Offices") located in California, Florida, Maryland, Nevada, Ohio
and Oregon. Substantially all of the Closed-End Home Equity Loans originated at
the Branch Offices ("Branch Originated Loans") are originated directly with the
borrowers. Through its Central Mortgage Center, the Originator underwrites,
acquires and services Closed-End Home Equity Loans ("Brokered Loans") originated
in the Sales Offices through licensed mortgage brokers and other real estate
professionals ("Brokers") who submit loan applications on behalf of the
borrower. The Originator also purchases Closed-End Home Equity Loans
("Correspondent Loans") through its Central Mortgage Center from approved
mortgage bankers and financial institutions ("Correspondents").
UNDERWRITING STANDARDS
The Originator operates under certain underwriting standards that have
been approved by the Originator and are generally described below (the
"Originator Standards"). The Representative and each Originator will represent
and warrant that all Home Equity Loans conveyed to the Seller, and subsequently
from the Seller to the Trustee, will have been underwritten in accordance with
the Originator Standards.
Underwriting standards are applied to evaluate the borrower's credit
standing and repayment ability, and the value and adequacy of the related
Mortgaged Property as collateral. In general, a prospective borrower applying
for a Closed-End Home Equity Loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent information with
respect to the applicant's liabilities, income, credit history, including the
principal balance and payment history with respect to any senior mortgage, and
employment history, as well as certain other personal information, which, to the
extent specified in the related Prospectus Supplement, have been verified by the
related Originator.
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<PAGE> 112
The Originator generally obtains a credit report which summarizes the
borrower's credit history with local and national merchants and lenders,
installment debt payments and any record of defaults, bankruptcies,
repossessions, suits or judgments. The applicant's employment history for the
prior three years is obtained. Current employment status is verified. In most
cases, an employment verification is obtained either through employee ID, a pay
stub or in writing or verbally from the borrower's employer, which verification
reports, among other things, verify the length of employment with that
organization and the borrower's current salary. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns.
Income is verified by reviewing the borrower's recent paycheck stub
(within the last 60 days), a recent 1040 or W2, written statement of earnings
from employer on business letterhead, a savings bond/bank statement of interest
paid, and retirement income. Verification is not required of present or former
customers if the customer has the same job, at the same place of employment, at
the same salary or higher. If the customer has changed place of employment, the
same verification process is used for a new customer.
A Credit Bureau report is generally required for all Closed-End Home
Equity Loans, regardless of any other conditions. Once all applicable
employment, credit and property information is received, a determination
generally is made, with the assistance of a Debt Ratio, as to whether the
prospective borrower has sufficient monthly gross income available (i) to meet
the borrower's monthly obligations on the proposed mortgage loan (generally
determined on the basis of the monthly payments due in the year of origination)
and other expenses related to the property (such as property taxes and hazard
insurance) and (ii) to meet other financial obligations and monthly living
expenses. The "Debt Ratio" is the ratio of the borrower's total monthly payments
described in (i) and (ii) above to the borrower's gross monthly income. The
maximum monthly Debt Ratio varies depending upon a borrower's credit grade and
loan documentation level (as described below) but does not generally exceed 40%
for Grade A Credits or 45% for Grade B Credits or Grade C Credits (as more
specifically described below). Variations in the maximum monthly Debt Ratios are
permitted based on compensating factors.
The underwriting standards applied by the Originator, particularly with
respect to the level of loan documentation and the borrower's income and credit
history, may be varied in appropriate cases where factors such as low combined
loan-to value ratios or other favorable credit exist. The maximum Combined
Loan-to-Value Ratio is based upon the type of Mortgaged Property, the occupancy
status and lien priority of the related mortgage. The maximum Combined
Loan-to-Value Ratio is generally 85%. Generally, the Originator requires lower
Combined Loan-to-Value Ratios for non-single family detached and non-owner
occupied properties, second lien mortgages and when the value of the property
increases. The maximum term for Branch Originated Loans is generally 180 months
and for Brokered Loans and Correspondent Loans is 360 months. Balloon Home
Equity Loans may be amortized over 30 years with a maturity date or subject to
call date, as applicable, within fifteen years.
APPRAISALS
In determining the adequacy of the property to be used as collateral, an
appraisal from an approved independent appraiser will generally be made of each
property considered for financing. The appraiser is generally required to
inspect the property, issue a report generally on a FNMA form regarding the
condition of the property and, if applicable, verify the construction, with
respect to new properties, has been completed. The appraisal is based on the
market value of comparable homes, the estimated rental income (if considered
applicable by the appraiser) and the cost of replacing the home. The value of
the property being financed, as indicated by the appraisal, must be such that it
currently supports, and is anticipated to support in the future, the outstanding
loan balance.
The Originator Standards limit the types of property which may serve as
collateral for a Closed-End Home Equity Loan to the following: Single family,
owner-occupied residences, including town homes and condominiums, or rental
properties up to four units. Any exception requires written approval of the
Originator's U.S. Finance Chief
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<PAGE> 113
Credit Officer. In addition, Closed-End Home Equity Loans may also be secured
by, mixed use properties which are underwritten to the same standards as
Closed-End Home Equity Loans secured by residential property.
Appraisals are required for each new or refinanced Home Equity Loan, by
an Originator-approved appraiser. New appraisals are not always required on
refinances, but the most recent appraisal must never by more than two years old.
With respect to Closed-End Home Equity Loans acquired by the Originator through
Brokers or Correspondents, the Originator reviews and re-underwrites each
Closed-End Home Equity Loan. A hazardous waste inspection must be conducted and
the fact that it was conducted must be noted on the appraisal. Title insurance
or an attorney's opinion of title must be obtained where the amount of the
Closed-End Home Equity Loan exceeds $10,000. Dwelling insurance is required in
an amount sufficient to ensure all mortgage/deeds of trust on the property,
including the Originator's mortgage/deed of trust. At the time of origination,
the Originator's policy is to require that it be named as loss payee on all
insurance policies. The Originator does not, however, track whether dwelling
insurance is maintained on the property or force place insurance.
SPECIFIC UNDERWRITING CRITERIA; UNDERWRITING PROGRAMS
The Originator Standards allow for the origination and purchase of
Closed-End Home Equity Loans generally under three underwriting programs, known
as Grade A Credits, Grade B Credits and Grade C Credits, all of which are
summarized in the table below. These programs and their underwriting criteria
may change from time to time. Deviations from the specific criteria of an
underwriting program are permitted to reflect local economic trends and real
estate valuations, as well as other credit factors specific to each Closed-End
Home Equity Loan application and/or each portfolio acquired. Some Closed-End
Home Equity Loans may be to borrowers whose creditworthiness may not coincide
with program criteria. Overall, the goal is to maintain the integrity of these
programs and simultaneously provide lending officers and correspondent networks
with the flexibility to consider the specific circumstances of each Closed-End
Home Equity Loan. However, the minimum standards must be adhered to without
prior approval.
BRANCH ORIGINATED HOME EQUITY LOANS:
<TABLE>
<CAPTION>
GRADE A GRADE B GRADE C
------- ------- -------
<S> <C> <C> <C>
Maximum Debt Ratio 40% of gross monthly income 45% of gross monthly income 45% of gross monthly income
Credit Report During the last 3 years no During the last 3 years no account No account is currently more than
account was more than 60 days was more than 90 days contractually 90 days contractually past due
contractually past due past due
First mortgage must be current First mortgage must be current and First mortgage must be current and
and not more than 30 days not more than 30 days contractually not be more than 30 days
contractually past due during past due more than twice during the contractually past due twice
the last 12 months last 12 months during the last two months.
No judgments or repossessions No judgments or collections over $300 No collections over $300 during
or collections over $200 during the last 2 years the last 2 years
</TABLE>
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<PAGE> 114
<TABLE>
<CAPTION>
No foreclosures No foreclosures No foreclosures
--------------- --------------- ---------------
<S> <C> <C> <C>
Employment
Wage Earner: 3 years same occupation 2 years same occupation 2 years same occupation
Self-Employed 4 years same occupation 3 years same occupation No self employed
Professional:
Self-Employed 4 years same occupation; 3 years same occupation; reduces
Non-Professional: reduces maximum CLTV by 10% maximum CLTV by 10% No self employed
Property Types Residential 1-4, single family Residential 1-4, single family Residential 1-4, single family
residence, Condo, Townhome residence, Condo, Townhome residence, Condo, Townhome; Rural
properties 65% maximum CLTV, 1%
increase in rate
Occupancy Owner/non-owner; non-owner 70% Owner/non-owner; non-owner 65% Owner only
maximum CLTV maximum CLTV
</TABLE>
The Originator will provide Closed-End Home Equity Loans to persons who
have obtained a discharge of debts under the Bankruptcy Code provided the
discharge has not resulted in a credit loss to the Originator. The origination
of Closed-End Home Equity Loans to such persons requires the approval of the
Originator's applicable credit manager.
The Originator's underwriting criteria differs slightly in the case of
Brokered Loans and Correspondent Loans. Generally, in the case of Brokered
Loans, the Originator allows a maximum debt ratio not to exceed 50% of gross
monthly income, a minimum gross monthly income of $2,000, up to 4 accounts which
are 120 days contractually delinquent and on mortgage debt up to 4 occasions
which are not more than 30 days contractually past due or not more than 30 days
delinquent on 2 occasions and 60 days delinquent on 1 occasion in the last 12
months, non medical collections or liens of $5,000 or more. On Correspondent
Loans the criteria is substantially the same.
The Originator controls quality of lending by limiting the lending
authority of its employees to prescribed ranges with specific lending authority
based on the individual's experience. Lending quality and compliance is audited
regularly by supervisors of the Branch Offices and the Central Mortgage Center
and periodically by the Originator's Management Audit Department. The Originator
has recently added credit supervisors and field auditors at various locations in
the United States to further monitor quality and compliance.
SERVICING
The Originator owns and services with employees of the Master Servicer
all of the Closed-End Home Equity Loans that it has originated or purchased
except those which it has sold in bulk to other companies. Servicing involves,
among other things, collecting payments when due, enforcing the Originator's
rights with
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respect to the Closed-End Home Equity Loans, including, recovering
delinquent payments, instituting foreclosure and liquidating the underlying
collateral.
The Originator generally services all Branch Originated Loans out of its
Branch Offices throughout the United States and the Brokered Loans and
Correspondent Loans out of its Central Mortgage Center, utilizing a system
("BOSCMS") which was developed in 1975 and has been updated from time to time to
include a ledgerless computer tracking system. The Originator's servicing
offices include Branch Offices and the Central Mortgage Center. BOSCMS is used
to provide detailed tracking of all key events in foreclosure and bankruptcy on
a loan-by-loan and portfolio-wide basis.
Centralized controls and standards have been established by the
Originator for the servicing and collection of Closed-End Home Equity Loans in
its portfolio. The Originator revises such policies and procedures from time to
time in connection with changing economic and market conditions and changing
legal and regulatory requirements.
The Originator's collections policy is designed to identify payment
problems sufficiently early to permit the Originator to quickly address
delinquency problems. The Originator believes that these policies, combined with
the experience level of independent appraisers engaged by the Originator, help
to reduce the incidence of charge-offs of first or second Closed-End Home Equity
Loans.
With the exception of "360 day amortized loans", borrowers are billed on
a monthly basis in advance of the due date. 360 day amortization Closed-End Home
Equity Loans annually are sent a set of 12 payment coupons. Collection
procedures commence upon identification of a past due account by the
Originator's BOSCMS. If timely payment is not received, BOSCMS automatically
places the Closed-End Home Equity Loan in collection "queue" and collection
procedures are generally initiated on the day immediately following the grace
period. The account returns to the queue whenever payment is not made on the
date promised. The Originator generally initiates its pre-foreclosure process if
a payment is not received on an account within 90 days following its due date.
When a Closed-End Home Equity Loan appears in a collection queue, a
collector will telephone to remind the borrower that a payment is due. Follow-up
telephone contacts are attempted until the account is current, the debtor
requests no further contact or foreclosure is instituted or other payment
arrangements have been made. Standard form letters are utilized when attempts to
reach the borrower by telephone fail and/or, in some circumstances, to
supplement the phone contacts. Company collectors have computer access to
telephone numbers, payment histories, loan information and all past collection
notes. All collection activity, including the date collection letters were sent
and detailed notes on the substance of each collection telephone call, is
entered into a permanent collection history for each account on BOSCMS.
Additional guidance with the collection process is derived through frequent
communication with the Originator's supervision and management.
For those Closed-End Home Equity Loans in which collection efforts have
been exhausted without success, the office manager recommends the Closed-End
Home Equity Loan be sent to foreclosure and the Company's supervisors review and
approve or instruct the action to be taken. Supervisors determine whether
foreclosure proceedings are appropriate, based upon their analysis of all
relevant factors, including a market value analysis, reason for default and
efforts by the borrower to cure the default.
Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of a borrower in default vary greatly from state to
state. As such, all foreclosures are assigned to outside counsel or a
foreclosure specialist, located in the same state as the secured property.
Bankruptcies filed by borrowers are generally assigned to appropriate local
counsel. All aspects of foreclosures and bankruptcies are closely monitored by
the Originator.
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<PAGE> 116
Prior to foreclosure sale, the Originator performs an in-depth market
value analysis on all defaulted Closed-End Home Equity Loans. This analysis
includes: (i) a current valuation of the property obtained through a drive-by
appraisal or broker's price opinion conducted by an independent appraiser and/or
a broker from the Originator's network of real estate brokers, complete with a
description of the condition of the property, recent price lists of comparable
properties, recent closed comparables, estimated marketing time and required or
suggested repairs, and an estimate of the sales price; (ii) an evaluation of the
amount owed, if any, for real estate taxes; (iii) an evaluation of the amount
owed, if any, to a senior mortgagee; and (iv) estimated carrying costs, broker
fees, repair costs and other related costs associated with real estate owned
properties. The Originator bases the amount it will bid at foreclosure sales on
this analysis.
If the Originator acquires title to a property at a foreclosure sale or
otherwise, the Originator immediately begins working the file by obtaining an
estimate of the sale price of the property by sending a local real estate broker
to inspect the premises, and then hiring one to begin marketing the property. If
the property is not vacant when acquired, local eviction attorneys are hired to
commence eviction proceedings and/or negotiations are held with occupants in an
attempt to get them to vacate without incurring the additional time and cost of
eviction. Repairs are performed if it is determined that they will increase the
net liquidation proceeds, taking into consideration the cost of repairs, the
carrying costs during the repair period and the marketability of the property
both before and after the repairs.
The Originator does not currently "force-place" casualty insurance
coverage if the Originator discovers that casualty insurance coverage has
lapsed. Instead, the Originator requests that its borrowers reinstate any lapsed
insurance as required by the terms of the mortgage documentation. See "SERVICING
OF HOME EQUITY LOANS-Maintenance of Insurance Policies and Other Servicing
Procedures."
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth information relating to the delinquency
and loss experience of the Originator for its servicing portfolio of home equity
loans (including home equity loans serviced for others) for the periods
indicated. This table includes lines of credit with outstanding principal
balances of $457,676,000, $377,143,000 and $287,382,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. While the Originator believes
that the lines of credit perform similarly with the home equity loans, there is
no assurance that the delinquency and foreclosure and loss experiences on the
lines of credit will be similar to that of the home equity loans.
ORIGINATOR'S HISTORIC SERVICING PORTFOLIO INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Total Outstanding Principal Balance $ 1,696,090 $ 1,721,008 $ 1,603,904
Average Outstanding (1) $ 1,710,669 $ 1,693,389 $ 1,703,588
DELINQUENCY
30-59 Days:
Principal Balance $ 23,147 $ 25,933 $ 26,134
----------- ----------- -----------
</TABLE>
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<PAGE> 117
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Percent of Delinquency (2) 1.32% 1.47% 1.59%
----------- ----------- -----------
60 Days or more:
Principal Balance $ 33,831 $ 35,441 $ 29,955
Percent of Delinquency (2) 1.93% 2.01% 1.82%
REO (3) $ 32,143 $ 35,585 $ 44,141
Gross Losses $ 14,773 $ 15,021 $ 15,135
Recoveries $ (847) $ (623) $ (2,301)
Net Losses (4) $ 13,926 $ 14,398 $ 12,834
Percentage of Net Losses
(based on Average Outstanding Principal Balance) 0.81% 0.85% 0.75%
----------- ----------- -----------
</TABLE>
- ------------------
(1) Calculated by summing the monthly average receivable balances (sum of
beginning and ending of the month principal balance divided by two) and
dividing the total by the number of months in the applicable period.
(2) Represents home equity loans on which one or more installments were 30
-59 or 60 or more days, as applicable, delinquent on a contractual basis
(expressed as a percentage of the related gross receivables
outstanding).
(3) Foreclosed home equity loans are transferred out of receivables into REO
which are included in other assets at the lower of fair value (less
estimated cost to sell) or the outstanding loan balance.
(4) Net Losses equal Gross Losses less recoveries.
While the above delinquency and foreclosure and loss experiences reflect
the Originator's experiences for the periods indicated, there can be no
assurance that the delinquency and foreclosure and loss experiences on the Home
Equity Loans, included in the Trust will be similar. Accordingly, this
information should not be considered to reflect the credit quality of the Home
Equity Loans included in the Trust, or as a basis of assessing the likelihood,
amount or severity of losses on the Home Equity Loans, included in the Trust.
The statistical data in the table is based on all of the loans in the
Originator's servicing portfolio.
DESCRIPTION OF THE SECURITIES
GENERAL
Each Series of Notes will be issued pursuant to an indenture (the
"Indenture") between the related Trust Fund and the entity named in the related
Prospectus Supplement as trustee (the "Trustee") with respect to such
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<PAGE> 118
Series. A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Certificates will also be
issued in Series pursuant to separate agreements (each, a "Pooling and Servicing
Agreement" or a "Trust Agreement") among the Seller, the Originators, the
Representative, the Master Servicer and the Trustee. A form of Pooling and
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus forms a part. A Series may consist of both Notes and
Certificates.
The following summaries describe the material provisions in the
Agreements common to each Series of Securities. The summaries do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreements and the Prospectus Supplement relating to
each Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
Each Series of Securities will consist of one or more Classes of
Securities, one or more of which may be Compound Interest Securities, Variable
Interest Securities, PAC Securities, Zero Coupon Securities, Principal Only
Securities or Interest Only Securities (each of which is generally described in
the "GLOSSARY OF TERMS"). A Series may also include one or more Classes of
Subordinate Securities. The Securities of each Series will be issued only in
fully registered form, without coupons, in the authorized denominations for each
Class specified in the related Prospectus Supplement. Upon satisfaction of the
conditions, if any, applicable to a Class of a Series, as described in the
related Prospectus Supplement, the transfer of the Securities may be registered
and the Securities may be exchanged at the office of the Trustee specified in
the Prospectus Supplement without the payment of any service charge other than
any tax or governmental charge payable in connection with such registration of
transfer or exchange. If specified in the related Prospectus Supplement, one or
more Classes of a Series may be available in book-entry form only.
Payments of principal of and interest on a Series of Securities will be
made on the Distribution Dates specified in the related Prospectus Supplement
(which may be different for each Class or for the payment of principal and
interest) by check mailed to Holders of such Series, registered as such at the
close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer
(which, unless otherwise specified in the related Prospectus Supplement, shall
be at the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the holder of such Security.
Payments of principal of and interest on the Securities will be made by
the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. All payments with respect to the Primary Assets
for a Series, together with reinvestment income thereon, amounts withdrawn from
any Reserve Fund, and amounts available pursuant to any other Enhancement will
be deposited into the Collection Account or the Certificate Account as specified
in the related Agreement. If provided in the related Prospectus Supplement, such
amounts may be net of certain amounts payable to the Master Servicer and any
other person specified in the Prospectus Supplement. Such amounts thereafter may
be deposited into the Distribution Account and will be available to make
payments on the Securities of such Series on the next applicable Distribution
Date. See "THE TRUST FUNDS--Collection, Certificate and Distribution Accounts."
BOOK-ENTRY SECURITIES
If specified in the related Prospectus Supplement, one or more Classes
of Securities may be issued in book-entry form (the "Book-Entry Securities").
Persons acquiring beneficial ownership interests in the Book-Entry
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<PAGE> 119
Securities ("Owners") will hold their Securities through the Depository Trust
Company ("DTC") in the United States, or Cedel Bank, societe anonyme, ("Cedel")
or the Euroclear System ("Euroclear") (in Europe) if they are participants of
such systems, or indirectly through organizations which are participants in such
systems. The Book-Entry Securities will be issued in one or more certificates
which equal the aggregate principal balance of the applicable Class or Classes
of Securities and will initially be registered in the name of Cede & Co., the
nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers" securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers" securities accounts in the depositaries"
names on the books of DTC. Citibank N.A. ("Citibank") will act as depositary for
Cedel and The Chase Manhattan Bank ("Chase") will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Except as described below, no person
acquiring a Book-Entry Security will be entitled to receive a physical
certificate representing such Security (a "Definitive Security"). Unless and
until Definitive Securities are issued, it is anticipated that the only
"Certificateholder" or Noteholder, as applicable, will be Cede & Co., as nominee
of DTC. Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Owner's ownership of a Book-Entry Security will be recorded on the
records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains the beneficial
owner's account for such purpose. In turn, the Financial Intermediary's
ownership of such Book-Entry Security will be recorded on the records of DTC (or
of a participating firm that acts as agent for the Financial Intermediary, whose
interest will in turn he recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a DTC participant and on the records of
Cedel or Euroclear, as appropriate).
Owners will receive all distributions of principal of, and interest on,
the Book-Entry Securities from the Trustee through DTC and DTC participants.
While the Book-Entry Securities are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect to
the Securities and is required to receive and transmit distributions of
principal of, and interest on, the Securities. Participants and indirect
participants with whom Certificate Owners have accounts with respect to
Securities are similarly required to make book-entry transfers and receive and
transmit such distributions on behalf of their respective Owners. Accordingly,
although Owners will not possess certificates, the Rules provide a mechanism by
which Owners will receive distributions and will be able to transfer their
interest.
Owners will not receive or be entitled to receive certificates
representing their respective interests in the Securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Owners who are not Participants may transfer ownership of Securities
only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer Securities, by book-entry
transfer, through DTC for the account of the purchasers of such Securities,
which account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Owners.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlement in DTC.
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Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing DTC and DTC
participants as in effect from time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Securities will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payments to the Owners that it represents and to
each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the Owners that it
represents.
Under a book-entry format, Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede. Distributions with respect to Securities held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by the Relevant Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. Because DTC can only act on behalf of Financial Intermediaries, the
ability of an Owner to pledge Book-Entry Securities to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Securities, may be limited due to the lack of
physical certificates for such Book-Entry Securities. In addition, issuance of
the Book-Entry Securities in book-entry form may reduce the liquidity of such
Securities in the secondary market since certain potential investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates.
Monthly and annual reports on the applicable Trust Fund will be provided
to Cede, as nominee of DTC, and may be made available by Cede to Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Securities of such Owners are credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Securities under the Agreement only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Securities are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Securities. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Holder under the Agreement on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to the ability of the Relevant Depositary to effect such actions on
its behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Securities which conflict with actions taken
with respect to other Securities.
Definitive Securities will be issued to Owners, or their nominees,
rather than to DTC, only if (a) DTC or the Seller advises the Trustee in writing
that DTC is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the Book-Entry
Securities and the Seller or the Trustee is unable to locate a qualified
successor, (b) the Seller, at its sole option, elects to terminate a book-entry
system
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through DTC or (c) after the occurrence of an Event of Default (as defined
herein), Owners owning a majority in principal amount of the applicable
Securities advise the Trustee and DTC through the Financial Intermediaries and
the DTC participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all applicable
Owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Certificateholders or Noteholders, as applicable, under the Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Seller, the Representative, the Master Servicer nor the
Trustee 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 held by Cede & Co., as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
VALUATION OF THE PRIMARY ASSETS
If specified in the related Prospectus Supplement for a Series of Notes,
each Primary Asset included in the related Trust Fund for a Series will be
assigned an initial "Asset Value." Generally, the related Agreement will specify
that at any time the Asset Value of the Primary Assets will be equal to the
product of the Asset Value Percentage as set forth in the Indenture and the
lesser of (a) the stream of remaining regularly scheduled payments on the
Primary Assets, net, of certain amounts payable as expenses, together with
income earned on each such scheduled payment received through the day preceding
the next Distribution Date at the Assumed Reinvestment Rate, if any, discounted
to present value at the highest interest rate on the Notes of such Series over
periods equal to the interval between payments on the Notes, and (b) the then
principal balance of the Primary Assets. Generally, the related Agreement will
specify that, the initial Asset Value of the Primary Assets will be at least
equal to the principal amount of the Notes of the related Series at the date of
issuance thereof.
The "Assumed Reinvestment Rate," if any, for a Series will be the
highest rate permitted by the Rating Agency or a rate insured by means of a
surety bond, guaranteed investment contract, or other arrangement satisfactory
to the Rating Agency. If the Assumed Reinvestment Rate is so insured, the
related Prospectus Supplement will set forth the terms of such arrangement.
PAYMENTS OF INTEREST
The Securities of each Class by their terms entitled to receive interest
will bear interest (which is generally calculated, on the basis of a 360 day
year of twelve 30-day months) from the date and at the rate per annum specified,
or calculated in the method described, in the related Prospectus Supplement.
Interest on such Securities of a Series will be payable on the Distribution Date
specified in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Distribution Date for the payment of interest of a
Class may be different from, or occur more or less frequently than, the
Distribution Date for the payment of principal of such Class. The rate of
interest on Securities of a Series may be variable or may change with changes in
the annual percentage rates of the Home Equity Loans included in the related
Trust Fund and/or as prepayments occur with respect to such Home Equity Loans.
Principal Only Securities may not be entitled to receive any interest
distributions or may be
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entitled to receive only nominal interest distributions. Any interest on Zero
Coupon Securities that is not paid on the related Distribution Date will accrue
and be added to the principal thereof on such Distribution Date.
Interest payable on the Securities on a Distribution Date will include
all interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
PAYMENTS OF PRINCIPAL
On each Distribution Date for a Series, principal payments will be made
to the Holders of the Securities of such Series on which principal is then
payable, to the extent set forth in the related Prospectus Supplement. Such
payments will be made in an aggregate amount determined as specified in the
related Prospectus Supplement and will be allocated among the respective Classes
of a Series in the manner, at the times and in the priority set forth in the
related Prospectus Supplement. The Holders of one or more Classes of Securities
may have the right to request that principal distributions allocable to such
Holder's Class of Securities be distributed to such Holder. If the requests of
Holders exceed the amount of principal to be distributed, the requests generally
will be filled in the order in which they were received. If the amount of
principal to be distributed exceeds the amount of requests, the Trustee will
select random lots of $1,000 each to receive such principal distribution. Thus,
some Holders of the applicable Class of Securities may receive no principal
distributions or a disproportionate amount of such principal distributions. If
so specified in the related Prospectus Supplement, the Distribution Date for the
payment of principal of a Class may be different from, or occur more or less
frequently than, the Distribution Date for the payment of interest for such
Class.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date with respect to each Class of
Notes is the date no later than the date on which the principal thereof will be
fully paid and with respect to each Class of Certificates will be the date on
which the entire aggregate principal balance of such Class is expected to be
reduced to zero, in each case calculated on the basis of the assumptions
applicable to such Series described in the related Prospectus Supplement. The
Final Scheduled Distribution Date for each Class of a Series will be specified
in the related Prospectus Supplement. Since payments on the Primary Assets will
be used to make distributions in reduction of the outstanding principal amount
of the Securities, it is likely that the actual final Distribution Date of any
such Class will occur earlier, and may occur substantially earlier, than its
Final Scheduled Distribution Date. Furthermore, with respect to a Series of
Certificates, as a result of delinquencies, defaults and liquidations of the
Primary Assets in the Trust Fund, the actual final Distribution Date of any
Certificate may occur later than its Final Scheduled Distribution Date. No
assurance can be given as to the actual prepayment experience with respect to a
Series. See "--Weighted Average Life of the Securities" below.
SPECIAL REDEMPTION
If so specified in the Prospectus Supplement relating to a Series of
Securities having other than monthly Distribution Dates, one or more Classes of
Securities of such Series may be subject to special redemption, in whole or in
part, on the day specified in the related Prospectus Supplement (a "Special
Redemption Date") if, as a consequence of prepayments on the Home Equity Loans
relating to such Securities or low yields then available for reinvestment the
entity specified in the related Prospectus Supplement determines, based on
assumptions specified in the applicable Agreement, that the amount available for
the payment of interest that will have accrued on such Securities (the
"Available Interest Amount") through the designated interest accrual date
specified in the related Prospectus Supplement is less than the amount of
interest that will have accrued on such Securities to such date. In such event
and as further described in the related Prospectus Supplement, the Trustee will
redeem a principal
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amount of outstanding Securities of such Series as will cause the Available
Interest Amount to equal the amount of interest that will have accrued through
such designated interest accrual date for such Series of Securities outstanding
immediately after such redemption.
OPTIONAL REDEMPTION, PURCHASE OR TERMINATION
The Seller, the Master Servicer, or another entity designated in the
related Prospectus Supplement may, at its option, cause an early termination of
one or more Classes of Securities by purchasing all or part of the Primary
Assets from such Trust Fund on or after a date specified in the related
Prospectus Supplement, or on or after such time as the aggregate outstanding
principal amount of the Securities or Primary Assets, as specified in the
related Prospectus Supplement is less than the amount or percentage, not more
than 25%, specified in the related Prospectus Supplement) at a price equal to
the sum of the outstanding Pool Balance (subject to reduction of the purchase
price based in part on the appraised value of any REO Property included in the
Trust if such appraised value is less than the Principal Balance of the related
Home Equity Loan, as provided in the Agreement) and accrued and unpaid interest
thereon at the weighted average of the Home Equity Loan Rates through the end of
the related Due Period together with all amounts due and owing to the Enhancer,
if any. There will be sufficient proceeds to pay off the then current principal
balance of any Securities of such Series outstanding. In addition, if so
specified in the related Prospectus Supplement upon certain events of insolvency
or receivership of the Seller or another affiliated entity specified in the
related Prospectus Supplement, the related Primary Assets of the Trust Fund will
be liquidated and the Trust Fund will be terminated, subject to the conditions
set forth in the related Prospectus Supplement. In each such event, the
Securities of the related Series will experience a prepayment. If specified in
the related Prospectus Supplement, in the event that a REMIC election has been
made, the Trustee will receive a satisfactory opinion of counsel that the
optional redemption, purchase or termination will be conducted so as to
constitute a "qualified liquidation" under Section 860F of the Code. Following
the sale of the Primary Assets, neither the Trust, nor the holders of Securities
will have any continuing direct of indirect liability as sellers of the Primary
Assets.
If so specified in the related Prospectus Supplement, the Master
Servicer may have the option to purchase from the Trust Fund any Home Equity
Loan 90 days or more delinquent at a purchase price equal to the outstanding
Principal Balance of such Home Equity Loan as of the date of purchase, plus all
accrued and unpaid interest thereon computed at the Home Equity Loan Rate
through the end of the related Due Period, together with all unreimbursed
amounts owing to the Enhancer with respect to such Home Equity Loan, if any.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
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. Generally, the weighted average
life of a Class of the Securities will be influenced by the rate at which the
amount financed under the Home Equity Loans included in the Trust Fund for a
Series is paid, which may be in the form of scheduled amortization or
prepayments.
Prepayments on loans and other receivables can be measured relative to a
prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the weighted average life of each Class of
Securities of such Series, and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series, in each case based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Home Equity Loans included in the related Trust Fund are made
at rates corresponding to various percentages of the prepayment standard or
model specified in such Prospectus Supplement.
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There is, however, no assurance that prepayment of the Home Equity Loans
included in the related Trust Fund will conform to any level of any prepayment
standard or model specified in the related Prospectus Supplement. The rate of
principal prepayments on pools of loans may be influenced by a variety of
factors, including job related factors such as transfers, layoffs or promotions
and personal factors such as divorce, disability or prolonged illness. Economic
conditions, either generally or within a particular geographic area or industry,
also may affect the rate of principal prepayments. Demographic and social
factors may influence the rate of principal prepayments in that some borrowers
have greater financial flexibility to move or refinance than do other borrowers.
The deductibility of mortgage interest payments, and servicing decisions also
affect the rate of principal prepayments. As a result, there can be no assurance
as to the rate or timing of principal prepayments of the Home Equity Loans
either from time to time or over the lives of such Home Equity Loans.
The rate of prepayments of conventional housing loans and other
receivables has fluctuated significantly in recent years. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
Home Equity Loans for a Series, such loans are likely to prepay at rates higher
than if prevailing interest rates remain at or above the interest rates borne by
such loans. In this regard, it should be noted that the Home Equity Loans for a
Series may have different interest rates. In addition, the weighted average life
of the Securities may be affected by the varying maturities of the Home Equity
Loans. If any Home Equity Loans for a Series have actual terms-to-stated
maturity of less than those assumed in calculating the Final Scheduled
Distribution Date of the related Securities, one or more Classes of the Series
may be fully paid prior to their respective Final Scheduled Distribution Date,
even in the absence of prepayments and a reinvestment return higher than the
Assumed Reinvestment Rate.
THE TRUST FUNDS
GENERAL
The Notes of each Series will be secured by the pledge of the assets of
the related Trust Fund, and the Certificates of each Series will represent
interests in the assets of the related Trust Fund. The Trust Fund of each Series
will include (i) the Primary Assets, (ii) amounts available from the
reinvestment of payments on such Primary Assets at the Assumed Reinvestment
Rate, if any, specified in the related Prospectus Supplement, (iii) any
Enhancement or the rights thereto, (iv) any Mortgaged Property that secured a
Home Equity Loan but which is acquired by foreclosure or deed in lieu of
foreclosure or repossession and (v) the amount, if any, initially deposited in
the Pre-Funding Account, Capitalized Interest Account, Collection Account,
Certificate Account or Distribution Account for a Series as specified in the
related Prospectus Supplement.
The Securities will be non-recourse obligations of the related Trust
Fund. The assets of the Trust Fund specified in the related Prospectus
Supplement for a Series of Securities, will serve as collateral only for that
Series of Securities unless the related Prospectus Supplement specifies that
such assets will serve as collateral for another Series. Holders of a Series of
Notes may only proceed against such collateral securing such Series of Notes in
the case of a default with respect to such Series of Notes and may not proceed
against any assets of the Seller or the related Trust Fund not pledged to secure
such Notes.
The Primary Assets for a Series will be transferred by the Originators
to the Seller and from the Seller to the Trust Fund. Home Equity Loans relating
to a Series will be master serviced by the Master Servicer pursuant to a Pooling
and Servicing Agreement, with respect to a Series consisting of only
Certificates or a Sale and Servicing Agreement (each, a "Sale and Servicing
Agreement") between the Seller, the Trust Fund, the Originators, the
Representative and the Master Servicer, with respect to a Series that includes
Notes.
As used herein, "Agreement" means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series that includes Notes, the Indenture and the Sale and
Servicing Agreement, as the context requires.
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If so specified in the related Prospectus Supplement, a Trust Fund
relating to a Series of Securities may be a business trust formed under the laws
of the state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a "Trust Agreement") between the Seller and the Trustee of such
Trust Fund specified in the related Prospectus Supplement.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding the related Primary Assets and other assets contemplated
herein and in the related Prospectus Supplement and the proceeds thereof,
issuing Securities and making payments and distributions thereon and certain
related activities. No Trust Fund is expected to have any source of capital
other than its assets and any related Enhancement.
An Agreement may provide that additional Home Equity Loans may be added
to the Trust Fund if such Home Equity Loans were originated or acquired by an
Originator in the ordinary course of its business, the inclusion of such Home
Equity Loans will maintain or increase the level of overcollateralization and
the inclusion of such Home Equity Loans will not result in the withdrawal or
downgrading of the ratings then assigned to the Securities of the related
Series. In addition, an Agreement may provide that Home Equity Loans may be
removed from a Trust Fund from time to time if the actual level of
overcollateralization exceeds the amount of overcollateralization required to be
maintained and such removal will not result in the withdrawal or downgrading of
the ratings then assigned to the Securities of the related Series.
THE HOME EQUITY LOANS
The Primary Assets for a Series may consist, in whole or in part, of
closed-end home equity loans (the "Home Equity Loans") secured by first or
second mortgages primarily on Single Family Mortgaged Properties which may be
subordinated to other mortgages on the same Mortgaged Property. The Home Equity
Loans may have fixed interest rates or adjustable interest rates and may provide
for other payment characteristics as described below.
The full principal amount of a Home Equity Loan is advanced at
origination of the loan and generally is repayable in equal (or substantially
equal) installments of an amount sufficient to fully amortize such loan at its
stated maturity. As more fully described in the related Prospectus Supplement,
interest on each Home Equity Loan is calculated on the basis of the outstanding
principal balance of such loan multiplied by the Home Equity Loan Rate thereon
and, in the case of simple interest loans, further multiplied by a fraction, the
numerator of which is the number of days in the period elapsed since the
preceding payment of interest was made and the denominator is the number of days
in the annual period for which interest accrues on such loan. Interest on Home
Equity Loans also may be calculated on the actuarial basis, in which case each
monthly payment consists of a decreasing amount of interest and an increasing
amount of principal, and the payment either earlier or later then the due date
therefor will not affect the relative applications of principal and interest.
The Home Equity Loans for a Series may include Home Equity Loans that do not
amortize their entire principal balance by their stated maturity in accordance
with their terms and require a balloon payment of the remaining principal
balance at maturity, as specified in the related Prospectus Supplement. The
original terms to stated maturity of Home Equity Loans will generally not exceed
360 months.
The Mortgaged Properties will include Single Family Property (i.e., one-
to four-family residential housing, including Condominium Units and Cooperative
Dwellings) and may include mixed-use property. Mixed-use properties will consist
of structures of no more than three stories, which include one to four
residential dwelling units and space used for retail, professional or other
commercial uses. Such uses, which will not involve more than 50% of the space in
the structure, may include doctor, dentist or law offices, real estate agencies,
boutiques,
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newsstands, convenience stores or other similar types of uses intended to cater
to individual customers as specified in the related Prospectus Supplement. The
properties may be located in suburban or metropolitan districts. Any such
non-residential use will be in compliance with local zoning laws and
regulations. The Mortgaged Properties may consist of detached individual
dwellings, individual condominiums, townhouses, duplexes, row houses, individual
units in planned unit developments and other attached dwelling units. The
Mortgaged Properties also may include module or manufactured homes which are
treated as real estate under local law. Except for Condominium Units and
Cooperative Dwellings, each Single Family Property will be located on land owned
in fee simple by the borrower or on land leased by the borrower for a term at
least as long as the term of the related Home Equity Loan. Attached dwellings
may include owner-occupied structures where each borrower owns the land upon
which the unit is built, with the remaining adjacent land owned in common or
dwelling units subject to a proprietary lease or occupancy agreement in a
cooperatively owned apartment building. Mortgages on Cooperative Dwellings
consist of a lien on the shares issued by such Cooperative Dwelling and the
proprietary lease or occupancy agreement relating to such Cooperative Dwelling.
The aggregate principal balance of Home Equity Loans secured by
Mortgaged Properties that are owner-occupied will be disclosed in the related
Prospectus Supplement. The sole basis for determining that a given percentage of
the Home Equity Loans are secured by Single Family Property that is
owner-occupied will be either (i) the making of an oral representation by the
Mortgagor at origination of the Home Equity Loan either that the underlying
Mortgaged Property will be used by the Mortgagor for a period of at least six
months every year or that the Mortgagor intends to use the Mortgaged Property as
a primary residence, or (ii) a finding that the address of the underlying
Mortgaged Property is the Mortgagor's mailing address as reflected in the Master
Servicer's or the applicable Sub-Servicer's records. The Mortgaged Properties
also may include non-owner occupied investment properties and vacation and
second homes.
ADDITIONAL INFORMATION. The related Prospectus Supplement for each
Series will provide information with respect to the Home Equity Loans that are
Primary Assets as of the Cut-off Date, including, among other things, and to the
extent relevant: (a) the aggregate unpaid principal balance of the Home Equity
Loans (b) the range and weighted average Home Equity Loan Rate on the Home
Equity Loans, and, in the case of adjustable rate Home Equity Loans, the range
and weighted average of the current Home Equity Loan Rates and the Lifetime Rate
Caps, if any; (c) the range and average outstanding principal balance of the
Home Equity Loans; (d) the weighted average original and remaining
term-to-stated maturity of the Home Equity Loans and the range of original and
remaining terms-to-stated maturity, if applicable; (e) the range and weighted
average of Combined Loan-to-Value Ratios for the Home Equity Loans; (f) the
percentage (by outstanding principal balance as of the Cut-off Date) of Home
Equity Loans that accrue interest at adjustable or fixed interest rates; (g) any
special hazard insurance policy or bankruptcy bond or other enhancement relating
to the Home Equity Loans; (h) the geographic distribution of the Mortgaged
Properties securing the Home Equity Loans; (i) the percentage of Home Equity
Loans (by principal balance as of the Cut-off Date) that are secured by Single
Family Mortgaged Properties, shares relating to Cooperative Dwellings,
Condominium Units, investment property and vacation or second homes; (j) the
lien priority of the Home Equity Loans; and (k) the delinquency status and year
of origination of the Home Equity Loans. The related Prospectus Supplement will
also specify any other limitations on the types or characteristics of Home
Equity Loans for a Series.
If information of the nature described above respecting the Home Equity
Loans is not known to the Seller at the time the Securities are initially
offered, approximate or more general information of the nature described above
will be provided in the Prospectus Supplement and additional information will be
set forth in a Current Report on Form 8-K to be available to investors on the
date of issuance of the related Series and to be filed with the Commission
within 15 days after the initial issuance of such Securities.
COLLECTION, CERTIFICATE AND DISTRIBUTION ACCOUNTS
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A separate Collection Account or Certificate Account will be established
for each Series of Securities for receipt of all amounts received on or with
respect to the Primary Assets. Certain amounts on deposit in such Collection
Account and certain amounts available pursuant to any Enhancement, as provided
in the related Prospectus Supplement, may be deposited in one or more
Distribution Accounts. Funds in the Collection, Certificate and Distribution
Accounts generally will be invested in Eligible Investments maturing, with
certain exceptions, not later, in the case of funds in the Collection Account,
than the day preceding the date such funds are due to be deposited in the
Distribution Account or otherwise distributed and, in the case of funds in the
Distribution Account and the Certificate Account, than the day preceding the
next Distribution Date for the related Series of Securities. See "--Eligible
Investments" below.
PRE-FUNDING AND CAPITALIZED INTEREST ACCOUNTS
If specified in the related Prospectus Supplement, a Trust Fund will
include one or more segregated trust accounts (each, a "Pre-Funding Account")
established and maintained with the Trustee for the related Series. If so
specified, on the closing date for such Series, a portion of the proceeds of the
sale of the Securities of such Series not to exceed fifty percent of the
aggregate principal amount of such Series (such amount, the "Pre-Funded Amount")
may be deposited in the Pre-Funding Account and may be used to purchase
additional Primary Assets during the period of time not to exceed six months
specified in the related Prospectus Supplement (the "Pre-Funding Period").
Pending the purchase of such additional Primary Assets, funds deposited in the
Pre-Funding Account will be invested in Eligible Investments. If any Pre-Funded
Amount remains on deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the manner specified in the
related Prospectus Supplement to prepay the Notes and/or the Certificates of the
applicable Series.
Each additional Primary Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Agreements. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or any Enhancer) prior to the issuance of the related Series and are
designed to ensure that if such additional Primary Assets were included as part
of the initial Primary Assets, the credit quality of such assets would be
consistent with the initial rating of the Securities of such Series. The
eligibility criteria will apply to the pool of Primary Assets, including the
subsequent Primary Assets, and will include a minimum weighted average interest
rate, a maximum weighted average remaining term to maturity and a maximum
weighted average Combined Loan-to-Value Ratio. Depending on the composition of
the original Primary Assets and the type of Enhancement, additional eligibility
criteria such as a minimum interest rate, a maximum principal balance, a
limitation on geographic concentration and a limit on certain types of Primary
Assets such as Balloon Loans or loans secured by other than primary residences.
The Seller and the Representative will certify to the Trustee that all
conditions precedent to the transfer of the additional Primary Assets, including
the satisfaction of the eligibility criteria to the Trust Fund, have been
satisfied. It is a condition to the transfer of any additional Primary Assets to
the Trust Fund that each Rating Agency, after receiving prior notice of the
proposed transfer of the additional Primary Assets to the Trust Fund, shall not
have advised the Seller or the Trustee or any Enhancer that the conveyance of
such additional Primary Assets will result in a qualification, modification or
withdrawal of its then current rating of any Class of Notes or Certificates of
such Series. Following the transfer of additional Primary Assets to the Trust
Fund, the aggregate characteristics of the Primary Assets then held in the Trust
Fund may vary from those of the initial Primary Assets of such Trust Fund. As a
result, the additional Primary Assets may adversely affect the performance of
the related Securities.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a "Capitalized Interest Account") may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Securities of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period such as
Trustee fees and credit enhancement fees, over the amount of interest
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available therefor from the Primary Assets in the Trust Fund. If so specified in
the related Prospectus Supplement, amounts on deposit in the Capitalized
Interest Account may be released to the Seller prior to the end of the
Pre-Funding Period subject to the satisfaction of certain tests specified in the
related Prospectus Supplement. Any amounts on deposit in the Capitalized
Interest Account at the end of the Pre-Funding Period that are not necessary for
such purposes will be distributed to the person specified in the related
Prospectus Supplement.
ELIGIBLE INVESTMENTS
Each Agreement generally will define Eligible Investments to include the
following:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of the
party agreeing to repurchase such obligations are at the time rated by
each Rating Agency in its highest short-term rating category;
(iii) certificates of deposit, time deposits and bankers"
acceptances of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by federal and/or state
banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the date
of acquisition thereof have been rated by each Rating Agency in its
highest unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not more
than 90 days) of any corporation incorporated under the laws of the
United States or any state thereof which on the date of acquisition has
been rated by each Rating Agency in their highest short-term rating
categories;
(v) short-term investment funds ("STIFS") sponsored by any trust
company or national banking association incorporated under the laws of
the United States or any state thereof which on the date of acquisition
has been rated by each Rating Agency in their respective highest rating
category of long-term unsecured debt; and
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time as the
interest is held in such fund has a rating of "Aaa" by Moody's Investors
Service, Inc., and either "AAAm" or "AAAm-G" by Standard & Poor's
Ratings Group, a division of The McGraw-Hill Companies, Inc.;
provided that no instrument described above may evidence either the right to
receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
To the extent any such investment would require registration of the
Trust Fund as an investment company, such investment will not constitute an
Eligible Investment.
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REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a Class or Classes of Notes and/or
Certificates of a Series and ending on the date set forth in the related
Prospectus Supplement (each, a "Revolving Period") during which limited or no
principal payments will be made to one or more Classes of Notes or Certificates
of the related Series as are identified in such Prospectus Supplement. Some or
all collections of principal otherwise allocated to such Classes of Notes or
Certificates may be (i) utilized during the Revolving Period to acquire
additional Primary Assets which satisfy the criteria specified above and the
criteria set forth in the related Prospectus Supplement, (ii) held in an account
and invested in Eligible Investments for later distribution to Securityholders,
(iii) applied to those Notes or Certificates for such Series, if any, specified
in the related Prospectus Supplement as then are in amortization, or (iv)
otherwise applied as specified in the related Prospectus Supplement.
An "Amortization Period" is the period during which an amount of
principal is payable to Holders of a Series which, during the Revolving Period,
were not otherwise entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Primary Assets may be applied as specified above
for a Revolving Period and, to the extent not so applied, will be distributed to
the Classes of Notes or Certificates for such Series specified in the related
Prospectus Supplement as then being entitled to payments of principal. In
addition, if so specified in the related Prospectus Supplement, amounts
deposited in certain accounts for the benefit of one or more Classes of Notes or
Certificates for such Series may be released from time to time or on a specified
date and applied as a payment of principal on such Classes of Notes or
Certificates. The related Prospectus Supplement will set forth the circumstances
which will result in the commencement of an Amortization Period.
Each Series which has a Revolving Period may also issue to the
Representative or one of its affiliates a certificate evidencing an undivided
beneficial interest (a "Retained Interest") in such Series not represented by
the other Securities issued by the Representative. As further described in the
related Prospectus Supplement, the value of such Retained Interest will
fluctuate as the amount of Notes and Certificates of the related Series of
Securities outstanding is reduced.
ENHANCEMENT
The amounts and types of credit enhancement ("Enhancement") arrangements
and the provider thereof, if applicable, with respect to a Series or any Class
of Securities will be set forth in the related Prospectus Supplement. If
specified in the applicable Prospectus Supplement, Enhancement for any Series of
Securities may cover one or more Classes of Notes or Certificates, and
accordingly may be exhausted for the benefit of a particular Class of Notes or
Certificates and thereafter be unavailable to such other Classes of Notes or
Certificates. Further information regarding any provider of credit enhancement,
including financial information when material, will be included in the related
Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement,
Enhancement may include one or more of the following or any combination thereof:
Financial Guaranty Insurance Policy which will be issued by a monoline
insurance company and which, subject to the terms of such policy, will guarantee
timely payment of interest on, and ultimate (as opposed to timely) payment of
principal of, the applicable Class or Classes of Securities;
Overcollateralization which will equal the excess of the aggregate
principal balance of the Primary Assets over the aggregate principal balance of
the Securities. Overcollateralization may take the form of the initial or
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subsequent deposit of Primary Assets to create such excess or may build over
time from the application of certain excess cash amounts generated by the
Primary Assets to accelerate the amortization of the applicable Class or Classes
of Securities;
Letter of Credit which will be issued by a bank or other financial
institution in a maximum amount which may be permanently reduced as draws are
made or may be replenished as previous draws are repaid from certain excess cash
amounts generated by the Primary Assets. Draws may be made to cover shortfalls
generally in collections, with respect to particular types of shortfalls such as
those due to particular types of losses or with respect to specific situations
such as shortfalls in amounts necessary to pay current interest;
Cash Reserve Fund which may be partially or fully funded on the date of
issuance or may be funded over time from certain excess cash amounts generated
by the Primary Assets. Withdrawals may be made in circumstances similar to those
for which draws may be made on a letter of credit;
Insurance Policies which may insure a portion of the Home Equity Loans
against credit losses, bankruptcy losses, fraud losses or special hazard losses
not covered by typical homeowners insurance policies;
Subordinate Securities which will be subordinated in the right to
receive distributions to one or more other Classes of Securities of the same
Series, some or all of which may themselves be subordinated to other Classes of
such Series. Subordination may be with respect to distributions of interest,
principal or both. In addition, all or portions of certain types of losses on
the Primary Assets may be allocated to one or more Classes of the Subordinate
Securities prior to the allocation thereof to other Classes of Subordinate
Certificates and/or the Senior Securities of the applicable Series; or
Derivative Products which may include a swap to convert floating or
fixed rate payments, as applicable, on the Primary Assets into fixed or floating
rate payments, as applicable, on the Securities or a cap or floor agreement
intended to provide protection against changes in floating rates of interest
payable on the Primary Assets and/or the Securities.
The presence of Enhancement is intended to increase the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the related
Prospectus Supplement. Forms of Enhancement may provide for one or more Classes
of Securities to be paid in foreign currencies. The Enhancement for a Class of
Securities generally will not provide protection against all risks of loss and
may not guarantee repayment of the entire principal and interest thereon. If
losses occur which exceed the amount covered by any Enhancement or which are not
covered by any Enhancement, Securityholders will bear their allocable share of
deficiencies. In addition, if a form of Enhancement covers more than one Class
of Securities of a Series, Securityholders of any such Class will be subject to
the risk that such Enhancement will be exhausted by the claims of
Securityholders of other Classes.
SERVICING OF HOME EQUITY LOANS
GENERAL
The Home Equity Loans comprising the Primary Assets in the Trust Fund
will be master serviced by the Master Servicer pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as the case may be, with
respect to a Series of Securities. It is expected that the Master Servicer will
enter into sub-servicing agreements with the Originators pursuant to which each
Originator will act as sub-servicer with respect to
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the Home Equity Loans sold by such Originator to the Seller. No such
sub-servicing agreement will relieve the Master Servicer of any liability it
might otherwise have, had the sub-servicing arrangement not been entered into.
As used in this section, the term "Servicer" refers to both the Master Servicer
and each Originator in its role as a Sub-Servicer.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Servicer will make reasonable efforts to collect all payments
required to be made under the Home Equity Loans and will, consistent with the
terms of the related Agreement for a Series and any applicable Enhancement,
follow such collection procedures as it follows with respect to comparable loans
held in its own portfolio. Consistent with the above, the Servicer may, in its
discretion, (i) waive any assumption fee, late payment charge, or other charge
in connection with a Home Equity Loan and (ii) arrange with an obligor a
schedule for the liquidation of delinquencies by extending the Due Dates for
Scheduled Payments on such Home Equity Loan.
The Servicer will not establish or maintain escrow or impound accounts
("Escrow Accounts") with respect to Home Equity Loans for any purpose.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT OR THE CERTIFICATE
ACCOUNT
The Trustee or the Master Servicer will establish a separate account
(the "Collection Account" or the "Certificate Account") in the name or for the
benefit of the Trustee. The Collection Account and/or Certificate Account will
be an account maintained (i) at a depository institution, the long-term
unsecured debt obligations of which at the time of any deposit therein are rated
by each Rating Agency rating the Securities of such Series at levels
satisfactory to each Rating Agency or (ii) in an account or accounts the
deposits in which are insured to the maximum extent available by the Federal
Deposit Insurance Corporation (the "FDIC") or which are secured in a manner
meeting requirements established by each Rating Agency.
The funds held in the Collection Account or the Certificate Account may
be invested, pending remittance to the Trustee, in Eligible Investments. The
Servicer will be entitled to receive as additional compensation any interest or
other income earned on funds in the Collection Account or Certificate Account.
The Servicer, the Seller or the Trustee will deposit into the Collection
Account for each Series, within the period specified in the related Prospectus
Supplement, the following payments and collections received or made by it (other
than, in respect of principal of and interest on the related Primary Assets due
or, in the case of simple interest Home Equity Loans, received, on or before
such Cut-off Date):
(i) all payments on account of principal, including prepayments,
on such Primary Assets;
(ii) all payments on account of interest on such Primary Assets
after deducting therefrom, at the discretion of the Servicer but only to
the extent of the amount permitted to be withdrawn or withheld from the
Collection Account in accordance with the related Agreement, the
Servicing Fee in respect of such Primary Assets;
(iii) all amounts received by the Servicer in connection with
the liquidation of Primary Assets or property acquired in respect
thereof, whether through foreclosure sale, repossession or otherwise,
including payments in connection with such Primary Assets received from
the obligor, other than amounts required to be paid or refunded to the
obligor pursuant to the terms of the applicable loan documents or
otherwise pursuant to law ("Liquidation Proceeds"), exclusive of, in the
discretion of the Servicer, but only to the extent of the amount
permitted to be withdrawn from the Collection Account or the Certificate
Account in accordance with the related Agreement, the Servicing Fee, if
any, in respect of the related
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Primary Asset and, to the extent specified in the related Prospectus
Supplement, net of reimbursements for related Delinquency Advances and
Servicer Advances;
(iv) all proceeds under any title insurance, hazard insurance or
other insurance policy covering any such Primary Asset, other than
proceeds to be applied to the restoration or repair of the related
Property or released to the obligor in accordance with the related
Agreement;
(v) all amounts required to be deposited therein from any
applicable Reserve Fund for such Series pursuant to the related
Agreement;
(vi) all Delinquency Advances made by the Servicer required
pursuant to the related Agreement; and
(vii) all repurchase prices of any such Primary Assets
repurchased by the Servicer or the Seller pursuant to the related
Agreement.
The Master Servicer is permitted, from time to time, to make withdrawals
from the Collection Account or the Certificate Account for each Series for the
following purposes:
(i) to reimburse itself for Delinquency Advances and Servicing
Advances for such Series made by it pursuant to the related Agreement;
the Servicer's right to reimburse itself for Delinquency Advances and
Servicing Advances is limited to amounts received on or in respect of
particular Home Equity Loans (including, for this purpose, Liquidation
Proceeds and amounts representing proceeds of insurance policies
covering the related Property) which represent late recoveries of
Scheduled Payments respecting which any such advance was made;
(ii) to reimburse itself for any Delinquency Advances for such
Series that the Servicer determines in good faith it will be unable to
recover from amounts representing late recoveries of Scheduled Payments
respecting which such Advance was made or from Liquidation Proceeds or
the proceeds of insurance policies;
(iii) in the event it has elected not to pay itself the
Servicing Fee out of the interest component of any Scheduled Payment,
late payment or other recovery with respect to a particular Home Equity
Loan prior to the deposit of such Scheduled Payment, late payment or
recovery into the Collection Account, to pay to itself the Servicing
Fee, as adjusted pursuant to the related Agreement, from any such
Scheduled Payment, late payment or such other recovery, to the extent
permitted by the related Agreement;
(iv) to reimburse itself or the Seller for expenses incurred by
and recoverable by or reimbursable to it pursuant to the related
Agreement;
(v) to pay to the applicable person with respect to each Primary
Asset or REO Property acquired in respect thereof that has been
repurchased or removed from the Trust Fund by the Seller or the Servicer
pursuant to the related Agreement, all amounts received thereon and not
distributed as of the date on which the related repurchase price was
determined;
(vi) to make payments to the Trustee of such Series for deposit
into the Distribution Account, if any, or for remittance to the Holders
of such Series in the amounts and in the manner provided for in the
related Agreement; and
(vii) to clear and terminate the Collection Account pursuant to
the related Agreement.
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In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
ADVANCES AND LIMITATIONS THEREON
The related Prospectus Supplement will describe the circumstances, if
any, under which the Servicer will make advances with respect to delinquent
payments of principal and/or interest on Home Equity Loans ("Delinquency
Advances"). If specified in the related Prospectus Supplement, the Servicer will
be obligated to make Delinquency Advances, and such obligation may be limited in
amount, or may not be activated until a certain portion of a specified Reserve
Fund is depleted. Such advances are intended to provide liquidity and, except to
the extent specified in the related Prospectus Supplement, not to guarantee or
insure against losses. Accordingly, to the extent specified in the related
Prospectus Supplement, any funds advanced are recoverable by the Servicer out of
amounts received on particular Home Equity Loans which represent late recoveries
of principal or interest, proceeds of insurance policies or Liquidation Proceeds
respecting which any such Delinquency Advance was made or, to the extent
provided in the Prospectus Supplement, from payments or proceeds from other Home
Equity Loans. If and to the extent specified in the related Prospectus
Supplement, the Servicer will advance its own funds to pay for any related
expenses of foreclosure and disposition of any liquidated Mortgage Home Equity
Loan or related Property (the "Servicing Advances"). The Servicer will be
entitled to be reimbursed for any such Servicing Advances to the extent provided
in the Prospectus Supplement. If a Servicing Advance is made and subsequently
determined to be nonrecoverable from late collections, proceeds of insurance
policies, or Liquidation Proceeds from the related Home Equity Loan, the
Servicer may be entitled to reimbursement from other funds in the Collection
Account, Certificate Account or Distribution Account, as the case may be, or
from a specified Reserve Fund as applicable, to the extent specified in the
related Prospectus Supplement.
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
Except as otherwise specified in the related Prospectus Supplement, all
Mortgages will contain provisions requiring the obligor on each Home Equity Loan
to maintain a hazard insurance policy naming the Servicer as loss payee
thereunder and providing for extended coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is customary in
the state in which the related Mortgaged Property is located. Except as
specified in the related Prospectus Supplement, the Servicer will not be
required to maintain or to cause the obligor on each Home Equity Loan to
maintain a hazard insurance policy. The standard hazard insurance policies will
provide for coverage at least equal to the applicable state standard form of
fire insurance policy with extended coverage for property of the type securing
the related Home Equity Loans.
In general, the standard form of fire and extended coverage insurance
policy covers physical damage to or destruction of the improvements on the
Mortgaged 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 Home Equity
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 any of the following: war, revolution,
governmental actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mudflows), nuclear reactions, wet or dry
rot, vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive.
The hazard insurance policies initially covering the Mortgaged
Properties typically contain a co-insurance 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
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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 greater of (i) the replacement cost of the
improvements less physical depreciation or (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.
Coverage will be in an amount at least equal to the greater of (i) the
amount necessary to avoid the enforcement of any co-insurance clause contained
in the policy or (ii) the outstanding principal balance of the related loan plus
the balance of any senior mortgage. The Servicer will also maintain on REO
Property that secured a defaulted Home Equity Loan and that has been acquired
upon foreclosure, deed in lieu of foreclosure, or repossession, a standard
hazard insurance policy in an amount that is equal to the maximum insurable
value of such REO Property. No earthquake or other additional insurance will be
required of any obligor or will be maintained on REO Property acquired in
respect of a default Home Equity Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and shall require such
additional insurance.
The ability of the Servicer to assure that hazard insurance proceeds are
appropriately applied may depend on its being named as an additional insured
under any hazard insurance policy and under any flood insurance policy, or upon
the extent to which information in this regard is furnished to the Servicer by a
borrower. Except as described below, all amounts collected by the Servicer under
any hazard policy (except for amounts applied or expected to be applied to the
restoration or repair of the Mortgaged Property or released to the borrower in
accordance with the Servicer's normal servicing procedures), will be deposited
in the Collection Account.
REALIZATION UPON DEFAULTED HOME EQUITY LOANS
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Mortgaged
Properties securing the related Home Equity Loans as come into and continue in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments. In connection with such foreclosure or other conversion,
the Servicer will follow such practices and procedures as it deems necessary or
advisable and as are normal and usual in its servicing activities with respect
to comparable loans owned by it. However, the Servicer will not be required to
expend its own funds in connection with any foreclosure or towards the
restoration of the Property unless it determines that (i) such restoration or
foreclosure will increase the Liquidation Proceeds in respect of the related
Home Equity Loan available to the Holders after reimbursement to itself for such
expenses and (ii) such expenses will be recoverable by it either through
Liquidation Proceeds or the proceeds of insurance. Notwithstanding anything to
the contrary herein, in the case of a Trust Fund for which a REMIC election has
been made, the Servicer will be required to liquidate any Mortgaged Property
acquired through foreclosure within three years after the acquisition of the
beneficial ownership of such Mortgaged Property. While the holder of a Mortgaged
Property acquired through foreclosure can often maximize its recovery by
providing financing to a new purchaser, the Trust Fund, if applicable, will have
no ability to do so and neither the Servicer nor the Seller will be required to
do so.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
When a Borrower on a Home Equity Loan notifies the Servicer that the
Mortgaged Property is being conveyed by the obligor, the Servicer will be
obligated to exercise its rights to accelerate the maturity of the related Home
Equity Loan under the applicable "due-on-sale" clause, if any, unless such
exercise is not permitted under applicable law or if the enforcement of such
clause would result in loss of coverage under any primary mortgage insurance
policy. In such event, the Servicer is authorized to accept from or enter into
an assumption agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable under the
Home Equity Loan. To the extent permitted by applicable law, such assumption
will not release the original borrower from its obligation under the Home Equity
Loan. Any fee collected in connection with an assumption will be retained by the
Servicer as additional servicing compensation. The terms of a Home Equity
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Loan may not be changed in connection with an assumption except to the extent
specified in the related Prospectus Supplement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be entitled to a periodic fee as servicing
compensation (the "Servicing Fee") in an amount to be determined as specified in
the related Prospectus Supplement. The Servicing Fee may be fixed or variable,
as specified in the related Prospectus Supplement. In addition, the Master
Servicer will be entitled to servicing compensation in the form of assumption
fees, late payment charges and similar items, or excess proceeds following
disposition of Property in connection with defaulted Home Equity Loans. The
Master Servicer will pay any fees due the Sub-Servicers from the Servicing Fee.
Except to the extent otherwise specified in the related Prospectus
Supplement, the Servicer will pay certain expenses incurred in connection with
the servicing of the Home Equity Loans, including, without limitation, the
payment of the fees and expenses of the Trustee and independent accountants, and
the cost of credit support, if any, and payment of expenses incurred in
preparation of reports to Holders.
When an obligor makes a principal prepayment in full between Due Dates
on the related Home Equity Loan, the obligor will generally be required to pay
interest on the amount prepaid only to the date of prepayment. If and to the
extent provided in the related Prospectus Supplement in order that one or more
Classes of the Holders of a Series will not be adversely affected by any
resulting shortfall in interest, the amount of the Servicing Fee may be reduced
to the extent necessary to include in the Servicer's remittance to the Trustee
for distribution to Securityholders an amount equal to one month's interest on
the related Home Equity Loan (less the Servicing Fee). If the aggregate amount
of such shortfalls in a month exceeds the Servicing Fee for such month, a
shortfall to Holders may occur.
The Servicer will be entitled to reimbursement for Servicing Advances.
The related Holders will suffer no loss by reason of such Servicing Advances to
the extent expenses are covered under related insurance policies or from excess
Liquidation Proceeds. If claims are either not made or paid under the applicable
insurance policies or if coverage thereunder has been exhausted, the related
Holders will suffer a loss to the extent that Liquidation Proceeds, after
reimbursement of the Servicing Advances, are less than the outstanding principal
balance of and unpaid interest on the related Home Equity Loan which would be
distributable to Holders. The Servicer is generally also entitled to
reimbursement from the Collection Account for Servicing Advances. In addition,
the Servicer will be entitled to reimbursement for Delinquency Advances as
described above under "--Advances and Limitations Thereon."
The rights of the Servicer to receive funds from the Collection Account
for a Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of Delinquency Advances and Servicing Advances, expenses or
otherwise, are not subordinate to the rights of Holders of such Series.
EVIDENCE AS TO COMPLIANCE
The applicable Agreement for each Series will provide that each year, a
firm of independent public accountants will furnish a statement to the Trustee
to the effect that such firm has examined certain documents and records relating
to the servicing of the Home Equity Loans by the Master Servicer and that such
examination, which has been conducted substantially in compliance with either
(i) the audit guide for audits of non-supervised mortgagees approved by the
Department of Housing and Urban Development or (ii) the requirements of the
Uniform Single Attestation Program for Mortgage Bankers, has disclosed no items
of non-compliance with the provisions of the applicable Agreement that, in the
opinion of the firm, are material, except for such items of non-compliance as
shall be referred in the report.
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The applicable Agreement for each Series will also provide for delivery
to the Trustee for such Series of an annual statement signed by an officer of
the Master Servicer to the effect that the Master Servicer has fulfilled its
material obligations under such Agreement throughout the preceding calendar
year.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
If an Event of Default occurs under either a Sale and Servicing
Agreement or a Pooling and Servicing Agreement, the Master Servicer may be
replaced by the Trustee or a successor Master Servicer. Such Events of Default
and the rights of the Trustee upon such a default under the Agreement for the
related Series will be substantially similar to those described under "THE
AGREEMENTS--Events of Default; Rights Upon Event of Default--Pooling and
Servicing Agreement; Sale and Servicing Agreement."
The Master Servicer may assign its rights and delegate its duties and
obligations under the related Agreement for each Series if the successor Master
Servicer accepting such assignment or delegation (i) services or master services
similar loans in the ordinary course of its business, (ii) is reasonably
satisfactory to the Trustee for the related Series, (iii) would not cause any
Rating Agency's rating of the Securities for such Series in effect immediately
prior to such assignment, sale or transfer to be qualified, downgraded or
withdrawn as a result of such assignment, sale or transfer and (iv) executes and
delivers to the Trustee and the Enhancer, if any, an agreement, in form and
substance reasonably satisfactory to the Trustee, and the Enhancer, if any,
which contains an assumption by such Master Servicer of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Master Servicer under the related Agreement from and after the
date of such agreement. No such assignment will become effective until the
Trustee or a successor Master Servicer has assumed the servicer's obligations
and duties under the related Agreement. To the extent that the Master Servicer
transfers its obligations to a wholly-owned subsidiary or affiliate, such
subsidiary or affiliate need not satisfy the criteria set forth above; however,
in such instance, the assigning Master Servicer will remain liable for the
servicing obligations under the related Agreement. Any entity into which the
Master Servicer is merged or consolidated or any successor corporation resulting
from any merger, conversion or consolidation will succeed to the Master
Servicer's obligations under the related Agreement provided that such successor
or surviving entity meets the requirements for a successor Master Servicer set
forth above.
The Master Servicer will not be under any liability to the Trust Fund or
the Securityholders for taking any action or for refraining from taking any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that the Master Servicer will not be protected against any
liability that otherwise would be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of its
reckless disregard of its obligations and duties thereunder. Except to the
extent otherwise provided therein, each Agreement further will provide that the
Master Servicer and any director, officer, employee or agent of the Master
Servicer will be entitled to indemnification by the Trust Fund and will be held
harmless to the extent provided in the Agreement 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 related to any
specific Home Equity Loan or Loans (except any such loss, liability or expense
otherwise reimbursable pursuant to the Agreement) and any loss, liability or
expense incurred by the Master Servicer by reason of its willful misfeasance,
bad faith or gross negligence in the performance of its duties thereunder or by
reason of the Master Servicer's reckless disregard of its obligations and duties
thereunder.
Each Agreement will provide that the Master Servicer will not be under
any obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties under the Agreement and that in its opinion may involve
it in any expense or liability. The Master Servicer, however, in its discretion,
may undertake any such action that it may deem necessary or desirable with
respect to the Agreement and the rights and duties of the parties thereto and
the interest of the Securityholders and the Enhancer, if any, thereunder. In
such event, the legal
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expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust Fund and the Master Servicer will
be entitled to be reimbursed therefor to the extent provided in the Agreement.
The Master Servicer's right to such indemnity or reimbursement will survive any
resignation or termination of the Master Servicer with respect to any losses,
expenses, costs or liabilities arising prior to such resignation or termination
(or arising from events that occurred prior to such resignation or termination).
Any claims by or on behalf of the Securityholders or the Trust Fund will be made
only against the Master Servicer, who will be liable with respect to its own
acts and omissions as well as the acts and omissions of its directors, officer,
employees and agents.
THE AGREEMENTS
The following summaries describe the material provisions of the
Agreements common to each Series of Securities. The summaries do not purport to
be complete and are subject to, and qualified in their entirety by reference to,
the provisions of the Agreements. Where particular provisions or terms used in
the Agreements are referred to, such provisions or terms are as specified in the
related Agreements.
GENERAL
At the time of issuance of the Securities of a Series, the Seller will
transfer, convey and assign to the Trust Fund all right, title and interest of
the Seller in the Primary Assets and other property to be transferred to the
Trust Fund for a Series. Such assignment will include all principal and interest
due or received on or with respect to the Primary Assets after the Cut-off Date
to the extent specified in the related Prospectus Supplement (except for any
Retained Interests). The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
ASSIGNMENT OF HOME EQUITY LOANS
The Seller will, as to each Home Equity Loan, deliver or cause to be
delivered to the Trustee, or, as specified in the related Prospectus Supplement
a custodian on behalf of the Trustee (the "Custodian"), the Mortgage Note
endorsed without recourse to the order of the Trustee or in blank, the original
Mortgage with evidence of recording indicated thereon (except for any Mortgage
not returned from the public recording office, in which case the Seller will
certify that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. The Trustee, or,
if so specified in the related Prospectus Supplement, the Custodian, will hold
such documents in trust for the benefit of the Holders.
The Representative will, at the time of issuance of the Securities,
cause assignments to the Trustee of the Mortgages relating to the Home Equity
Loans for a Series to be recorded in the appropriate public office for real
property records, except in 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 Home Equity Loans. If specified in the related Prospectus
Supplement, the Representative will cause such assignments to be so recorded
within the time after issuance of the Securities as is specified in the related
Prospectus Supplement, in which event, the Agreement may require the
Representative to repurchase or to cause the applicable Originator to repurchase
from the Trustee any Home Equity Loan the related Mortgage of which is not
recorded within such time, at the price described below with respect to
repurchases by reason of defective documentation. The enforcement of the
repurchase obligation would constitute the sole remedy available to the Holders
or the Trustee for the failure of a Mortgage to be recorded.
Each Home Equity Loan will be identified in a schedule appearing as an
exhibit to the related Agreement (the "Home Equity Loan Schedule"). Such Home
Equity Loan Schedule will specify with respect to each Home Equity Loan: the
original principal amount and unpaid principal balance as of the Cut-off Date;
the current interest rate; the current Scheduled Payment of principal and
interest; the maturity date, if any, of the related Mortgage
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Note; and if the Home Equity Loan is an adjustable rate Home Equity Loan, the
Lifetime Rate Cap, if any, and the index. The Seller does not intend to file the
Home Equity Loan Schedules or the related Agreements.
REPURCHASE AND SUBSTITUTION OF NON-CONFORMING PRIMARY ASSETS
If any document relating to the Primary Assets which is required to be
delivered to the Trustee (or Custodian) is found by the Trustee within 90 days
of the execution of the related Agreement (or promptly after the Trustee's
receipt of any document permitted to be delivered after the Closing Date) to be
defective in any material respect and the Representative does not cure such
defect within 90 days, or within such other period specified in the related
Prospectus Supplement, the Representative will, not later than 90 days or within
such other period specified in the related Prospectus Supplement, after the
Trustee's notice to the Seller and the Representative of the defect, repurchase
or cause the applicable Originator to repurchase the related Primary Asset or
any property acquired in respect thereof from the Trustee at a price equal to,
(a) the outstanding principal balance of such Primary Asset and (b) accrued and
unpaid interest to the date of the repurchase/substitution of such Primary Asset
at the rate set forth in the related Agreement.
The Representative, may, rather than repurchase the Primary Asset as
described above, remove such Primary Asset from the Trust Fund (the "Deleted
Primary Asset") and cause to be substituted in its place one or more other
Primary Assets (each, a "Qualifying Substitute Primary Asset") provided,
however, that (i) with respect to a Trust Fund for which no REMIC election is
made, such substitution must be effected within 120 days of the date of initial
issuance of the Securities and (ii) with respect to a Trust Fund for which a
REMIC election is made, after a specified time period, the Trustee must have
received a satisfactory opinion of counsel that such substitution will not cause
the Trust Fund to lose its status as a REMIC or otherwise subject the Trust Fund
to a prohibited transaction tax.
Any Qualifying Substitute Primary Asset will have, on the date of
substitution, (i) an outstanding principal balance, after deduction of all
Scheduled Payments due in the month of substitution, not in excess of the
outstanding principal balance of the Deleted Primary Asset (the amount of any
shortfall to be deposited to the Collection Account in the month of substitution
for distribution to Holders), (ii) an interest rate not less than (and not more
than 2% greater than) the interest rate or Margin of the Deleted Primary Asset,
(iii) a remaining term-to-stated maturity not greater than (and not more than
two years less than) that of the Deleted Primary Asset, and will comply with all
of the representations and warranties set forth in the applicable Agreement as
of the date of substitution.
The above-described cure, repurchase or substitution obligations
constitute the sole remedies available to the Holders or the Trustee for a
material defect in a document for a Primary Asset.
The Representative and the Originators will make representations and
warranties with respect to Primary Assets for a Series. If the Representative
cannot cure, or cause the applicable Originator to cure, a breach of any such
representations and warranties in all material respects within the time period
specified in the related Prospectus Supplement after notification by the Trustee
of such breach, and if such breach is of a nature that materially and adversely
affects the value of such Primary Asset, the Representative is obligated to
repurchase, or cause the applicable Originator to repurchase, the affected
Primary Asset or, if provided in the related Prospectus Supplement, provide a
Qualifying Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
REPORTS TO HOLDERS
The Trustee or other entity specified in the related Prospectus
Supplement will prepare and forward to each Holder on each Distribution Date, or
as soon thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series, among other things:
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(i) the amount of principal distributed to Holders of the
related Securities and the outstanding principal balance of such
Securities following such distribution;
(ii) the amount of interest distributed to Holders of the
related Securities and the current interest on such Securities;
(iii) the amounts of (a) any overdue accrued interest included
in such distribution, (b) any remaining overdue accrued interest with
respect to such Securities or (c) any current shortfall in amounts to be
distributed as accrued interest to Holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled
principal included in such distribution, (b) any remaining overdue
principal amounts with respect to such Securities, (c) any current
shortfall in receipt of scheduled principal payments on the related
Primary Assets or (d) any realized losses or Liquidation Proceeds to be
allocated as reductions in the outstanding principal balances of such
Securities;
(v) the amount received under any related Enhancement, the
remaining amount available under such Enhancement and the amount
reimbursed to the Enhancer, if any;
(vi) the number and aggregate principal balance of Home Equity
Loans that were delinquent (a) one monthly payment, (b) two monthly
payments and (c) three or more monthly payments, as of the end of the
prior collection period;
(vii) the number and aggregate principal balance of Home Equity
Loans in foreclosure, as of the end of the prior collection period;
(viii) the aggregate principal balance of Home Equity Loans
which became REO during the prior collection period;
(ix) the book value of any REO Property acquired by the related
Trust Fund;
(x) the amount of losses realized during the prior collection
period;
(xi) the aggregate principal balance of Home Equity Loans
repurchased during the prior collection period;
(xii) the amount of the Servicing Fee for the prior collection
period;
(xiii) during the Pre-Funding Period, the remaining Pre-Funded
Amount and the portion of the Pre-Funding Amount used to acquire
additional Primary Assets since the preceding Distribution Date;
(xiv) during the Pre-Funding Period, the amount remaining in the
Capitalized Interest Account; and
(xv) such other information as specified in the related
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, will furnish to each Holder of record at any time
during such calendar year (a) the aggregate of amounts reported pursuant to (i),
(ii), and (iv)(d) above for such calendar year and (b) such information
specified in the related Agreement to enable
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Holders to prepare their tax returns including, without limitation, the amount
of original issue discount accrued on the Securities, if applicable. Information
in the Distribution Date and annual statements provided to the Holders will not
have been examined and reported upon by an independent public accountant.
However, the Master Servicer will provide to the Trustee a report by independent
public accountants with respect to the Master Servicer's servicing of the Home
Equity Loans. See "SERVICING OF HOME EQUITY LOANS--Evidence as to Compliance."
If so specified in the Prospectus Supplement for a Series of Securities,
such Series or one or more Classes of such Series will be issued in book-entry
form. In such event, owners of beneficial interests in such Securities will not
be considered Holders and will not receive such reports directly from the
Trustee. The Trustee will forward such reports only to the entity or its nominee
which is the registered holder of the global certificate which evidences such
book-entry securities. Beneficial owners will receive such reports from the
participants and indirect participants of the applicable book-entry system in
accordance with the practices and procedures of such entities.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
POOLING AND SERVICING AGREEMENT; SALE AND SERVICING AGREEMENT. Events of
Default under the Pooling and Servicing Agreement or Sale and Servicing
Agreement for each Series of Securities relating to Home Equity Loans include
(i) any failure by the Master Servicer to deposit amounts in the Collection
Account and/or Certificate Account and/or Distribution Account required to be
made thereunder, which failure continues unremedied for three business days
after the giving of written notice of such failure to the Master Servicer by the
Trustee for such Series, or to the Master Servicer and the Trustee by the
Enhancer or by the Holders of such Series evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series, (ii) any failure by
the Master Servicer, duly to observe or perform in any material respect any
other of its covenants or agreements in the applicable Agreement which continues
unremedied for 30 days after the giving of written notice of such failure to the
Master Servicer by the Trustee, or to the Master Servicer and the Trustee by the
Enhancer or by the Holders of such Series evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series, and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Master Servicer
indicating its insolvency, reorganization or inability to pay its obligations.
So long as an Event of Default remains unremedied under the applicable
Agreement for a Series of Securities relating to the servicing of Home Equity
Loans, the Enhancer, if any, the Trustee for such Series or Holders of
Securities of such Series evidencing not less than 51% of the aggregate voting
rights of the Securities for such Series with, if specified in the related
Prospectus Supplement, the consent of the Enhancer, may terminate all of the
rights and obligations of the Master Servicer as servicer under the applicable
Agreement (other than its right to recovery of other expenses and amounts
advanced pursuant to the terms of such Agreement which rights the Master
Servicer will retain under all circumstances), whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Master
Servicer under such Agreement and will be entitled to reasonable servicing
compensation not to exceed the applicable servicing fee, together with other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in such Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth of at least
$15,000,000 to act as successor Master Servicer under the provisions of the
applicable Agreement. The successor Master Servicer would be entitled to
reasonable servicing compensation in an amount not to exceed the Servicing Fee
as set forth in the related Prospectus Supplement, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise, as provided in such Agreement.
During the continuance of any Event of Default of a Master Servicer
under an Agreement for a Series of Securities, the Trustee for such Series will
have the right to take action to enforce its rights and remedies and to
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protect and enforce the rights and remedies of the Holders of such Series, and,
unless the related Prospectus Supplement specifies that they cannot, Holders of
Securities evidencing not less than 51% of the aggregate voting rights of the
Securities for such Series may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Holders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
therein or thereby. The Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully be
taken or would involve it in personal liability or be unjustly prejudicial to
the nonassenting Holders.
INDENTURE. Events of Default under the Indenture for each Series of
Notes include: (i) a default for 30 days 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 Trust Fund in the Indenture which continues for a period of 60
days after notice thereof is given in accordance with the procedures described
in the related Prospectus Supplement; (iii) any representation or warranty made
by the Representative 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 60 days 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 Seller 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 Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
with, if specified in the related Prospectus Supplement, the consent of the
Enhancer, may declare the principal amount (or, if the Notes of that Series are
Zero Coupon 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
Holders 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 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
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 30 days or more, unless
(a) the Holders of 100% 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 due and
unpaid on the outstanding Notes of such Series at the date of such sale or (c)
the 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 Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for 30 days or more in the payment
of principal of or interest on the Notes of a Series, the Indenture provides
that the 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 Noteholders may be less
than would otherwise be the case. However, the Trustee may not institute a
proceeding for the
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enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the Holders 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
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee will be under no obligation to exercise any of
the rights or powers under the Indenture at the request or direction of any of
the Holders of Notes of such Series, unless such Holders offered to the 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 Holders 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 Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the Holders 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 Holders of the outstanding Notes of such Series affected thereby.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Securities will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Seller and its affiliates. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust Fund relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents will have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee will continue to be responsible for its duties and obligations under
the Agreement. In the event a Series includes both Notes and Certificates, a
separate Trustee identified in the related Prospectus Supplement will serve as
Trustee for the Certificateholders and for the Notes.
DUTIES OF THE TRUSTEE
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any Primary Asset or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the Holders
or the Master Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will 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 Holders in an
Event of Default. The
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Trustee is not required to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties under the Agreement,
or in the exercise of any of its rights or powers, if it has reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Representative, and if
specified in the related Prospectus Supplement, the Enhancer, if any, resign at
any time, in which event the Representative will be obligated to use its best
efforts to appoint a successor Trustee. If no successor Trustee has been
appointed and has accepted the appointment within the period specified in the
Agreement after the giving of such notice of resignation, the resigning Trustee
may petition any court of competent jurisdiction for appointment of a successor
Trustee. The Trustee may also be removed at any time (i) if the Trustee ceases
to be eligible to continue as such under the Agreement, (ii) if the Trustee
becomes insolvent or (iii) by the Holders of Securities evidencing over 50% of
the aggregate voting rights of the Securities in the Trust Fund upon written
notice to the Trustee and to the Representative. Any resignation or removal of
the Trustee and appointment of a successor Trustee will not become effective
until acceptance of the appointment by the successor Trustee.
AMENDMENT OF AGREEMENT
The Agreement for each Series of Securities may be amended by the
Seller, the Master Servicer, the Representative, the Originators and the Trustee
with respect to such Series, without notice to or consent of the Holders (i) to
cure any ambiguity, (ii) to correct any defective provisions or to correct or
supplement any provision therein, (iii) to add to the duties of the Seller, the
Trust Fund, the Representative, the Master Servicer, the Originators or the
Trustee, (iv) to add any other provisions with respect to matters or questions
arising under such Agreement or related Enhancement, (v) to add or amend any
provisions of such Agreement as required by a Rating Agency in order to maintain
or improve the rating of the Securities (it being understood that none of the
Seller, the Representative, the Master Servicer, the Originators or Trustee is
obligated to maintain or improve such rating), or (vi) to comply with any
requirements imposed by the Code; provided that any such amendment except
pursuant to clause (vi) above will not materially and adversely affect the
interests of any Holders of such Series or, if specified in the related
Prospectus Supplement, the Enhancer, as evidenced by an opinion of counsel. Any
such amendment except pursuant to clause (vi) of the preceding sentence shall be
deemed not to adversely affect in any material respect the interests of any
Holder if the Trustee receives written confirmation from each Rating Agency
rating such Securities that such amendment will not cause such Rating Agency to
withdraw or reduce the then current rating thereof. The Agreement for each
Series may also be amended by the Trustee, the Master Servicer, the
Representative, the Originators and the Seller with respect to such Series with
the consent of the Enhancer, if specified in the related Prospectus Supplement
or the Holders possessing not less than 51% of the aggregate outstanding
principal amount of the Securities of such Series or, if only certain Classes of
such Series are affected by such amendment, 51% of the aggregate outstanding
principal amount of the Securities of each Class of such Series affected
thereby, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Agreement or modifying in any
manner the rights of Holders of such Series; provided, however, that no such
amendment may (a) reduce the amount or delay the timing of payments on any
Security without the consent of the Holder of such Security; or (b) reduce the
aforesaid percentage of the aggregate outstanding principal amount of Securities
of each Class, the Holders of which are required to consent to any such
amendment or (c) if specified in the related Prospectus Supplement, adversely
affect the interests of the Enhancer, without, in the case of clauses (a) or
(b), the consent of the Holders of 100% of the aggregate outstanding principal
amount of each Class of Securities affected thereby.
VOTING RIGHTS
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The related Prospectus Supplement will set forth the method of
determining allocation of voting rights with respect to a Series. No Holder of
Securities of a Series, solely by virtue of such Holder's status as a Holder,
will have any right under the applicable Agreement for such Series to institute
any proceeding with respect to such Agreement, unless (i) such holder previously
has given to the applicable Trustee written notice of a continuing default, (ii)
the holders of not less than 25% in aggregate principal amount of the
outstanding Securities of such Series have made written request to such Trustee
to institute such aggregate proceeding in its own name as Trustee, (iii) such
holder or holders have offered such Trustee reasonable indemnity, (iv) such
Trustee has for 60 days after its receipt of such written request failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to such Trustee during such 60-day period by the holders
of a majority in principal amount of such outstanding Securities.
Notwithstanding the foregoing, the holder of any Note shall have the right,
which is absolute and unconditional, to receive payment of the principal of and
interest, if any, on such Note on or after the respective due dates thereof and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such holder.
LIST OF HOLDERS
Upon written request of three or more Holders of record of a Series for
purposes of communicating with other Holders with respect to their rights under
the Agreement, which request is accompanied by a copy of the communication which
such Holders propose to transmit, the Trustee will afford such Holders access
during business hours to the most recent list of Holders of that Series held by
the Trustee.
No Agreement will provide for the holding of any annual or other meeting
of Holders.
BOOK-ENTRY SECURITIES
If specified in the Prospectus Supplement for a Series of Securities,
such Series or one or more Classes of such Series may be issued in book-entry
form. In such event, beneficial owners of such Securities will not be considered
"Holders" under the Agreements and may exercise the rights of Holders only
indirectly through the participants in the applicable book-entry system.
REMIC ADMINISTRATOR
For any Series with respect to which a REMIC election is made,
preparation of certain reports and certain other administrative duties with
respect to the Trust Fund may be performed by a REMIC administrator, who may be
the Seller or an affiliate of the Seller.
TERMINATION
POOLING AND SERVICING AGREEMENT; TRUST AGREEMENT. The obligations
created by the Pooling and Servicing Agreement or Trust Agreement for a Series
will terminate upon the distribution to Holders of all amounts distributable to
them pursuant to such Agreement after the earlier of (i) the later of (a) the
final payment or other liquidation of the last Primary Asset remaining in the
Trust Fund for such Series and (b) the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure or repossession in respect of any
Primary Asset or (ii) the repurchase, as described below, by the Master Servicer
or other entity specified in the related Prospectus Supplement from the Trustee
for such Series of all Primary Assets and other property at that time subject to
such Agreement. The Agreement for each Series permits, but does not require, the
Master Servicer or other entity specified in the related Prospectus Supplement
to purchase from the Trust Fund for such Series all remaining Primary Assets at
a price equal to, 100% of the aggregate Principal Balance of such Primary Assets
plus, with
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respect to any property acquired in respect of a Primary Asset, if any, the
outstanding Principal Balance of the related Primary Asset at the time of
foreclosure, less, in either case, related unreimbursed Advances (in the case of
the Primary Assets, only to the extent not already reflected in the computation
of the aggregate Principal Balance of such Primary Assets) and unreimbursed
expenses (that are reimbursable pursuant to the terms of the Pooling and
Servicing Agreement) plus, in either case, accrued interest thereon at the
weighted average rate on the related Primary Assets through the last day of the
Due Period in which such repurchase occurs; provided, however, that if an
election is made for treatment as a REMIC under the Code, the repurchase price
may equal the greater of (a) 100% of the aggregate Principal Balance of such
Primary Assets, plus accrued interest thereon at the applicable net rates on the
Primary Assets through the last day of the month of such repurchase and (b) the
aggregate fair market value of such Primary Assets plus the fair market value of
any property acquired in respect of a Primary Asset and remaining in the Trust
Fund. The exercise of such right will effect early retirement of the Securities
of such Series, but such entity's right to so purchase is subject to the
aggregate Principal Balance of the Primary Assets at the time of repurchase
being less than a fixed percentage, not more than 25%, to be set forth in the
related Prospectus Supplement, of the aggregate Principal Balance of the Primary
Assets as of the Cut-off Date. In no event, however, will the trust created by
the Agreement continue beyond the expiration of 21 years from the death of the
last survivor of certain persons identified therein. For each Series, the Master
Servicer or the Trustee, as applicable, will give written notice of termination
of the Agreement to each Holder, and the final distribution will be made only
upon surrender and cancellation of the Securities at an office or agency
specified in the notice of termination. If so provided in the related Prospectus
Supplement for a Series, the Master Servicer or another entity may effect an
optional termination of the Trust Fund under the circumstances described in such
Prospectus Supplement. See "DESCRIPTION OF THE SECURITIES--Optional Redemption,
Purchase or Termination."
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 Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the 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 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 Final Scheduled
Distribution 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 such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because certain of such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to reflect the
laws of any particular state (other than the State of California where it is
anticipated that a material percentage of the Mortgaged Properties will be
located), or to encompass the laws of all states in which the properties
securing the Home Equity Loans are situated.
MORTGAGES
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The Home Equity Loans for a Series will be secured by either mortgages,
deeds of trust, deeds to secure debt or similar security instruments (such Home
Equity Loans are hereinafter referred to in this section as "mortgage loans"),
depending upon the prevailing practice in the state in which the property
subject to a mortgage loan is located. In California, the prevailing practice is
to use deeds of trust. The filing of a mortgage, deed of trust, deed to secure
debt or similar security instrument creates a lien or title interest upon the
real property covered by such instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
The priority of the liens is important because, among other things, the
foreclosure of a senior lien will extinguish a junior lien, and because the
holder of a senior lien generally will have a right to receive insurance,
condemnation or other proceeds before the holder of a junior lien.
Priority between mortgages and deeds of trust (or other instruments of
record) generally depends in the first instance on the order of filing with the
appropriate government records office. Priority also may be affected by the
express terms of the mortgage or the deed of trust and any subordination
agreement among the lenders.
Although priority among liens on the same property generally depends in
the first instance on the order of filing, there are a number of ways in which a
lien that is a senior lien when it is filed can become subordinate to a lien
filed at a later date. A deed of trust or mortgage generally is not prior to any
liens for real estate taxes and assessments, certain federal liens (including
certain federal criminal liens, environmental liens and tax liens), certain
mechanics and materialmen's liens, and other liens given priority by applicable
law.
There are two parties to a mortgage, the mortgagor, who is the
borrower/property owner or the land trustee (as described below), and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower/property owner is the
beneficiary; at origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. Under a deed of trust or
similar security instrument, the homeowner or borrower, called the "grantor,"
grants the security property to a third-party grantee, called the "trustee," for
the benefit of the lender, called the "beneficiary." The deed of trust gives the
trustee the authority, if the borrower defaults and upon the instructions of the
beneficiary, to sell the security property in a "foreclosure" or "trustee's
sale" and to apply the sale proceeds to the secured debt. The mortgagee's
authority under a mortgage and the trustee's authority under a deed of trust are
governed by the law of the state in which the real property is located, the
express provisions of the mortgage or deed of trust, and, in some cases,
particularly in deed of trust transactions, the directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action,
and foreclosure of a deed of trust may be accomplished by judicial action.
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 occasionally may result from difficulties in effecting
service on necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming and expensive. After the completion of a judicial
foreclosure proceeding, the court may issue a judgment of foreclosure and
appoint a receiver or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement or pursuant to a power
of sale provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by nonjudicial power of
sale.
If a borrower defaults under a loan secured by a deed of trust, the
lender generally may bring suit against the borrower. The lender generally also
may attempt to collect the loan by causing the deed of trust to be enforced
against the property it encumbers. Enforcement of a deed of trust is
accomplished in most cases by a trustee's sale in which the trustee, upon
default of the grantor, and subject to the expiration of applicable cure
periods, sells the
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security property at a public sale under the terms of the loan documents and
subject to the applicable procedural provisions of state law. In certain states,
the lender must exhaust the security through foreclosure (either judicially or
non-judicially) prior to other efforts to collect the balance of the promissory
note. Whether a lender may thereafter collect on the unpaid balance of the loan
is governed by the anti-deficiency statute in the applicable state governing the
collectibility of deficiency balances.
The trustee's sale generally must be conducted by public auction in the
county or city in which all or some part of the security property is located. At
the sale, the trustee generally requires a bidder to deposit with the trustee a
set amount or a percentage of the full amount of the bidder's final bid in cash
(or an equivalent thereto satisfactory to the trustee) prior to and as a
condition to recognizing such bid, and may conditionally accept and hold these
amounts for the duration of the sale. The beneficiary of the deed of trust
generally need not bid cash at the sale, but may instead make a "credit bid" up
to the extent of the total amount due under the deed of trust, including costs
and expenses actually incurred in enforcing the deed of trust, as well as the
trustee's fees and expenses. The trustee will sell the security property to the
highest proper bidder at the sale.
A sale conducted in accordance with the terms of the power of sale
contained in the deed of trust generally is presumed to be conducted regularly
and fairly, and, on a conveyance of the property by trustee's deed, confers
absolute legal title to the property to the purchaser, free of all junior deeds
of trust and free of all other liens and claims subordinate to the deed of trust
under which the sale is made. The purchaser's title, however, is subject to all
senior liens and other senior claims. Thus, if the deed of trust being enforced
is a junior deed of trust, the trustee will convey title to the property to the
purchaser subject to the first deed of trust and any other prior liens and
claims. A trustee's sale or judicial foreclosure under a junior deed of trust
generally has no effect on the first deed of trust, with the possible exception
of the right of a senior beneficiary to accelerate its indebtedness under a
default clause or a "due-on-sale" clause contained in the senior deed of trust.
See "--Due-on-Sale Clauses in Home Equity Loans" below.
Because a potential buyer at the sale may find it difficult to determine
the exact status of title and other facts about the security property, and
because the physical condition of the security property may have deteriorated,
it generally is more common for the lender, rather than an unrelated third
party, to purchase the security property at a trustee's sale or judicial
foreclosure sale. The lender (or other purchaser at the judicial foreclosure or
trustee's sale) will be subject to the burdens of ownership, including the
obligations to service any senior mortgage or deed of trust, to obtain hazard
insurance and to make such repairs at its own expense as are necessary to render
the security property suitable for resale. The lender commonly will attempt to
resell the security property and obtain the services of a real estate broker and
agree to pay the broker a commission in connection with the resale. Depending
upon market conditions, the ultimate proceeds of the resale of the security
property may not be high enough to equal the lender's investment.
The proceeds received by the trustee from the sale generally are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the deed of trust under which the sale was conducted.
Any remaining proceeds generally are payable to the holders of junior deeds of
trust and other liens and claims in order of their priority. Any balance
remaining generally is payable to the grantor. Following the sale, if there are
insufficient proceeds to repay the secured debt, the beneficiary under the
foreclosed lien generally may obtain a deficiency judgment against the grantor.
See "--Deficiency Judgments" below.
Some courts have been faced with the issue of whether federal or state
constitutional due process requires that borrowers under deeds of trust receive
notices in addition to the statutorily prescribed minimum. For the most part,
the courts in these cases have upheld the notice provisions and procedures
described above.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable
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powers. Generally, a mortgagor is bound by the terms of the related mortgage
note and the mortgage as made and cannot be relieved from his default if the
mortgagee has exercised his rights in a commercially reasonable manner. However,
since a foreclosure action is equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was excusable or the
mortgagee's action established a waiver, fraud, bad faith, or oppressive or
unconscionable conduct such as to warrant a court of equity to refuse
affirmative relief to the mortgagee. Under certain circumstances a court of
equity may relieve the mortgagor from an entirely technical default where such
default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and such sale occurred while the mortgagor was insolvent and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party purchasers
at the sale have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the foreclosure
proceedings, it is relatively uncommon for a third party to purchase the
property at a foreclosure sale. Rather, it is more common for the lender to
purchase the property from the trustee or referee for an amount which may be
equal to the unpaid principal amount of the mortgage note secured by the
mortgage or deed of trust plus accrued and unpaid interest and the expenses of
foreclosure, in which event the mortgagor's debt will be extinguished or the
lender may purchase for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such a judgment can be
obtained. Thereafter, subject to the right of the borrower in some states to
remain in possession during the redemption period, the lender will assume the
burdens of ownership, including obtaining hazard insurance, paying taxes and
making 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. Any loss may
be reduced by the receipt of any mortgage guaranty insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after 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. The right of redemption should be
distinguished from the equity of redemption, which is a statutory or
non-statutory right that must be exercised prior to the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest, expenses of foreclosure and reasonable
expenses incurred in maintaining the property. In other states, redemption may
be authorized if the former borrower 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
will defeat the title of any purchaser at a foreclosure sale, or of any
purchaser from the lender subsequent to foreclosure. Consequently the practical
effect of a right of redemption is to force the lender to retain the property
and pay the expenses of ownership until the redemption period has run. In many
states, there is no right to redeem property after a trustee's sale under a deed
of trust, unless a deficiency judgment is sought by the lender.
In California, the debtor (or anyone on the debtor's behalf) may cure a
default by paying the past due amount of the debt, plus costs and expenses
actually incurred in enforcing the obligation and statutorily limited
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trustee's fees prior to the trustee's sale. In California, the right of
redemption is forever barred by a valid foreclosure by private power of sale.
When the lender under a junior mortgage or deed of trust cures the
default and reinstates or redeems the senior mortgage or deed of trust, the
amount paid by the lender for such cure generally becomes a part of the
indebtedness secured by the junior deed of trust.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES
The mortgage loans comprising or underlying the Primary Assets included
in the Trust Fund for a Series will be secured by mortgages or deeds of trust
which may be junior to one or more other mortgages or deeds of trust held by
other lenders or institutional investors. The rights of the Trust Fund (and
therefore the Holders), as mortgagee under a junior mortgage, are subordinate to
those of the mortgagee under the senior mortgage, including the prior rights of
the senior mortgagee to receive hazard insurance and condemnation proceeds and
to cause the property securing the mortgage loan to be sold upon default of the
mortgagor, thereby extinguishing the junior mortgagee's lien unless the junior
mortgagee asserts its subordinate interest in the property in foreclosure
litigation and, possibly, satisfies the defaulted senior mortgage. A junior
mortgagee may satisfy a defaulted senior loan in full and, in some states, may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. In some states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee. In addition, as described above, the rights of
the Trust Fund may be or become subject to liens for real estate taxes and other
obligations. Although the Originator generally does not cure defaults under a
senior deed of trust or other lien, it is the Originator's standard practice to
protect its interest by monitoring any such sale of which it is aware and
bidding for property if it determines that it is in the Originator's best
interests to do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, like that used by the Originator, confers on the
mortgagee or beneficiary the right both to receive all proceeds collected under
any hazard insurance policy required to be maintained by the borrower and all
awards made in connection with condemnation proceedings. The lender generally
has the right, subject to the specific provisions of the mortgage or deed of
trust securing its loan, to apply such proceeds and awards to repair of any
damage to the security property or to payment of any indebtedness secured by the
mortgage or deed of trust, in such order as the mortgagee or beneficiary may
determine. Thus, in the event improvements on the property are damaged or
destroyed by fire or other casualty, or in the event the property is taken by
condemnation, the mortgagee or beneficiary under underlying senior mortgages
will have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the senior
mortgages or deeds of trust. If available, proceeds in excess of the amount of
senior mortgage indebtedness, in most cases, will be applied to the junior
indebtedness.
Another provision typically found in the form of the mortgage or deed of
trust used by institutional lenders obligates the grantor or mortgagor to pay
before delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage. Upon a failure of the grantor or mortgagor to perform any of these
obligations, the mortgagee or beneficiary is given the right to perform the
obligation itself, at its election, with the mortgagor or grantor agreeing to
reimburse the mortgagee or beneficiary for any sums expended by the mortgagee or
beneficiary on behalf of the mortgagor or grantor. The mortgage or deed of trust
typically provides that all sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
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ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, including California, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the former borrower equal in most cases to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. However, some states calculate the
deficiency as the difference between the outstanding indebtedness and the
greater of the fair market value of the property and the sales price of the
property. Other states require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower 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. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. Finally, other statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure 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 beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale. In California, no deficiency judgment may be obtained after exercise of a
private power of sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
Federal Soldiers' and Sailors' Civil Relief Act and state laws affording relief
to debtors, may interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment. For example, with
respect to federal bankruptcy law, the filing of a petition acts as a stay
against the enforcement of remedies for collection of a debt. Foreclosure is
permitted during the pendency of this proceeding only with court permission
Moreover, a court with federal bankruptcy jurisdiction may permit a debtor
through a Chapter 13 Bankruptcy Code rehabilitative plan to cure a monetary
default with respect to a loan on a debtor's residence by paying arrearages
within a reasonable time period and reinstating the original loan payment
schedule even though the lender accelerated the loan and the lender has taken
all steps to realize upon its security (provided no sale of the property has yet
occurred) prior to the filing of the debtor's Chapter 13 petition. Some courts
with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a loan
default by permitting the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan may be modified if the borrower has filed a petition
under Chapter 13. These courts have suggested that 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 residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Federal bankruptcy law and limited case law
indicate that the foregoing modifications cannot be applied to the terms of a
loan secured by property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorney's fees and costs to the extent the value of the
security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to other collateral and/or be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to
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bankruptcy court-approved financing. The bankruptcy court can, in effect,
invalidate due-on-sale clauses through confirmed Chapter 11 plans of
reorganization.
The Bankruptcy Code provides priority to certain tax liens over the
lender's security. This may delay or interfere with the enforcement of rights in
respect of a defaulted Home Equity Loan. In addition, substantive requirements
are imposed upon lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws. The
laws include the federal Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and related
statutes and regulations. These federal laws impose specific statutory
liabilities upon lenders who originate loans and who fail to comply with the
provisions of the law. In most cases, this liability will affect assignees of
the loans.
DUE-ON-SALE CLAUSES IN HOME EQUITY LOANS
Due-on-sale clauses permit the lender to accelerate the maturity of the
loan if the borrower sells or transfers, whether voluntarily or involuntarily,
all or part of the real property securing the loan without the lender's prior
written consent. The enforceability of these clauses has been the subject of
legislation or litigation in many states, and in some cases, typically involving
single family residential mortgage transactions, their enforceability has been
limited or denied. In any event, the Garn-St Germain Depository Institutions Act
of 1982 (the "Garn-St Germain Act") 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 exceptions. As a result, due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the "window period" under the Garn-St
Germain Act which ended in all cases not later than October 15, 1982, and (ii)
originated by lenders other than national banks, federal savings institutions
and federal credit unions. FHLMC has taken the position in its published
mortgage servicing standards that, out of a total of eleven "window period
states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have
enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations, upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes of the borrower's
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default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required that lenders reinstate loans or recast payment schedules in
order to accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of a lender to realize
upon its security if the default under the security agreement is not monetary,
such as the borrower's failure to adequately maintain the property or the
borrower's execution of secondary financing affecting the property. Finally,
some courts have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under security agreements receive notices in addition to
the statutorily-prescribed minimums. For the most part, these cases have upheld
the notice provisions as being reasonable or have found that, in cases involving
the sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family mortgage loans may be prepaid in full or
in part without penalty. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage. The absence of a restraint on
prepayment, particularly with respect to mortgage loans having higher mortgage
rates, may increase the likelihood of refinancing or other early retirements of
such mortgage loans.
APPLICABILITY OF USURY LAWS
Many states have usury laws which limit the interest and other amounts
that may be charged under certain loans. 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. Similar federal statutes were in effect with respect to mortgage loans
made during the first three months of 1980. Title V authorizes any state to
reimpose interest rate limits by adopting, before April 1, 1983, a state law, or
by certifying that the voters of such state have voted in favor of any
provision, constitutional or otherwise, which expressly rejects an application
of the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. 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. State laws apply to residential
second mortgages; however, some state usury limitations do not apply to
residential second mortgages.
ENVIRONMENTAL LEGISLATION
A federal statute, the Comprehensive Environmental Response,
Compensation, and Liability Act, and a growing number of state laws impose a
statutory lien for associated costs on property that is the subject of a cleanup
action on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien generally will have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens, including the lien of a mortgage or deed of
trust. The priority of the environmental lien under federal law depends on the
time of perfection of the federal lien compared to the time of perfection of any
competing liens under applicable state law. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party that takes a deed in lieu of foreclosure or acquires a property at
a foreclosure sale may be liable for the costs of cleaning up a contaminated
site. Although such costs could be substantial, they would probably not be
imposed on a secured lender (such as the applicable Trust Fund) if it promptly
marketed the foreclosed property for resale. In the event that a Trust Fund
acquired title to a property securing a Mortgage Home Equity Loan and cleanup
costs were incurred in respect of the property, the holders of the Securities
might incur a delay in the payment if such costs were required to be paid by
such Trust Fund.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
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Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of
all branches of the military on active duty, including draftees and reservists
in military service, (i) are entitled to have interest rates reduced and capped
at 6% per annum, on obligations (including Home Equity Loans) incurred prior to
the commencement of military service for the duration of military service, (ii)
may be entitled to a stay of proceedings on any kind of foreclosure or
repossession action in the case of defaults on such obligations entered into
prior to military service for the duration of military service and (iii) may
have the maturity of such obligations incurred prior to military service
extended, the payments lowered and the payment schedule readjusted for a period
of time after the completion of military service. However, the benefits of (i),
(ii), or (iii) above are subject to challenge by creditors and if, in the
opinion of the court, the ability of a person to comply with such obligations
has not been materially impaired by military service, the court may apply
equitable principles accordingly. If a borrower's obligation to repay amounts
otherwise due on a Home Equity Loan included in a Trust Fund for a Series is
relieved pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, none
of the Trust Fund, the Servicer, the Seller nor the Trustee will be required to
advance such amounts, and any loss in respect thereof may reduce the amounts
available to be paid to the Holders of the Securities of such Series. Any
shortfalls in interest collections on Home Equity Loans included in a Trust Fund
for a Series resulting from application of the Soldiers' and Sailors' Civil
Relief Act of 1940 will be allocated to each Class of Securities of such Series
that is entitled to receive interest in respect of such Home Equity Loans in
proportion to the interest that each such Class of Securities would have
otherwise been entitled to receive in respect of such Home Equity Loans had such
interest shortfall not occurred unless the related Prospectus Supplement
allocates such shortfalls to particular Classes.
USE OF PROCEEDS
The Seller will apply all or substantially all of the net proceeds from
the sale of each Series of Securities for one or more of the following purposes:
(i) to establish any Reserve Fund, Pre-Funding Account or Capitalized Interest
Account, (ii) to pay costs of structuring and issuing such Securities, including
the costs of obtaining Enhancement, and (iii) to acquire the Primary Assets from
the Originators, who in turn will use such proceeds for general corporate
purposes.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section sets forth (i) certain federal income tax opinions of
Stroock & Stroock & Lavan LLP, special counsel to the Seller ("Federal Tax
Counsel"), and (ii) a summary, based on the advice of Federal Tax Counsel, of
the material federal income tax consequences of the purchase, ownership and
disposition of Securities. The summary does not purport to deal with all aspects
of federal income taxation that may affect particular investors in light of
their individual circumstances, nor with certain types of investors subject to
special treatment under the federal income tax laws. The summary focuses
primarily upon investors who will hold Securities as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the of the Internal Revenue Code of 1986, as amended (the "Code"), but much of
the discussion is applicable to other investors as well. Because tax
consequences may vary based on the status or tax attributes of the owner of a
Security, prospective investors are advised to consult their own tax advisers
concerning the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Securities. For purposes of this
tax discussion (except with respect to information reporting, or where the
context indicates otherwise), any reference to the "Holder" means the beneficial
owner of a Security.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and
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interpretations on which this interpretation is based are subject to change, and
such a change could apply retroactively.
The federal income tax consequences to Holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness for
federal income tax purposes; (ii) an election is made to treat the Trust Fund
(or certain assets of the Trust Fund) relating to a particular Series of
Securities as a real estate mortgage investment conduit ("REMIC") under the
Code; (iii) the Securities represent an ownership interest for federal income
tax purposes in some or all of the assets included in the Trust Fund for a
Series; or (iv) for federal income tax purposes the Trust Fund relating to a
particular Series of Certificates is classified as a partnership or is
disregarded as an entity separate from its owner. The Prospectus Supplement for
each Series of Securities will specify how the Securities will be treated for
federal income tax purposes and will discuss whether a REMIC election, if any,
will be made with respect to such Series.
OPINIONS
Federal Tax Counsel is of the opinion that:
(i) If a Prospectus Supplement indicates that one or more
Classes of Securities of the related Series are to be treated as
indebtedness for federal income tax purposes, assuming that all of the
provisions of the applicable Agreement are complied with, the Securities
so designated will be considered indebtedness for federal income tax
purposes;
(ii) If a Prospectus Supplement indicates that one or more REMIC
elections will be made with respect to the related Trust Fund, assuming
that such elections are timely made and all of the provisions of the
applicable Agreement are complied with (a) each segregated pool of
assets specified as a REMIC in such Agreement will constitute a REMIC
for federal income tax purposes, (b) the Class or Classes of Securities
of the related Series which are designated as "regular interests" in
such Prospectus Supplement will be considered "regular interests" in a
REMIC for federal income tax purposes and (c) the Class of Securities of
the related Series which is designated as the "residual interest" in
such Prospectus Supplement will be considered the sole class of
"residual interests" in the applicable REMIC for federal income tax
purposes;
(iii) If a Prospectus Supplement indicates that a Trust Fund
will be treated as a grantor trust for federal income tax purposes,
assuming compliance with all of the provisions of the applicable
Agreement, (a) the Trust Fund will be a grantor trust under Subpart E,
Part I of Subchapter J of the Code and will not be an association
taxable as a corporation and (b) a Holder of the related Certificates
will be treated for federal income tax purposes as the owner of an
undivided interest in the Primary Assets included in the Trust Fund; and
(iv) If a Prospectus Supplement indicates that a Trust Fund is
to be treated as a partnership for federal income tax purposes, assuming
that all of the provisions of the applicable Agreements are complied
with, such Trust Fund will not be an association, publicly traded
partnership, or taxable mortgage pool taxable as a corporation.
Each such opinion is an expression of an opinion only, is not a
guarantee of results and is not binding on the Internal Revenue Service ("IRS")
or any third-party.
TAXATION OF DEBT SECURITIES (INCLUDING REGULAR INTEREST SECURITIES)
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INTEREST AND ACQUISITION DISCOUNT. Securities representing regular
interest in a REMIC ("Regular Interest Securities") are generally taxable to
Holders in the same manner as evidences of indebtedness issued by the REMIC.
Stated interest on the Regular Interest Securities will be taxable as ordinary
income and taken into account using the accrual method of accounting, regardless
of the Holder's normal accounting method. Interest (other than original issue
discount ("OID")) on Securities (other than Regular Interest Securities) that
are characterized as indebtedness for federal income tax purposes will be
includible in income by Holders thereof in accordance with their usual methods
of accounting. Securities characterized as debt for federal income tax purposes
and Regular Interest Securities will be referred to hereinafter collectively as
"Debt Securities."
Debt Securities that are Compound Interest Securities will, and certain
of the other Debt Securities may, be issued with OID. The following discussion
is based in part on the rules governing OID which are set forth in Sections
1271-1275 of the Code and the Treasury regulations issued thereunder (the "OID
Regulations"). A Holder should be aware, however, that the OID Regulations do
not adequately address certain issues relevant to prepayable securities, such as
the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A Holder of
a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a prescribed method which takes into account an
economic accrual of the discount. In general, OID must be included in income in
advance of the receipt of the cash representing that income. The amount of OID
on a Debt Security will be considered to be zero if it is less than a de minimis
amount determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the Closing Date, the issue price for such class will be treated as
the fair market value of such class on the Closing Date. The stated redemption
price at maturity of a Debt Security includes the original principal amount of
the Debt Security, but generally will not include distributions of interest if
such distributions constitute "qualified stated interest."
Under the OID Regulations, interest payments will not be qualified
stated interest unless the interest payments are "unconditionally payable." The
OID Regulations state that interest is unconditionally payable if reasonable
legal remedies exist to compel timely payment or the debt instrument otherwise
provides terms and conditions that make the likelihood of late payment of
interest (other than late payment that occurs within a reasonable grace period)
or nonpayment of interest a remote contingency. It is unclear whether the terms
and conditions of the debt instruments underlying the Debt Securities or of the
Debt Securities themselves are determinative of whether the likelihood of late
payment or non-payment is a remote contingency. Accordingly, Federal Tax Counsel
is unable to opine whether the interest with respect to a Debt Security is
qualified stated interest, and consequently whether a Debt Security has OID as a
result of the failure of such interest to be treated as qualified stated
interest.
Certain Debt Securities will provide for distributions of interest based
on a period that is the same length as the interval between Distribution Dates
but ends prior to each Distribution Date. Any interest that accrues prior to the
Closing Date may be treated under the OID Regulations either (i) as part of the
issue price and the stated redemption price at maturity of the Debt Securities
or (ii) as not included in the issue price or stated redemption price. The OID
Regulations provide a special application of the de minimis rule for debt
instruments with long first accrual periods where the interest payable for the
first period is at a rate which is effectively less than that which applies in
all other periods. In such cases, for the sole purpose of determining whether
OID is de minimis, the OID Regulations provide that the stated redemption price
is equal to the instrument's issue price plus the greater of the amount of
foregone interest or the excess (if any) of the instrument's stated principal
amount over its issue price.
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Under the de minimis rule, OID on a Debt Security will be considered to
be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Security multiplied by the weighted average maturity of the
Debt Security. For this purpose, the weighted average maturity of the Debt
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 Debt
Security and the denominator of which is the stated redemption price at maturity
of the Debt Security. Holders generally must report de minimis OID pro rata as
principal payments are received, and such income will be capital gain if the
Debt Security is held as a capital asset. However, accrual method Holders may
elect to accrue all de minimis OID as well as market discount under a constant
interest method. See "--Election to Treat All Interest as Original Issue
Discount."
The Holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Security, the sum of the "daily portions" of such OID. The amount of OID
includible in income by a Holder will be computed by allocating to each day
during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of a Debt Security that is not a Regular
Interest Security and the principal payments on which are not subject to
acceleration resulting from prepayments on the Home Equity Loans, the amount of
OID includible in income of a Holder for an accrual period (generally the period
over which interest accrues on the debt instrument) will equal the product of
the yield to maturity of the Debt Security and the adjusted issue price of the
Debt Security, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to such Debt Security in all
prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a Holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments is
to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding at
the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method is
to increase the portions of OID required to be included in income by a Holder to
take into account prepayments with respect to the Home Equity Loans at a rate
that exceeds the Prepayment Assumption, and to decrease (but not below zero for
any period) the portions of OID required to be included in income by a Holder of
a Pay-Through Security to take into account prepayments with respect to the Home
Equity Loans at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Holders of Pay-Through Securities based on the
Prepayment Assumption, no representation is made to Holders that Home Equity
Loans will be prepaid at that rate or at any other rate.
The Seller may adjust the accrual of OID on a Class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it believes
to be appropriate, to take account of realized losses on the Home Equity Loans,
although the OID Regulations do not provide for such adjustments. If the IRS
were to require that OID be accrued without such adjustments, the rate of
accrual of OID for a Class of Regular Interest Securities could increase.
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Certain classes of Regular Interest Securities may represent more than
one class of REMIC regular interests. Unless the applicable Prospectus
Supplement specifies otherwise, the Trustee intends, based on the OID
Regulations, to calculate OID on such Securities as if, solely for the purposes
of computing OID, the separate regular interests were a single debt instrument.
A subsequent Holder of a Debt Security will also be required to include
OID in gross income, but such a Holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial Holder who pays more than a Debt Security's issue price) to offset such
OID by comparable economic accruals of portions of such excess.
EFFECTS OF DEFAULTS AND DELINQUENCIES. Holders will be required to
report income with respect to the related Securities under an accrual method
without giving effect to delays and reductions in distributions attributable to
a default or delinquency on the Home Equity Loans, except possibly to the extent
that it can be established that such amounts are uncollectible. As a result, the
amount of income (including OID) reported by a Holder of such a Security in any
period could significantly exceed the amount of cash distributed to such Holder
in that period. The Holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Home Equity Loan
default. However, the timing and character of such losses or reductions in
income are uncertain and, accordingly, Holders of Securities should consult
their own tax advisors on this point.
INTEREST WEIGHTED SECURITIES. It is not clear how income should be
accrued on Debt Securities the payments on which consist solely or primarily of
a specified portion of the interest payments on qualified mortgages held by the
REMIC or on Home Equity Loans underlying Pass-Through Securities ("Interest
Weighted Securities"). The Trust Fund intends to take the position that all of
the income derived from an Interest Weighted Security should be treated as OID
and that the amount and rate of accrual of such OID should be calculated by
treating the Interest Weighted Security as a Compound Interest Security.
However, in the case of Interest Weighted Securities that are entitled to some
payments of principal and that are Regular Interest Securities the IRS could
assert that income derived from an Interest Weighted Security should be
calculated as if the Security were purchased at a premium equal to the excess of
the price paid by such holder for such Security over its stated principal
amount, if any. Under this approach, a holder would be entitled to amortize such
premium amount, if any. Under this approach, a holder would be entitled to
amortize such premium only if it has in effect an election under Section 171 of
the Code with respect to all taxable debt instruments held by such holder, as
described below.
VARIABLE RATE DEBT SECURITIES. Under the OID Regulations, Debt
Securities paying interest at a variable rate (a "Variable Rate Debt Security")
are subject to special rules. A Variable Rate Debt Security will qualify as a
"variable rate debt instrument" if (i) its issue price does not exceed the total
noncontingent principal payments due under the Variable Rate Debt Security by
more than a specified de minimis amount, (ii) it provides for stated interest,
paid or compounded at least annually, at (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, and (iii) it does not provide for any
principal payments that are contingent, as defined in the OID Regulations,
except as provided in clause (i) above.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Debt Security is denominated. A multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate for purposes
of the OID Regulations. However, a variable rate equal to (i) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (ii) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate will constitute a qualified floating rate for purposes
of the OID Regulations. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have
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approximately the same values throughout the term of the Variable Rate Debt
Security will be treated as a single qualified floating rate (a "Presumed Single
Qualified Floating Rate"). Two or more qualified floating rates with values
within 25 basis points of each other as determined on the Variable Rate Debt
Security's issue date will be conclusively presumed to be a Presumed Single
Qualified Floating Rate. Notwithstanding the foregoing, a variable rate that
would otherwise constitute a qualified floating rate but which is subject to one
or more restrictions such as a cap or floor, will not be a qualified floating
rate for purposes of the OID Regulations unless the restriction is fixed
throughout the term of the Variable Rate Debt Security or the restriction will
not significantly affect the yield of the Variable Rate Debt Security.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon objective financial or economic information. The OID Regulations also
provide that other variable rates may be treated as objective rates if so
designated by the IRS in the future. Despite the foregoing, a variable rate of
interest on a Variable Rate Debt Security will not constitute an objective rate
if it is reasonably expected that the average value of such rate during the
first half of the Variable Rate Debt Security's term will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the Variable Rate Debt Security's term. Further,
an objective rate does not include a rate that is based on information that is
within the control of or unique to the circumstances of the issuer or a party
related to the issuer. An objective rate will qualify as a "qualified inverse
floating rate" if such rate is equal to a fixed rate minus a qualified floating
rate and variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate. The OID Regulations
also provide that if a Variable Rate Debt Security provides for stated interest
at a fixed rate for an initial period of less than one year followed by a
variable rate that is either a qualified floating rate or an objective rate and
if the variable rate on the Variable Rate Debt Security's issue date is intended
to approximate the fixed rate, then the fixed rate and the variable rate
together will constitute either a single qualified floating rate or objective
rate, as the case may be (a "Presumed Single Variable Rate"). If the value of
the variable rate and the initial fixed rate are within 25 basis points of each
other as determined on the Variable Rate Debt Security's issue date, the
variable rate will be conclusively presumed to approximate the fixed rate.
For Variable Rate Debt Securities that qualify as a "variable rate debt
instrument" under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a "Single Variable Rate Debt Security"), OID is computed as described above
based on the following: (i) stated interest on the Single Variable Rate Debt
Security which is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually will constitute qualified stated
interest; (ii) by assuming that the variable rate on the Single Variable Debt
Security is a fixed rate equal to: (a) in the case of a Single Variable Rate
Debt Security with a qualified floating rate or a qualified inverse floating
rate, the value, as of the issue date, of the qualified floating rate or the
qualified inverse floating rate or (b) in the case of a Single Variable Rate
Debt Security with an objective rate (other than a qualified inverse floating
rate), a fixed rate which reflects the reasonably expected yield for such Single
Variable Debt Security; and (iii) the qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
under the assumed fixed rate described in clause (ii) above.
In general, any Variable Rate Debt Security other than a Single Variable
Rate Debt Security (a "Multiple Variable Rate Debt Security") that qualifies as
a "variable rate debt instrument" will be converted into an "equivalent" fixed
rate debt instrument for purposes of determining the amount and accrual of OID
and qualified stated interest on the Multiple Variable Rate Debt Security. The
OID Regulations generally require that such a Multiple Variable Rate Debt
Security be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate Debt Security with a
fixed rate equal to the value of the qualified floating rate or qualified
inverse floating rate, as the case may be, as of the Multiple Variable Rate Debt
Security's issue date. Any objective rate (other than a
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qualified inverse floating rate) provided for under the terms of the Multiple
Variable Rate Debt Security is converted into a fixed rate that reflects the
yield that is reasonably expected for the Multiple Variable Rate Debt Security.
In the case of a Multiple Variable Rate Debt Security that qualifies as a
"variable rate debt instrument" and provides for stated interest at a fixed rate
in addition to either one or more qualified floating rates or a qualified
inverse floating rate, the fixed rate is initially converted into a qualified
floating rate (or a qualified inverse floating rate, if the Multiple Variable
Rate Debt Security provides for a qualified inverse floating rate). Under such
circumstances, the qualified floating rate or qualified inverse floating rate
that replaces the fixed rate must be such that the fair market value of the
Multiple Variable Rate Debt Security as of the Multiple Variable Rate Debt
Security's issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified
floating rate or qualified inverse floating rate rather than the fixed rate.
Subsequent to converting the fixed rate into either a qualified floating rate or
a qualified inverse floating rate, the Multiple Variable Rate Debt Security is
then converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Multiple Variable Rate Debt Security is converted into an
"equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of OID and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the OID rules to the
"equivalent" fixed rate debt instrument in the manner described above. A Holder
of the Multiple Variable Rate Debt Security will account for such OID and
qualified stated interest as if the Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or OID assumed to have been accrued or paid
with respect to the "equivalent" fixed rate debt instrument in the event that
such amounts differ from the accrual amount of interest accrued or paid on the
Multiple Variable Rate Debt Security during the accrual period.
If a Variable Rate Debt Security does not qualify as a "variable rate
debt instrument" under the OID Regulations, then the Variable Rate Debt Security
would be treated as a contingent payment debt obligation. It is not clear under
current law how a Variable Rate Debt Security would be taxed if such Debt
Security were treated as a contingent payment debt obligation.
The IRS has issued final regulations (the "Contingent Regulations")
governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply however to debt
instruments to which Code Section 1272(a)(6) is applicable, such as a
Pay-Through Security. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). Until the Treasury
issues guidelines to the contrary, the Trustee intends to base its computation
of OID on Pay-Through Securities as described in this Prospectus. However,
because no regulatory guidance exists under Code Section 1272(a)(6), there can
be no assurance that such methodology represents the correct manner of
calculating OID.
MARKET DISCOUNT. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A Holder that acquires a Debt
Security with more than a prescribed de minimis amount of "market discount"
(generally, the excess of the principal amount of the Debt Security over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Security received in that month
and, if the Securities are sold, the gain realized. Such market discount would
accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security, as set forth below, the
Home Equity Loans underlying such Security) not originally issued with OID,
stated interest payable in the relevant period to total stated interest
remaining to be paid at the beginning of the period or (b) in the case of
Securities (or, in the case of a Pass-Through Security, as described below, the
Home Equity Loans underlying such Security) originally issued at a discount, OID
in the relevant period to total OID remaining to be paid.
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Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security (or, in the case of a Pass-Through Security, the Home
Equity Loans), the excess of interest paid or accrued to purchase or carry a
Security (or, in the case of a Pass-Through Security, as described below, the
underlying Home Equity Loans) with market discount over interest received on
such Security is allowed as a current deduction only to the extent such excess
is greater than the market discount that accrued during the taxable year in
which such interest expense was incurred. In general, the deferred portion of
any interest expense will be deductible when such market discount is included in
income, including upon the sale, disposition, or repayment of the Security (or
in the case of a Pass-Through Security, an underlying Home Equity Loan). A
Holder may elect to include market discount in income currently as it accrues,
on all market discount obligations acquired by such Holder during the taxable
year such election is made and thereafter, in which case the interest deferral
rule will not apply.
PREMIUM. A Holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount. Accordingly, it appears that the accrual of
premium on a Class of Pay-Through Securities will be calculated using the
prepayment assumption used in pricing such Class. If a Holder makes an election
to amortize premium on a Debt Security, such election will apply to all taxable
debt instruments (including all REMIC regular interests and all pass-through
certificates representing ownership interests in a trust holding debt
obligations) held by the Holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter by
such Holder, and will be irrevocable without the consent of the IRS. Purchasers
who pay a premium for the Securities should consult their tax advisers regarding
the election to amortize premium and the method to be employed.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable
Bond Premium Regulations") dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject to
Code Section 1272(a)(6) such as the Pay-Through Securities. Absent further
guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described above. Prospective purchasers of the Securities
should consult their tax advisors regarding the possible application of the
proposed Amortizable Bond Premium Regulations.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The OID
Regulations permit a Holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or OID) and premium in income as interest,
based on a constant yield method for Debt Securities acquired on or after April
4, 1994. If such an election were to be made with respect to a Debt Security
with market discount, the Holder of the Debt Security would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Holder of the Debt
Security acquires during the year of the election or thereafter. Similarly, a
Holder of a Debt Security that makes this election for a Debt Security that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Holder owns or acquires. The election to accrue interest, discount and
premium on a constant yield method with respect to a Debt Security is
irrevocable.
SALE OR EXCHANGE. A Holder's tax basis in its Debt Security is the price
such Holder pays for a Debt Security, plus amounts of OID or market discount
included in income and reduced by any payments received (other than qualified
stated interest payments) and any amortized premium. Gain or loss recognized on
a sale, exchange, or redemption of a Debt Security, measured by the difference
between the amount realized and the Debt Security's basis as so adjusted, will
generally be capital gain or loss, assuming that the Debt Security is held as a
capital asset. In the case of a Debt Security held by a bank, thrift, or similar
institution described in Section 582 of the Code,
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however, gain or loss realized on the sale or exchange of a Debt Security will
be taxable as ordinary income or loss. In addition, gain from the disposition of
a Regular Interest Security that might otherwise be capital gain will be treated
as ordinary income to the extent of the excess, if any, of (i) the amount that
would have been includible in the Holder's income if the yield on such Regular
Interest Security had equaled 110% of the applicable federal rate as of the
beginning of such Holder's holding period, over the amount of ordinary income
actually recognized by the Holder with respect to such Regular Interest
Security.
TAXATION OF THE REMIC AND ITS HOLDERS
STATUS OF REGULAR INTEREST SECURITIES. Regular Interest Securities and
Securities representing a residual interest in a REMIC (both types of securities
collectively referred to as "REMIC Securities") will be "real estate assets" for
purposes of Section 856(c)(4)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code (assets qualifying under one or more of those
sections, applying each section separately, "qualifying assets") to the extent
that the REMIC's assets are qualifying assets. However, if at least 95 percent
of the REMIC's assets are qualifying assets, then 100 percent of the REMIC
Securities will be qualifying assets. Similarly, income on the REMIC Securities
will be treated as "interest on obligations secured by mortgages on real
property" within the meaning of Section 856(c)(3)(B) of the Code, subject to the
limitations of the preceding two sentences. In addition to Home Equity Loans,
the REMIC's assets will include payments on Home Equity Loans held pending
distribution to Holders of REMIC Securities, amounts in reserve accounts (if
any), other credit enhancements (if any) and possibly buydown funds ("Buydown
Funds"). The Home Equity Loans generally will be qualifying assets under all
three of the foregoing sections of the Code. However, Home Equity Loans that are
not secured by residential real property or real property used primarily for
church purposes may not constitute qualifying assets under Section
7701(a)(19)(C)(v) of the Code. In addition, to the extent that the principal
amount of a Home Equity Loan exceeds the value of the property securing the Home
Equity Loan, it is unclear and Federal Tax Counsel is unable to opine whether
the Home Equity Loans will be qualifying assets. The regulations under Sections
860A through 860G of the Code (the "REMIC Regulations") treat credit
enhancements as part of the mortgage or pool of mortgages to which they relate,
and therefore credit enhancements generally should be qualifying assets.
Regulations issued in conjunction with the REMIC Regulations provide that
amounts paid on loans and held pending distribution to Holders of Regular
Interest Securities ("cash flow investments") will be treated as qualifying
assets. It is unclear whether reserve funds or Buydown Funds would also
constitute qualifying assets under any of those provisions.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by Holders of the Residual Interest Securities. In the case of a "single
class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the Holders of the Regular Interest Securities and the
Holders of the Residual Interest Securities on a daily basis in proportion to
the relative amounts of income accruing to each Holder on that day. In the case
of a Holder of a Regular Interest Security who is an individual or a
"pass-through interest Holder" (including certain pass-through entities but not
including real estate investment trusts), such expenses will be deductible only
to the extent that such expenses, plus other "miscellaneous itemized deductions"
of the Holder, exceed 2% of such Holder's adjusted gross income and such Holder
may not be able to deduct such fees and expenses to any extent in computing such
Holder's alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount, or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. For taxable years beginning after December 31, 1997, in the
case of a partnership that has 100 or more partners and elects to be treated as
an "electing large partnership," 70% of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 2%
floor that would otherwise be applicable to individual partners. The reduction
or disallowance of this deduction may have a significant impact on the yield of
the Regular Interest Security to such a Holder. In
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general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
which is structured with the principal purpose of avoiding the single class
REMIC rules. Unless otherwise stated in the applicable Prospectus Supplement,
the expenses of the REMIC will be allocated to Holders of the related Residual
Interest Securities.
TAXATION OF THE REMIC
GENERAL. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the Holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
TIERED REMIC STRUCTURES. For certain Series of 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. Solely for
purposes of determining whether the REMIC Certificates will be "real estate
assets" within the meaning of Section 856(c)(4)(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 Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
CALCULATION OF REMIC INCOME. The taxable income or net loss of a REMIC
is determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any OID or market discount
on loans and other assets, and (ii) deductions, including stated interest and
OID accrued on Regular Interest Securities, amortization of any premium with
respect to Home Equity Loans, and servicing fees and other expenses of the
REMIC. A Holder of a Residual Interest Security that is an individual or a
"pass-through interest Holder" (including certain pass-through entities, but not
including real estate investment trusts) will be unable to deduct servicing fees
payable on the Home Equity Loans or other administrative expenses of the REMIC
for a given taxable year, to the extent that such expenses, when aggregated with
such Holder's other miscellaneous itemized deductions for that year, do not
exceed 2% of such Holder's adjusted gross income and such Holder may not be able
to deduct such fees and expenses to any extent in computing such holders
alternative minimum tax liability. For taxable years beginning after December
31, 1997, in the case of a partnership that has 100 or more partners and elects
to be treated as an "electing large partnership," 70% of such partnership's
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2% floor that would otherwise be applicable to individual
partners.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the aggregate
fair market value of the regular interests and the residual interests on the
Startup Day (generally, the day that the interests are issued). Such aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated
on or after March 2, 1984. Subject to possible application of the de minimis
rules, the method of accrual by the REMIC of OID income on such loans will be
equivalent to the method under which Holders of Pay-Through Securities accrue
original issue discount (i.e., under the constant yield method taking into
account the Prepayment Assumption). The REMIC will deduct OID on the Regular
Interest Securities in the same manner that the Holders of the Regular Interest
Securities include such discount in income, but without regard to the de minimis
rules. See "Taxation of Debt Securities (Including Regular Interest Securities)"
above. A REMIC that acquires loans at a market discount must include such market
discount in income currently, as it accrues, on a constant interest basis.
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To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (presumably taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding recovery
of premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
PROHIBITED TRANSACTIONS AND CONTRIBUTIONS TAX. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction." For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include: (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject to
a limited exception, the sale or other disposition of a cash flow investment;
(iii) the receipt of any income from assets not permitted to be held by the
REMIC pursuant to the Code; or (iv) the receipt of any fees or other
compensation for services rendered by the REMIC. It is anticipated that a REMIC
will not engage in any prohibited transactions in which it would recognize a
material amount of net income. In addition, subject to a number of exceptions, a
tax is imposed at the rate of 100% on amounts contributed to a REMIC after the
Startup Day. The Holders of Residual Interest Securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such Holders or otherwise, however, such taxes will be paid
out of the Trust Fund and will be allocated pro rata to all outstanding Classes
of Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a residual interest (a "Residual
Interest Security") will take into account the "daily portion" of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such Holder held the Residual Interest Security. The daily portion is determined
by allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the Holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.
The Holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the Home Equity Loans held by the REMIC were
issued or acquired at a discount, since mortgage prepayments cause recognition
of discount income, while the corresponding portion of the prepayment could be
used in whole or in part to make principal payments on REMIC Regular Interests
issued without any discount or at an insubstantial discount. (If this occurs, it
is likely that cash distributions will exceed taxable income in later years.)
Taxable income may also be greater in earlier years of certain REMIC issues as a
result of the fact that interest expense deductions, as a percentage of
outstanding principal on REMIC Regular Interest Securities, will typically
increase over time as lower yielding Securities are paid, whereas interest
income with respect to loans will generally remain constant over time as a
percentage of loan principal.
In any event, because the Holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
LIMITATION ON LOSSES. The amount of the REMIC's net loss that a Holder
may take into account currently is limited to the Holder's adjusted basis at the
end of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Security will initially equal such Holder's purchase price,
and will subsequently be increased
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by the amount of the REMIC's taxable income allocated to the Holder, and
decreased (but not below zero) by the amount of distributions made and the
amount of the REMIC's net loss allocated to the Holder. Any disallowed loss may
be carried forward indefinitely, but may be used only to offset income of the
REMIC generated by the same REMIC. The ability of Holders of Residual Interest
Securities to deduct net losses may be subject to additional limitations under
the Code, as to which such Holders should consult their tax advisers.
DISTRIBUTIONS. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a Holder of a Residual Interest
Security. If the amount of such payment exceeds a Holder's adjusted basis in the
Residual Interest Security, however, the Holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
SALE OR EXCHANGE. A Holder of a Residual Interest Security will
recognize gain or loss on the sale or exchange of a Residual Interest Security
equal to the difference, if any, between the amount realized and such Holder's
adjusted basis in the Residual Interest Security at the time of such sale or
exchange. Except to the extent provided in regulations, which have not yet been
issued, any loss upon disposition of a Residual Interest Security will be
disallowed if the selling Holder acquires any residual interest in a REMIC or
similar mortgage pool within six months before or after such disposition.
EXCESS INCLUSIONS. The portion of the REMIC taxable income of a Holder
of a Residual Interest Security consisting of "excess inclusion" income may not
be offset by other deductions or losses, including net operating losses, on such
Holder's federal income tax return. Further, if the Holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Holder's excess inclusion income will
be treated as unrelated business taxable income of such Holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as "portfolio
interest" and is subject to certain additional limitations. See "Tax Treatment
of Foreign Investors."
The Small Business Job Protection Act of 1996 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 REMIC residual certificates 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 certificates held by thrift
institutions since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special rule
that taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum income for a tax year cannot be less than excess
inclusions for the year. Third, the amount of any alternative minimum tax net
operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to
the excess, if any, of REMIC taxable income for the quarterly period allocable
to a Residual Interest Security, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup Date
multiplied by (ii) the adjusted issue
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price of such Residual Interest Security at the beginning of such quarterly
period. The adjusted issue price of a Residual Interest Security at the
beginning of each calendar quarter will equal its issue price (calculated in a
manner analogous to the determination of the issue price of a Regular Interest
Security), increased by the aggregate of the daily accruals for prior calendar
quarters, and decreased (but not below zero) by the amount of loss allocated to
a Holder and the amount of distributions made on the Residual Interest Security
before the beginning of the quarter. The long-term federal rate, which is
announced monthly by the Treasury Department, is an interest rate that is based
on the average market yield of outstanding marketable obligations of the United
States government having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Interest Securities may be disregarded. See "--Restrictions on
Ownership and Transfer of Residual Interest Securities" and "Tax Treatment of
Foreign Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities.
As a condition to qualification as a REMIC, reasonable arrangements must be made
to prevent the ownership of a REMIC residual interest by any "Disqualified
Organization." Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if such entity is not subject to tax on its unrelated business income.
Accordingly, the applicable Agreement will prohibit Disqualified Organizations
from owning a Residual Interest Security. In addition, no transfer of a Residual
Interest Security will be permitted unless the proposed transferee shall have
furnished to the Trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acing on behalf of a
Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a substantial
tax will be imposed on the transferor of such Residual Interest Security at the
time of the transfer. In addition, if a Disqualified Organization holds an
interest in a pass-through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company, or any person
holding as nominee an interest in a pass-through entity), that owns a Residual
Interest Security, the pass-through entity will be required to pay an annual tax
on its allocable share of the excess inclusion income of the REMIC. For taxable
years beginning after December 31, 1997, all partners of certain electing
partnerships having 100 or more partners ("electing large partnerships") will be
treated as disqualified organizations for purposes of the tax imposed on
pass-through entities if such electing large partnerships hold residual
interests in a REMIC. However, the electing large partnership would be entitled
to exclude the excess inclusion income from gross income for purposes of
determining the taxable income of the partners.
The REMIC Regulations provide that a transfer of a "noneconomic residual
interest" will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a "noneconomic residual
interest" unless, at the time of the transfer (1) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. 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 (had "improper knowledge") that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities
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in excess of any cash received with respect to the residual interest and (B) the
transferee intends to pay the taxes associated with owning the residual interest
as they come due. A different formulation of this rule applies to transfers of
Residual Interest Security by or to foreign transferees. See "Tax Treatment to
Foreign Investors".
MARK TO MARKET RULES. Treasury regulations provide that any REMIC
Residual Interest acquired after January 3, 1995 is not a security and cannot be
marked to market under Section 475.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in a
unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
GENERAL. As further described below, each Holder of a Security issued by
a grantor trust (a "Pass-Through Security") must report on its federal income
tax return the gross income from the portion of the Home Equity Loans that is
allocable to such Pass-Through Security and may deduct the portion of the
expenses incurred or accrued by the Trust Fund that is allocable to such
Pass-Through Security, at the same time and to the same extent as such items
would be reported by such Holder if it had purchased and held directly such
interest in the Home Equity Loans and received or accrued directly its share of
the payments on the Home Equity Loans and incurred or accrued directly its share
of expenses incurred or accrued by the Trust Fund when those amounts are
received, incurred or accrued by the Trust Fund.
A Holder of a Pass-Through Security that is an individual, estate, or
trust will be allowed deductions for such expenses only to the extent that the
sum of those expenses and the Holder's other miscellaneous itemized deductions
exceeds 2% of such Holder's adjusted gross income. Further, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a prescribed amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the prescribed
amount, or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. For taxable years beginning after December 31, 1997, in the
case of a partnership that has 100 or more partners and elects to be treated as
an "electing large partnership," 70% of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 2%
floor that would otherwise be applicable to individual partners. Moreover, a
Holder of a Pass-Through Security that is not a corporation cannot deduct such
expenses for purposes of the alternative minimum tax (if applicable). Such
deductions will include servicing, guarantee and administrative fees paid to the
servicer of the Mortgage Home Equity Loans. As a result, the Trust Fund will
report additional taxable income to Holders of Pass-Through Securities in an
amount equal to their allocable share of such deductions, and certain holders of
Pass-Through Securities may have taxable income in excess of the cash received.
STATUS OF THE PASS-THROUGH SECURITIES. The Pass-Through Securities will
be "real estate assets" for purposes of Section 856(c)(4)(A) of the Code and
"loans secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code (assets qualifying under one or both of those
sections, applying each section separately, "qualifying assets") to the extent
that the Trust Fund's assets are qualifying assets. The Pass-Through Securities
may not be qualifying assets under any of the foregoing sections of the Code to
the extent that the Trust Fund's assets include Buydown Funds, reserve funds, or
payments on mortgages held pending distribution to Certificateholders. Further,
the Pass-Through Securities may not be "real estate assets" to the extent loans
held by the trust are not secured by real property, and may not be "loans
secured by an interest in real property" to the extent loans held by the trust
are not secured by residential real property or real property used primarily for
church
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purposes. In addition, to the extent that the principal amount of a loan exceeds
the value of the property securing the loan, it is unclear and Federal Tax
Counsel is unable to opine whether the loans will be qualifying assets.
TAXATION OF PASS-THROUGH SECURITIES UNDER STRIPPED BOND RULES. The
federal income tax treatment of the Pass-Through Securities will depend on
whether they are Securities ("Stripped Securities") subject to the "stripped
bond" rules of section 1286 of the Code. The Pass-Through Securities will be
Stripped Securities if stripped interest-only Certificates are issued. In
addition, whether or not stripped interest-only Certificates are issued, the IRS
may contend that the stripped bond rules apply on the ground that the Master
Servicer's servicing fee, or other amounts, if any, paid to (or retained by) the
Master Servicer or its affiliates, as specified in the applicable Prospectus
Supplement, represent greater than an arm's length consideration for servicing
the Home Equity Loans and should be characterized for federal income tax
purposes as an ownership interest in the Home Equity Loans. The IRS has taken
the position in Revenue Ruling 91-46 that a retained interest in excess of
reasonable compensation for servicing is treated as a "stripped coupon" under
the rules of Code Section 1286.
If interest retained for the Master Servicer's servicing fee or other
interest is treated as a "stripped coupon," the Pass-Through Securities will
either be subject to the OID rules or the market discount rules. A Holder of a
Pass- Through Security will account for any discount on the Pass-Through
Security as market discount rather than OID if either (i) the amount of OID with
respect to the Pass-Through Security was treated as zero under the OID de
minimis rule when the Pass-Through Security was stripped or (ii) no more than
100 basis points (including any amount of servicing in excess of reasonable
servicing) is stripped off from the Home Equity Loans. If neither of the above
exceptions applies, the OID rules will apply to the Pass-Through Securities.
If the OID rules apply, the Holder of a Pass-Through Security (whether a
cash or accrual method taxpayer) will be required to report interest income from
the Pass-Through Security in each taxable year equal to the income that accrues
on the Pass-Through Security in that year calculated under a constant yield
method based on the yield of the Pass-Through Security (or, possibly, the yield
of each Mortgage underlying such Pass-Through Security) to such Holder. Such
yield would be computed at the rate (assuming monthly compounding) that, if used
in discounting the Holder's share of the payments on the Mortgages, would cause
the present value of those payments to equal the price at which the Holder
purchased the Pass-Through Security. With respect to certain categories of debt
instruments including "any pool of debt instruments the yield on which may be
affected by reason of prepayments (or to the extent provided in regulations, by
reason of other events)," Section 1272(a)(6) of the Code requires that OID be
accrued based on a prepayment assumption determined in a manner prescribed by
forthcoming regulations. If required to report interest income on the
Pass-Through Securities to the IRS under the stripped bond rules, it is
anticipated that the Trustee will calculate the yield of the Pass-Through
Securities based on a representative initial offering price of the Pass-Through
Securities and a reasonable assumed rate of prepayment of the Home Equity Loans
(although such yield may differ from the yield to any particular Holder that
would be used in calculating the interest income of such Holder). The Prospectus
Supplement for each series of Pass-Through Securities will describe the
prepayment assumption that will be used for this purpose, but no representation
is made that the Home Equity Loans will prepay at that rate or at any other
rate.
If a Home Equity Loan is prepaid in full, the Holder of a Pass-Through
Security acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Home Equity Loan that is allocable to the Pass-Through
Security and the portion of the adjusted basis of the Pass-Through Security (see
"Sales of Pass-Through Securities" below) that is allocable to the Home Equity
Loan. It is not clear whether any other adjustments would be required to reflect
differences between the prepayment rate that was assumed in calculating yield
and the actual rate of prepayments.
TAXATION OF PASS-THROUGH SECURITIES IF STRIPPED BOND RULES DO NOT APPLY.
If the stripped bond rules do not apply to a Pass-Through Security, then the
Holder will be required to include in income its share of the interest payments
on the Home Equity Loans in accordance with its tax accounting method. In
addition, if the
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Holder purchased the Pass-Through Security at a discount or premium, the Holder
will be required to account for such discount or premium in the manner described
below. The treatment of any discount will depend on whether the discount is OID
as defined in the Code and, in the case of discount other than OID, whether such
other discount exceeds a de minimis amount. In the case of OID, the Holder
(whether a cash or accrual method taxpayer) will be required to report as
additional interest income in each month the portion of such discount that
accrues in that month, calculated based on a constant yield method. In general
it is not anticipated that the amount of OID to be accrued in each month, if
any, will be significant relative to the interest paid currently on the Home
Equity Loans. However, OID could arise with respect to a Home Equity Loan
("ARM") that provides for interest at a rate equal to the sum of an index of
market interest rates and a fixed number. The OID for ARMs generally will be
determined under the principles discussed in "Taxation of Debt Securities
(Including Regular Interest Securities)--Variable Rate Debt Securities."
The Taxpayer Relief Act of 1997 amended the OID provisions of the Code
to provide that for "any pool of debt instruments, the yield on which may be
affected by reason of prepayments," OID is to be accrued based on a prepayment
assumption determined in a manner prescribed by forthcoming regulations. The
Prospectus Supplement for each series of Pass-Through Securities will describe
the prepayment assumption that will be used for this purpose, but no
representation is made regarding the actual rate at which prepayments will
occur.
If discount other than OID exceeds a de minimis amount (described
below), the Holder will also generally be required to include in income in each
month the amount of such discount accrued through such month and not previously
included in income, but limited, with respect to the portion of such discount
allocable to any Home Equity Loan, to the amount of principal on such Home
Equity Loan received by the Trust Fund in that month. Because the Home Equity
Loans will provide for monthly principal payments, such discount may be required
to be included in income at a rate that is not significantly slower than the
rate at which such discount accrues (and therefore at a rate not significantly
slower than the rate at which such discount would be included in income if it
were OID). The Holder may elect to accrue such discount under a constant yield
method based on the yield of the Pass-Through Security to such Holder (or
possibly based on the yields of each Home Equity Loan). In the absence of such
an election, it may be necessary to accrue such discount under a more rapid
straight-line method. Under the de minimis rule, market discount with respect to
a Pass-Through Security will be considered to be zero if it is less than the
product of (i) 0.25% of the principal amount of the Home Equity Loans allocable
to the Pass-Through Security and (ii) the weighted average life (in complete
years) of the Home Equity Loans remaining at the time of purchase of the
Pass-Through Security.
If a Holder purchases a Pass-Through Security at a premium, such Holder
may elect under Section 171 of the Code to amortize the portion of such premium
that is allocable to a Home Equity Loan under a constant yield method based on
the yield of the Home Equity Loan to such Holder, provided that such Home Equity
Loan was originated after September 27, 1985. Premium allocable to a Home Equity
Loan originated on or before that date should be allocated among the principal
payments on the Home Equity Loan and allowed as an ordinary deduction as
principal payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for market discount or
premium would be made based on the scheduled payments on the Home Equity Home
Equity Loans or taking account of a reasonable prepayment assumption, and
Federal Tax Counsel is unable to opine on this issue.
If a Home Equity Loan is prepaid in full, the Holder of a Pass-Through
Security acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Home Equity Loan that is allocable to the Pass-Through Security and the
portion of the adjusted basis of the Pass-Through Security (see "Sales of
Pass-Through Securities" below) that is allocable to the Home Equity Loan.
Adjustments might be required to reflect differences between the prepayment rate
that was assumed in accounting for discount or premium and the actual rate of
prepayments.
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MISCELLANEOUS TAX ASPECTS
BACKUP WITHHOLDING. A Holder, other than a Holder of a Residual Interest
Security, may, under certain circumstances, be subject to "backup withholding"
at a rate of 31% with respect to distributions or the proceeds of a sale of
Securities to or through brokers that represent interest or OID on the
Securities. This withholding generally applies if the Holder of a Security (i)
fails to furnish the Trustee with its taxpayer identification number ("TIN");
(ii) furnishes the Trustee an incorrect TIN; (iii) fails to report properly
interest, dividends or other "reportable payments" as defined in the Code; or
(iv) under certain circumstances, fails to provide the Trustee or such Holder's
securities broker with a certified statement, signed under penalty of perjury,
that the TIN provided is its correct number and that the Holder is not subject
to backup withholding. Backup withholding will not apply, however, with respect
to certain payments made to Holders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Foreign Investors (as
defined below). Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
Treasury regulations (the "Final Withholding Regulations"), which are
generally effective with respect to payments made after December 31, 1998,
consolidate and modify the current certification requirements and means by which
a holder may claim exemption from United States federal income tax withholding
and provide certain presumptions regarding the status of holders when payments
to the holders cannot be reliably associated with appropriate documentation
provided to the payor. All holders should consult their tax advisers regarding
the application of the Final Withholding Regulations.
The Trustee will report to the Holders and to the Master Servicer for
each calendar year the amount of any "reportable payments" during such year and
the amount of tax withheld, if any, with respect to payments on the Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds which are
treated as partnerships for federal income tax purposes unless interest
(including OID) paid on a Security (other than a Residual Interest Security) is
considered to be "effectively connected" with a trade or business conducted in
the United States by a Foreign Investor, such interest will normally qualify as
portfolio interest (except where (i) the recipient is a Holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer, or
(ii) the recipient is a controlled foreign corporation to which the issuer is a
related person) and will be exempt from federal income tax. For this purpose, a
Foreign Investor is any Holder that is not (i) a citizen or resident of the
United States; (ii) a corporation or partnership organized in or under the laws
of the United States (unless, in the case of a partnership, future Treasury
regulations provide otherwise); (iii) an estate the income of which is
includible in gross income regardless of its source; or (iv) a trust other than
a "foreign trust," as defined in Section 7701(a)(31) of the Code. See "--Tax
Consequences to Holders of the Certificates Issued by a Partnership--Tax
Consequences to Foreign Certificateholders". Upon receipt of appropriate
ownership statements, the issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodic income paid to Foreign
Investors. Holders of Pass- Through Securities however, may be subject to
withholding to the extent that the Home Equity Loans were originated on or
before July 18, 1984.
Interest and OID of a Foreign Investor are not subject to withholding if
they are effectively connected with a United States business conducted by the
Holder and the Holder timely provides an IRS Form 4224. They will, however,
generally be subject to the regular United States income tax.
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The Final Withholding Regulations consolidate and modify the current
certification requirements and means by which a non-United States person may
claim exemption from United States federal income tax withholding. All Foreign
Investors should consult their tax advisors regarding the application of the
Final Withholding Regulations, which are generally effective with respect to
payments made after December 31, 1998.
Payments to Holders of Residual Interest Securities who are Foreign
Investors will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax as
"portfolio interest." It is clear that, to the extent that a payment represents
a portion of REMIC taxable income that constitutes excess inclusion income, a
Holder of a Residual Interest Security will not be entitled to an exemption from
or reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require such
amounts to be taken into account at an earlier time in order to prevent the
avoidance of tax. Such regulations could, for example, require withholding prior
to the distribution of cash in the case of Residual Interest Securities that do
not have significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest Security
to a Foreign Investor will be disregarded for all federal tax purposes. A
Residual Interest Security has tax avoidance potential unless, at the time of
the transfer the transferor reasonably expects that the REMIC will distribute to
the transferee residual interest Holder amounts that will equal at least 30% of
each excess inclusion, and that such amounts will be distributed at or after the
time at which the excess inclusions accrue and not later than the calendar year
following the calendar year of accrual. If a Foreign Investor transfers a
Residual Interest Security to a United States person (that is, a person that is
not a Foreign Investor), and if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, then the transfer is
disregarded and the transferor continues to be treated as the owner of the
Residual Interest Security for purposes of the withholding tax provisions of the
Code. See "Taxation of Holders of Residual Interest Securities--Excess
Inclusions."
Subject to the discussion in the previous paragraph, any capital gain
realized on the sale, redemption, retirement or other taxable disposition of a
Security by a foreign person will be exempt from United States federal income
and withholding tax, provided that (i) such gain is not effectively connected
with the conduct of a trade or business in the United States by the foreign
person and (ii) in the case of an individual foreign person, the foreign person
is not present in the United States for 183 days or more in the taxable year.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP OR DIVISION
If a Trust Fund is intended to be a partnership for federal income tax
purposes the applicable Agreements will provide 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 or the issuance of the Certificates
will be structured as a private placement under an IRS safe harbor, so that the
Trust Fund will not be characterized as a publicly traded partnership taxable as
a corporation, and that no action will be taken that is inconsistent with the
treatment of the Trust Fund as a partnership (such as election to treat the
Trust Fund as a corporation for federal income tax purposes). If, however, the
Trust Fund has a single owner for federal income tax purposes, it will be
treated as a division of its owner and as such will be disregarded as an entity
separate from its owner for federal income tax purposes, assuming no election
will be made to treat the Trust Fund as a corporation for federal income tax
purposes.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the
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debt obligations on which the entity is the obligor bear a relationship to the
payments on the debt obligations which the entity holds as assets. With respect
to requirement (iii), the Code authorizes the IRS to provide by regulations that
equity interests may be treated as debt for purposes of determining whether
there are two or more maturities. If the Trust Fund were treated as a taxable
mortgage pool, it would be ineligible to file consolidated returns with any
other corporation and could be liable for corporate tax. Treasury regulations do
not provide for the recharacterization of equity as debt for purposes of
determining whether an entity has issued debt with two maturities, except in the
case of transactions structured to avoid the taxable mortgage pool rules.
Federal Tax Counsel will deliver its opinion for a Trust Fund which is intended
to be a partnership for federal income tax purposes, as specified in the related
Prospectus Supplement, generally to the effect that the Trust Fund will not be a
taxable mortgage pool. This opinion will be based on the assumption that the
terms of the Agreements and related documents will be complied with, and on
Federal Tax Counsel's conclusion that either the number of classes of debt
obligations issued be the Trust Fund, or the nature of the assets held by the
Trust Fund will exempt the Trust Fund from treatment as a taxable mortgage pool.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR DIVISION
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Trust Fund will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Except as otherwise provided in the
related Prospectus Supplement, Federal Tax Counsel will advise the Seller that
the Notes will be classified as debt for federal income tax purposes.
Consequently, Holders of Notes will be subject to taxation as described in
"Taxation of Debt Securities (Including Regular Interest Securities)" above for
Debt Securities which are not Regular Interest Securities.
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust Fund. If so treated, the Trust Fund
would likely be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain Holders. For
example, income to Foreign Investors generally would be subject to U.S. federal
income tax and U.S. federal income tax return filing and withholding
requirements, income to certain tax-exempt entities would be "unrelated business
taxable income," and individual Holders might be subject to certain limitations
on their ability to deduct their share of the Trust Fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
TREATMENT OF THE TRUST FUND AS A PARTNERSHIP. In the case of a Trust
Fund intended to qualify as a partnership for federal income tax purposes, the
Trust Fund and the Seller will agree, and the Certificateholders will agree by
their purchase of Certificates, to treat the 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 Trust Fund, the partners of the partnership being the
Certificateholders, and the Notes, if any, being debt of the partnership, or if
there is a single Certificateholder for federal income tax purposes, to
disregard the Trust Fund as an entity separate from the Certificateholder.
However, the proper characterization of the arrangement involving the
Certificates, the Notes, the Trust Fund and the Servicer 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 the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Generally, provided
such Certificates are issued at or close to face value, any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests
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in a partnership. The following discussion also assumes that all payments on the
Certificates are denominated in U.S. dollars, none of the Certificates have
interest rates which would qualify as contingent interest under the OID
regulations, and that a Series of Securities includes a single Class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust Fund will not be
subject to federal income tax. Rather, each Certificateholder will be required
to separately take into account such Holder's allocated share of income, gains,
losses, deductions and credits of the Trust Fund. The Trust Fund's income will
consist primarily of interest and finance charges earned on the Home Equity
Loans (including appropriate adjustments for market discount, OID and bond
premium) and any gain upon collection or disposition of Home Equity Loans. The
Trust Fund's deductions will consist primarily of interest and OID accruing with
respect to the Notes, servicing and other fees, and losses or deductions upon
collection or disposition of Home Equity Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust Fund for each month equal to the sum of (i) the interest
that accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass-Through Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust Fund income attributable to discount on the Home Equity Loans that
corresponds to any excess of the principal amount of the Certificates over their
initial issue price; (iii) prepayment premium payable to the Certificateholders
for such month; and (iv) any other amounts of income payable to the
Certificateholders for such month. Such allocation will be reduced by any
amortization by the Trust Fund of premium on Home Equity Loans that corresponds
to any excess of the issue price of Certificates over their principal amount.
All remaining taxable income of the Trust Fund will be allocated to the Seller.
Based on the economic arrangement of the parties, this approach for allocating
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 Certificateholders. Moreover, even under the
foregoing method of allocation, Certificateholders 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 Certificates on the accrual basis and Certificateholders may
become liable for taxes on Trust Fund income even if they have not received cash
from the Trust Fund to pay such taxes. In addition, because tax allocations and
tax reporting will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust Fund.
If Notes are also issued, all of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
Holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. 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 Trust Fund.
The Trust Fund intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Home Equity Loan, the
Trust Fund might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
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DISCOUNT AND PREMIUM. It is believed that the Home Equity Loans will not
have been issued with OID and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust Fund for the Home Equity Loans may
be greater or less than the remaining principal balance of the Home Equity Loans
at the time of purchase. If so, the Home Equity Loan will have been acquired at
a premium or discount, as the case may be. (As indicated above, the Trust Fund
will make this calculation on an aggregate basis, but might be required to
recompute it on a Home Equity Loan by Home Equity Loan basis.)
If the Trust Fund acquires the Home Equity Loans at a market discount or
premium, the Trust Fund will elect to include any such discount in income
currently as it accrues over the life of the Home Equity Loans or to offset any
such premium against interest income on the Home Equity Loans. As indicated
above, a portion of such market discount income or premium deduction may be
allocated to Certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust Fund
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust Fund are sold or exchanged within
a 12-month period. If such a termination occurs, the Trust Fund will be
considered to distribute its assets to the partners, who would then be treated
as recontributing those assets to the Trust Fund as a new partnership. The Trust
Fund will not comply with certain technical requirements that might apply when
such a constructive termination occurs. As a result, the 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 Trust Fund might
not be able to comply due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
Holder's cost increased by the Holder's share of Trust Fund income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the Holder's share of the
Notes and other liabilities of the Trust Fund. A Holder acquiring Certificates
at different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the Holder's share
of unrecognized accrued market discount on the Home Equity Loans would generally
be treated as ordinary income to the Holder and would give rise to special tax
reporting requirements. The Trust Fund does not expect to have any other assets
that would give rise to such special reporting requirements. Thus, to avoid
those special reporting requirements, the Trust Fund will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN SELLERS AND TRANSFEREES. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a Holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
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The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust Fund might be reallocated among the Certificateholders. The Trust
Fund's method of allocation between transferors and transferees may be revised
to conform to a method permitted by future regulations.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust Fund" s assets will not be adjusted to reflect that
higher (or lower) basis unless the 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 Trust Fund currently does not
intend to make such election. As a result, Certificateholders might be allocated
a greater or lesser amount of Trust Fund income than would be appropriate based
on their own purchase price for Certificates.
ADMINISTRATIVE MATTERS. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust Fund. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and the
fiscal year of the 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 Trust Fund and will report each Certificateholder's allocable share
of items of Trust Fund income and expense to Holders and the IRS on Schedule
K-1. The Trust Fund will provide the Schedule K-1 information to nominees that
fail to provide the Trust Fund with the information statement described below
and such nominees will be required to forward such information to the beneficial
owners of the Certificates. Generally, Holders must file tax returns that are
consistent with the information return filed by the 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 Certificates as a
nominee at any time during a calendar year is required to furnish the Trust Fund
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates 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
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust Fund information
as to themselves and their ownership of Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Trust Fund. The information referred to above
for any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust Fund with the information described above may be subject to
penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders 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 before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust Fund by the appropriate taxing authorities
could result in an adjustment of the returns of the Certificateholders, and,
under certain circumstances, a Certificateholder may be precluded from
separately litigating a proposed adjustment to the items of the Trust Fund. An
adjustment could also result in an audit of a Certificateholder's returns and
adjustments of items not related to the income and losses of the Trust Fund.
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TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether
the 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 Foreign
Investors 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 Trust Fund would be engaged in a trade or business in the
United States for such purposes, the Trust Fund will withhold as if it were so
engaged in order to protect the Trust Fund from possible adverse consequences of
a failure to withhold. The Trust Fund expects to withhold pursuant to Section
1446 of the Code on the portion of its taxable income that is allocable to
Certificateholders that are Foreign Investors, as if such income were
effectively connected to a U.S. trade or business, at a rate of 35% for foreign
Holders that are taxable as corporations and 39.6% for all other foreign
Holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust Fund to change its
withholding procedures.
Each Certificateholder that is a Foreign Investor 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 Trust Fund's income.
A foreign Holder generally would be entitled to file with the IRS a claim for
refund with respect to taxes withheld by the Trust Fund taking the position that
no taxes were due because the Trust Fund was not engaged in a U.S. trade or
business. However, interest payments made (or accrued) to a Certificateholder
who is a Foreign Investor generally will be considered guaranteed payments to
the extent such payments are determined without regard to the income of the
Trust Fund. If these interest payments are properly characterized as guaranteed
payments, then the interest probably will not be considered "portfolio
interest." As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable treaty. In such case, a Foreign Investor
would only be entitled to claim a refund for that portion of the taxes, if any,
in excess of the taxes that should be withheld with respect to the guaranteed
payments.
BACKUP WITHHOLDING. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the Holder is an exempt recipient under
applicable provisions of the Code and, if necessary, adequately demonstrates
such status.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "FEDERAL
INCOME TAX CONSEQUENCES," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), should
consider the fiduciary standards under ERISA in the context of the plan's
particular circumstances before authorizing an investment of a portion of such
plan's assets in the Securities. Accordingly, among other factors, such
fiduciary should consider (i) whether the investment is for the exclusive
benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the diversification requirements of Section 404 of ERISA;
(iii) whether the investment is in accordance with the documents and instruments
governing the plan; and (iv) whether the investment is prudent, considering the
nature of the investment. Fiduciaries of such plans also should consider ERISA's
prohibition on improper delegation of control over, or responsibility for, plan
assets.
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In addition, fiduciaries of employee benefit plans subject to Title I of
ERISA, as well as certain plans or other retirement arrangements not subject to
ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of a plan or account investing
in such entity (collectively, "Plans(s)") are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. The Seller, the related Trustee and any underwriter of
the offered Securities and certain of their affiliates might be considered
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition, holding or transfer of Securities by, or on behalf of, such
Plan could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless a regulatory exception or administrative
exemption is available. In addition, the Department of Labor ("DOL") has issued
a regulation (29 C.F.R. Section 2510.3-101) (the "Plan Assets Regulation")
concerning the definition of what constitutes the assets of a Plan, which
provides that, as a general rule, the underlying assets and properties of
corporations, partnerships, trusts and certain other entities in which a Plan
makes an "equity" investment will be deemed for purposes of ERISA to be assets
of the investing Plan unless certain exceptions apply. If an investing Plan's
assets were deemed to include an interest in the Trust Fund and not merely an
interest in the Securities, transactions occurring in connection with the
servicing, management and operation of the Trust Fund between the Seller, the
related Trustee, the Master Servicer (or any other servicer), any insurer or any
of their respective affiliates might constitute prohibited transactions, and the
assets of the Trust Fund would become subject to the fiduciary investment
standards of ERISA, unless a regulatory exception or administrative exemption
applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the "Exemption"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III. B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III. B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of: (1) secured consumer receivables, (2) secured credit instruments, (3)
obligations secured by residential or commercial real property, (4) obligations
secured by motor vehicles or equipment or qualified motor vehicle leases, (5)
guaranteed governmental mortgage pool certificates or (6) an undivided
fractional interest in any of the obligations listed in clauses (1)--(5) above.
If the general conditions of Section II of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Section
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 or transfer
of Certificates by Plans in the initial issue of Certificates, the holding of
Certificates by Plans or the direct or indirect acquisition or disposition in
the secondary market of Certificates 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 Certificate 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 Certificates,
an Excluded Plan is a Plan sponsored by (1) an underwriter which has been
granted an Exemption (or certain specified entities affiliated or associated
with such underwriter) ("Underwriter"), (2) the Seller, (3) the Master Servicer
(or any other servicer), (4) the related Trustee, (5) any obligor with respect
to Home Equity Loans constituting more than 5 percent of the aggregate
unamortized principal balance of the Home Equity Loans as of the date of initial
issuance, (6) any insurer and (7) any affiliate or successor of a person
described in (1) to (6) above (the "Restricted Group").
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If the specific conditions of paragraph I.B of Section I 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)(I)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Certificates in the initial issuance of Certificates
between the Seller or Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in Certificates is (a) an obligor with respect to 5
percent or less of the fair market value of the Home Equity Loans or (b) an
affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Certificates by Plans and (3) the holding
of Certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the
Exemption are satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) 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 and the assets of the Trust Fund.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 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" or a "disqualified person" 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
such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which
must be satisfied for a transaction to be eligible for exemptive relief
thereunder.
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as
favorable to the Plan as they would be in an arm's length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired
by the Plan are not subordinated to the rights and interests
evidenced by other Securities issued by the Trust Fund;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest
generic rating categories from either Standard & Poor's Ratings
Group, a division of the McGraw Hill Companies, Inc., Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, Inc. ("National Credit Rating Agencies");
(4) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the Underwriter
in connection with the distribution of Certificates represents
not more than reasonable compensation for underwriting the
Certificates. The sum of all payments made and retained by the
Seller pursuant to the assignment of the loans to the Trust Fund
represents not more than the fair market value of such loans.
The sum of all payments made to and retained by the Master
Servicer or any other servicer represents not more than
reasonable compensation for such person's services under the
pooling and servicing agreement and reimbursement of such
person's reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D under the
Securities Act of 1933. The Seller assumes that only Plans which
are accredited investors under the federal securities laws will
be permitted to purchase the Certificates.
(7) The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of
assets of the type that have been included in other
investment pools;
(ii) certificates in such other investment pools must have
been rated in one of the three highest rating categories
of one of the National Credit Rating Agencies for at
least one year prior to the Plan's acquisition of
Certificates; and
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(iii) certificates 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 certificates.
On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to Certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account to
the total principal amount of the Certificates being offered
("Pre-Funding Limit") must not exceed twenty-five percent (25%).
(2) All Loans transferred after the Closing Date ("Additional
Loans") must meet the same terms and conditions for eligibility
as the original Loans used to create the Trust Fund, which terms
and conditions have been approved by each Rating Agency.
(3) The transfer of such Additional Loans to the Trust Fund during
the Pre-Funding Period must not result in the Certificates
receiving a lower credit rating from any Rating Agency upon
termination of the Pre-Funding Period than the ratings that were
obtained at the time of the initial issuance of the Certificates
by the Trust Fund.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest
rate") for all of the Loans in the Trust Fund at the end of the
Pre-Funding Period must not be more than 100 basis points lower
than the average interest rate for the Loans which were
transferred to the Trust Fund on the Closing Date.
(5) Either: (i) the characteristics of the Additional Loans must be
monitored by an insurer or other credit support provider which
is independent of the Seller; or (ii) an independent accountant
retained by the Seller must provide the Seller with a letter
(with copies provided to each Rating Agency, the Underwriter and
the Trustee) stating whether or not the characteristics of the
Additional Loans conform to the characteristics described in the
Prospectus, Prospectus Supplement, Private Placement Memorandum
("Offering Documents") and/or Pooling and Servicing Agreement
("Pooling Agreement"). In preparing such letter, the independent
accountant must use the same type of procedures as were
applicable to the Loans which were transferred as of the Closing
Date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the Closing Date or earlier, in certain
circumstances, if the amount on deposit in the Pre-Funding
Account is reduced below the minimum level specified in the
Pooling Agreement or an event of default occurs under the
Pooling Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the
pre-funding may be invested only in investments which are
permitted by each Rating Agency and (i) are direct obligations
of, or obligations fully guaranteed as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof (provided that such obligations are
backed by the full faith and credit of the United States); or
(ii) have been rated (or the obligor has been rated) in one of
the three highest generic rating categories by each Rating
Agency ("Permitted Investments").
(8) The Offering Documents must describe: (i) any Pre-Funding
Account and/or Capitalized Interest Account used in connection
with a Pre-Funding Account; (ii) the duration of the Pre-Funding
Period; (iii) the percentage and/or dollar amount of the
Pre-Funding Limit for the Trust Fund; and (iv) that the amounts
remaining in the Pre-Funding Account at the end of the
Pre-Funding Period will be remitted to Certificateholders as
repayments of principal.
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(9) The Pooling and Servicing Agreement must describe the Permitted
Investments for the Pre-Funding Account and Capitalized Interest
Account and, if not disclosed in the Offering Documents, the
terms and conditions for eligibility of the Additional Loans.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust Fund and
the assets of the Trust Fund as specified in the related Prospectus Supplement.
In addition, in the event the Exemption is not available, certain exemptions
from the prohibited transaction rules may be applicable depending on the type
and circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers".
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the assets of the Trust Fund were deemed to be assets of a Plan. Under
the Plan Assets Regulation, the assets of the Trust Fund would be treated as
plan assets of a Plan for the purposes of ERISA and the Code only if the Plan
acquires an "Equity Interest" in the Trust Fund and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. The Seller believes that the Notes should be
treated as indebtedness without substantial equity features for purposes of the
Plan Assets Regulation. In addition, even in the event that the Notes are deemed
to be an Equity Interest in the Trust Fund, the Exemption may be applicable to
both a Plan's purchase, holding and transfer of Notes (which in this situation
are considered Certificates for purposes of the Exemption) and the operation,
management and servicing of the Trust Fund and the assets of the Trust Fund, if
so specified in the related Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity
Interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust
Fund, the related Trustee or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to such Plan or in the
event that a Note is purchased in the secondary market and such purchase
constitutes a sale or exchange between a Plan and a party in interest or
disqualified person with respect to such Plan. In such case, PTCE 90-1, PTCE
91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14 may be applicable depending on the
type and circumstances of the plan fiduciary making the decision to acquire a
Note.
Any Plan fiduciary considering the purchase of Securities should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the Code to
such investment.
LEGAL INVESTMENT
The Securities will not constitute "mortgage-related securities" within
the meaning of SMMEA unless the related Prospectus Supplement specifies that the
Securities will constitute "mortgage related Securities." Accordingly, investors
whose investment authority is subject to legal restrictions should consult their
own legal advisors to determine whether and the extent to which the Securities
constitute legal investments for them.
PLAN OF DISTRIBUTION
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On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust Fund, the Seller will agree
to sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Seller, the principal amount of each Class of Securities of the related
Series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all of the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which
each Class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that the Representative will
indemnify underwriters against certain liabilities, including liabilities under
the Securities Act.
Under each Underwriting Agreement, the closing of the sale of any Class
of Securities subject thereto will be conditioned on the closing of the sale of
all other such Classes.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Securities will be passed upon for the
Seller by Stroock & Stroock & Lavan LLP, New York, New York.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. Unless otherwise provided in a "Supplemental Glossary"
or "Index of Principal Terms" in the Prospectus Supplement for a Series, such
definitions will apply to capitalized terms used in such Prospectus Supplement.
The definitions may vary from those in the related Agreement for a Series and
the related Agreement for a Series generally provides a more complete definition
of certain of the terms. Reference should be made to the related Agreement for a
Series for a more complete definition of such terms.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Distribution Date on which accrued interest on such
Securities becomes payable currently.
"Agreement" means, with respect to a Series of Certificates, the Pooling
and Servicing Agreement or Trust Agreement, and, with respect to a Series of
Notes, the Indenture and the Sale and Servicing Agreement, as the context
requires.
"Appraised Value" means, with respect to property securing a Home Equity
Loan, the lesser of the appraised value determined in an appraisal obtained at
origination of the Home Equity Loan or sales price of such property at such
time.
"Asset Group" means, with respect to the Primary Assets and other assets
comprising the Trust Fund of a Series, a group of such Primary Assets and other
assets having the characteristics described in the related Prospectus
Supplement.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement for a
particular period or periods as the "Assumed Reinvestment Rate" for funds held
in any fund or account for the Series.
"Available Distribution Amount" means the amount in the Distribution
Account (including amounts deposited therein from any reserve fund or other fund
or account) eligible for distribution to Holders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States
Code 101 et seq., and related rules and regulations promulgated thereunder.
"Business Day" means a day that, in the City of New York or in the city
or cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
"Certificates" means the Asset-Backed Certificates.
"Certificate Account" or "Collection Account" means, with respect to a
Series, the account established for the deposit by the Servicer of payments
received from the Primary Assets.
"Class" means a Class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Securities of such Series
are first issued.
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"Code" means the Internal Revenue Code of 1986, as amended, and
regulations (including proposed regulations) or other pronouncements of the
Internal Revenue Service promulgated thereunder.
"Combined Home Equity Loan-to-Value Ratio" or "CLTV" means, with respect
to a Home Equity Loan, the percentage equivalent of a fraction, the numerator of
which is the sum of (i) the original principal amount of such Home Equity Loan
at the date of origination thereof and (ii) the outstanding principal amount of
any senior loan on the Mortgaged Property at the time of origination of such
Home Equity Loan, and the denominator of which is the Appraised Value of such
Mortgaged Property at such date of origination.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Security" means any Security of a Series on which all
or a portion of the interest accrued thereon is added to the principal balance
of such Security on each Distribution Date, through the Accrual Termination
Date, and with respect to which no interest shall be payable until such Accrual
Termination Date, after which interest payments will be made on the Compound
Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
"Condominium" means a form of ownership of real property wherein each
owner is entitled to the exclusive ownership and possession of his or her
individual Condominium Unit and also owns a proportionate undivided interest in
all parts of the Condominium Building (other than the individual Condominium
Units) and all areas or facilities, if any, for the common use of the
Condominium Units.
"Condominium Association" means the person(s) appointed or elected by
the Condominium Unit owners to govern the affairs of the Condominium.
"Condominium Building" means a multi-unit building or buildings, or a
group of buildings whether or not attached to each other, located on property
subject to Condominium ownership.
"Condominium Home Equity Loan" means a Home Equity Loan secured by a
Mortgage on a Condominium Unit (together with its appurtenant interest in the
common elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Cooperative" means a corporation owned by tenant-stockholders who,
through the ownership of stock, shares or membership securities in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific units and which is described in Section 216
of the Code.
"Cooperative Dwelling" means an individual housing unit in a building
owned by a Cooperative.
"Cooperative Home Equity Loan" means a housing loan made with respect to
a Cooperative Dwelling and secured by an assignment by the borrower
(tenant-stockholder) or security interest in shares issued by the applicable
Cooperative.
"Cut-off Date" means the date designated as such in the related
Prospectus Supplement for a Series.
"Debt Securities" means Securities characterized as indebtedness for
federal income tax purposes, and Regular Interest Securities.
97
<PAGE> 184
"Deferred Interest" means the excess of the interest accrued on the
outstanding principal balance of a Home Equity Loan during a specified period
over the amount of interest required to be paid by an obligor on such Home
Equity Loan on the related Due Date.
"Delinquency Advance" means cash advanced by the Servicer in respect of
delinquent payments of principal of and/or interest on a Home Equity Loan to the
extent specified in the related Prospectus Supplement.
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
"Distribution Account" means, with respect to a Series, the account or
accounts established for the deposit of remittances from the Collection Account
for distribution to Securityholders.
"Distribution Date" means, with respect to a Series or Class of
Securities, each date specified as a distribution date for such Series or Class
in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described herein under "THE TRUST FUNDS--Eligible Investments."
"Enhancement" means a mechanism or instrument which is intended to
provide limited protection to Holders of the applicable Class or Classes of
Securities against losses on the related Primary Assets or other shortfalls in
funds necessary to make required distributions on such Class or Classes of
Securities.
"Enhancer" means the provider of the Enhancement for a Series specified
in the related Prospectus Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the
Servicer for a Home Equity Loan, into which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items
required to be paid to the mortgagee are deposited.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLMC" or "Freddie Mac" means the Federal Home Equity Loan Mortgage
Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of
Notes of a Series, the date no later than which principal thereof will be fully
paid and with respect to a Class of Certificates of a Series, the date after
which no Certificates of such Class will remain outstanding, in each case based
on the assumptions set forth in the related Prospectus Supplement.
"FNMA" or "Fannie Mae" means the Federal National Mortgage Association.
98
<PAGE> 185
"Holder" or "Securityholder" means the person or entity in whose name a
Security is registered.
"Home Equity Loan" means a closed-end home equity loan secured by a
Mortgaged Property.
"Home Equity Loan Rate" means, the interest rate borne by a Home Equity
Loan.
"HUD" means the United States Department of Housing and Urban
Development.
"Indenture" means the indenture relating to a Series of Notes between
the Trust Fund and the Trustee.
"Insurance Policies" means certain mortgage insurance, hazard insurance
and other insurance policies required to be maintained with respect to Home
Equity Loans.
"Insurance Proceeds" means amount paid by the insurer under any of the
Insurance Policies covering any Home Equity Loan or Mortgaged Property.
"Interest Only Securities" means a Class of Securities entitled solely
or primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
"IRS" means the Internal Revenue Service.
"Lifetime Rate Cap" means the lifetime limit if any, on the Home Equity
Loan Rate during the life of each adjustable rate Home Equity Loan.
"Liquidation Proceeds" means amounts received by the Servicer in
connection with the liquidation of a Home Equity Loan, net of liquidation
expenses.
"Master Servicer" means Avco Financial Services Management Company, or
its successors or assigns.
"Minimum Rate" means the lifetime minimum Home Equity Loan Rate during
the life of each adjustable rate Home Equity Loan.
"Mixed-Use Properties" means structures of no more than three stories,
which include one to four residential dwelling units and 50% or less of the
space in which is used for retail, professional or other commercial uses
including doctor, dentist or law offices, real estate agencies, boutiques,
newsstands, convenience stores or other uses intended to cater to individual
customers.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgaged Property" means the real property and improvements thereon
securing a Home Equity Loan.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Home Equity Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"1986 Act" means the Tax Reform Act of 1986.
99
<PAGE> 186
"Notes" means the Asset-Backed Notes.
"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
"Originator" means any affiliate of the Seller that originates or
acquires Primary Assets.
"OTS" means the Office of Thrift Supervision.
"PAC" ("Planned Amortization Class Securities") means a Class of
Securities of a Series on which payments of principal are made in accordance
with a schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
"Pay Through Security" means Regular Interest Securities and certain
Debt Securities that are subject to acceleration due to prepayment on the
underlying Primary Assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
"Pooling and Servicing Agreement" means the pooling and servicing
agreement relating to a Series of Certificates among the Seller, the Master
Servicer and the Originators (if such Series relates to Home Equity Loans) and
the Trustee.
"Primary Assets" means the Home Equity Loans which are included in the
Trust Fund for such Series. A Primary Asset refers to a specific Home Equity
Loan.
"Principal Balance" means, with respect to a Primary Asset and as of a
Due Date, the original principal amount of the Primary Asset, plus the amount of
any Deferred Interest added to such principal amount, reduced by all payments,
both scheduled or otherwise, received on such Primary Asset prior to such Due
Date and applied to principal in accordance with the terms of the Primary Asset.
"Principal Only Securities" means a Class of Securities entitled solely
or primarily to distributions of principal and identified as such in the
Prospectus Supplement.
"Qualified Insurer" means a mortgage guarantee or insurance company duly
qualified as such under the laws of the states in which the Mortgaged Properties
are located duly authorized and licensed in such states to transact the
applicable insurance business and to write the insurance provided.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Seller to
rate the Securities upon the original issuance thereof.
"Regular Interest" means a regular interest in a REMIC.
"REMIC" means a real estate mortgage investment conduit.
"REMIC Administrator" means the Person, if any, specified in the related
Prospectus Supplement for a Series for which a REMIC election is made, to serve
as administrator of the Series.
100
<PAGE> 187
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the foregoing may be in
effect from time to time.
"REO Property" means real property which secured a defaulted Home Equity
Loan, beneficial ownership of which has been acquired upon foreclosure, deed in
lieu of foreclosure, repossession or otherwise.
"Representative" means Avco Financial Services, Inc., or its successors
or assigns.
"Reserve Fund" means, with respect to a Series, a segregated trust
account into which funds may be deposited on the Closing Date and/or over time
in order to provide a source of funds to provide limited protection to the
Holders of one or more Classes of Securities against losses on the related
Primary Assets or other shortfalls in amounts necessary to make required
distributions to such Holders.
"Residual Interest" means a residual interest in a REMIC.
"Retained Interest" means, with respect to a Primary Asset, the amount
or percentage specified in the related Prospectus Supplement which is not
included in the Trust Fund for the related Series.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the borrower on a Primary Asset.
"Securities" means the Notes or the Certificates.
"Seller" means Avco ABS Receivables Corp., or its successors.
"Senior Securityholder" means a holder of a Senior Security.
"Senior Securities" means a Class of Securities as to which the holders"
rights to receive distributions of principal and interest are senior to the
rights of holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Servicing Fee" means the fee payable to the Master Servicer on a
periodic basis for servicing and administering the Primary Assets in a Trust
Fund and calculated at the rate and on the basis set forth in the related
Prospectus Supplement.
"Single Family Property" means property securing a Home Equity Loan
consisting of one- to four-family attached or detached residential housing,
including Cooperative Dwellings.
"Stripped Securities" means Pass-Through Securities representing
interests in Primary Assets with respect to which all or a portion of the
principal payments have been separated from all or a portion of the interest
payments.
"Subordinated Securities" means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities or other Classes of
securities which are themselves subordinate to other Classes, and may be
allocated losses and shortfalls
101
<PAGE> 188
prior to the allocation thereof to other Classes of Securities, to the extent
and under the circumstances specified in the related Prospectus Supplement.
"Trustee" means the trustee under the applicable Agreement and its
successors.
"Trust Fund" means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee under the Pooling and Servicing
Agreement or Trust Agreement or, with respect to a Series of Notes, pledged to
the Trustee under the Indenture as a security for such Notes, including, without
limitation, the Primary Assets (except any Retained Interests), rights to all
amounts in the Distribution Account Collection Account, Certificate Account,
Pre-Funding Account, Capitalized Interest Account or Reserve Funds, if any,
distributions on the Primary Assets (net of servicing fees), and reinvestment
earnings on such net distributions and rights to any Enhancement and all other
property and interest held by or pledged to the Trustee pursuant to the related
Agreement for such Series.
"UCC" means the Uniform Commercial Code.
"Variable Interest Security" means a Security on which interest accrues
at a rate that is adjusted, based upon a predetermined index, at fixed periodic
intervals, all as set forth in the related Prospectus Supplement.
"Variable Interest Securities" means a Class of Securities on which
interest will accrue at a per annum rate that will vary from Distribution Date
to Distribution Date based on changes in the weighted average of the interest
rates borne by the related Primary Assets or changes in the level of an index
used to calculate such per annum rate of interest.
"Zero Coupon Security" means a Security entitled to receive payments of
principal only.
102
<PAGE> 189
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF 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 SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary ............................................................ S-4
Risk Factors ....................................................... S-20
The Certificate Insurer ............................................ S-22
Description of the Mortgage Loans .................................. S-24
Prepayment and Yield Considerations ................................ S-38
Description of the Certificates .................................... S-45
Use of Proceeds .................................................... S-63
Federal Income Tax Consequences .................................... S-63
State Taxes ........................................................ S-65
ERISA Considerations ............................................... S-65
Legal Investment Considerations .................................... S-66
Underwriting ....................................................... S-67
Experts ............................................................ S-69
Legal Matters ...................................................... S-69
Ratings ............................................................ S-69
Index of Principal Terms ........................................... S-70
Annex I ............................................................ S-73
PROSPECTUS
Prospectus Supplement .............................................. 3
Reports to Holders ................................................. 3
Available Information .............................................. 3
Incorporation of Certain Documents by Reference .................... 4
Summary of Terms ................................................... 5
Risk Factors ....................................................... 19
The Seller ......................................................... 23
The Representative ................................................. 23
The Master Servicer ................................................ 23
Home Equity Loan Program ........................................... 24
Description of the Securities ...................................... 30
The Trust Funds .................................................... 37
Enhancement ........................................................ 42
Servicing of Home Equity Loans ..................................... 44
The Agreements ..................................................... 50
Certain Legal Aspects of the Home Equity Loans ..................... 58
Use of Proceeds .................................................... 66
Federal Income Tax Consequences .................................... 66
State Tax Consequences ............................................. 87
ERISA Considerations ............................................... 88
Legal Investment ................................................... 92
Plan of Distribution ............................................... 92
Legal Matters ...................................................... 92
Glossary of Terms .................................................. 93
</TABLE>
================================================================================
================================================================================
$------------
AVCO FINANCIAL HOME EQUITY
LOAN TRUST 199_-_
AVCO ABS RECEIVABLES CORP.
SELLER
AVCO FINANCIAL SERVICES MANAGEMENT COMPANY
MASTER SERVICER
AVCO FINANCIAL SERVICES, INC.
REPRESENTATIVE
[NAME OF UNDERWRITER]
PROSPECTUS SUPPLEMENT
DATED _________ __, 199_
================================================================================
1
<PAGE> 190
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ..................................... $295
Printing and Engraving ................................... *
Trustee's Fees ........................................... *
Legal Fees and Expenses .................................. *
Blue Sky Fees and Expenses ............................... *
Accountant's Fees and Expenses ........................... *
Rating Agency Fees ....................................... *
Miscellaneous Fees and Expenses .......................... *
----
Total Expenses ................................ *
====
</TABLE>
* To be filed by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 12 of the Articles of Incorporation of the Seller provides for the
indemnification of any person who is or was an officer or director of the Seller
with respect to actions taken or omitted by such person in any capacity in which
such person serves or served the Issuer, to the full extent authorized or
permitted by the Nevada Private Corporation Law. Reference is made to the
Articles of Incorporation filed as an exhibit to this Registration Statement for
the complete text of Article 12 of the Articles of Incorporation.
The Registrant maintains liability insurance policies such that each of the
directors and officers of the Registrant is insured against certain liabilities
which they might incur in their capacity as a director or officer.
The Underwriting Agreement filed as Exhibit 1.1 hereto provides for
indemnification by the Underwriters of the Registrant and its directors,
officers and controlling persons for certain liabilities arising under the
Securities Act of 1933 or otherwise.
The general effect of any statute, charter provision, by-law, contract or other
arrangement under which any controlling person, director or officer of the
Registrant is insured or indemnified against liability when acting on behalf of
the Registrant is to reduce the deterrent effect for such indemnified
individuals for violating the Securities Act of 1933.
The Registrant is aware that the Securities and Exchange Commission takes the
position that indemnification of directors and officers is against public policy
and is therefore unenforceable.
ITEM 16. EXHIBITS
1.1. Form of Underwriting Agreement
3.1. Articles of Incorporation of Avco Receivables Corp.*
3.2. By-laws of Avco ABS Receivables Corp.
4.1. Form of Pooling and Servicing Agreement
4.2. Form of Certificate (included as part of Exhibit 4.1)
II-1
<PAGE> 191
4.3 Form of Indenture
4.4 Form of Trust Agreement
5.1. Opinion of Stroock & Stroock & Lavan LLP with respect to legality
8.1. Opinion of Stroock & Stroock & Lavan LLP with respect to federal income
tax matters (contained in Exhibit 5.1)
10.1 Form of Sale and Servicing Agreement
23.1. Consent of Stroock & Stroock & Lavan LLP (contained in Exhibit 5.1)
24.1. Powers of Attorney (included as part of signature page)*
25.1 Statement of Eligibility and Qualification of Indenture Trustee (Form
T-1)**
- --------------------
* Previously Filed.
** To be filed by Form 8-K.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by
the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, 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 Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by 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 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 Securities Act and will be governed by the final
adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") 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.
(5) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery
to each purchaser.
II-2
<PAGE> 192
(6) 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; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(7) 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.
(8) 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.
II-3
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Avco ABS Receivables
Corp. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3, it believes that the securities rating
requirement for use of Form S-3 will be met by the time of sale of the
securities and it has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the State of Nevada on June 18, 1998.
AVCO ABS RECEIVABLES CORP.
By: /s/ Eugene R. Schutt, Jr.
-------------------------------
Name: Eugene R. Schutt, Jr.
Title: President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Eugene R. Schutt, Jr. President and Director (principal June 18, 1998
- ------------------------------- executive officer)
Eugene R. Schutt, Jr.
/s/ Jon C. Frojen Vice President and Director (principal June 18, 1998
- ------------------------------- financial and accounting officer)
Jon C. Frojen
</TABLE>
II-4
<PAGE> 194
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
1.1. Form of Underwriting Agreement
3.1. Articles of Incorporation of Avco ABS Receivables Corp.*
3.2. By-laws of Avco ABS Receivables Corp.
4.1. Form of Pooling and Servicing Agreement
4.2. Form of Certificate (included as part of Exhibit 4.1)
4.3. Form of Indenture
4.4 Form of Trust Agreement
5.1. Opinion of Stroock & Stroock & Lavan LLP with respect to legality
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to federal
income tax matters (contained in Exhibit 5.1)
10.1 Form of Sale and Servicing Agreement
23.1. Consent of Stroock & Stroock & Lavan LLP (contained in Exhibit 5.1)
24.1. Powers of Attorney (included as part of signature page)*
25.1. Statement of Eligibility and Qualification of Indenture Trustee (Form
T-1)**
</TABLE>
- ---------------------
* Previously Filed.
** To be filed by Form 8-K.
1
<PAGE> 1
EXHIBIT 1.1
ASSET-BACKED CERTIFICATES, SERIES 199_-_
$________ Class A-1 Certificates ___% Pass-Through Rate
$________ Class A-2 Certificates ___% Pass-Through Rate
$________ Class A-3 Certificates ___% Pass-Through Rate
$________ Class A-4 Certificates ___% Pass-Through Rate
$________ Class A-5 Certificates ___% Pass-Through Rate
Avco ABS Receivables Corp.
Seller
Avco Financial Services Management Company
Master Servicer
Avco Financial Services, Inc.
Representative
FORM OF UNDERWRITING AGREEMENT
------, -----
- --------------
- --------------
- --------------
Ladies and Gentlemen:
Avco ABS Receivables Corp., a Nevada corporation ("Seller"), a wholly
owned subsidiary of Avco Financial Services, Inc., a Delaware corporation (the
"Representative"), proposes to sell $_______ aggregate principal amount of
Asset-Backed Certificates, Series 199_-_, of the classes described in Schedule I
hereto (the "Certificates") to be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be dated as of _____ 1,
199_ (the "Cut-Off Date"), among the Seller, the Representative, Avco Financial
Services Management Company (the "Master Servicer"), the originators listed
therein (the "Originators"), _________, a ________, as trustee (the "Trustee"),
and proposes to sell the Certificates to you (the "Underwriter"). The assets of
the Trust Fund will include, among other things, a pool of fixed-rate mortgage
loans secured primarily by first [and second] liens on one-to-four family
dwellings and units in condominium developments. The Certificates are described
more fully in a registration statement which the Seller has furnished to you.
This is to confirm the arrangements with respect to your purchase of the
Certificates. To the extent not defined herein, capitalized terms used herein
have the meanings
<PAGE> 2
assigned in the Pooling and Servicing Agreement.
1. Representations and Warranties. Each of the Seller and the
Representative represents and warrants to, and agrees with, the Underwriter as
set forth below in this Section 1. Certain terms used in this Section 1 are
defined in paragraph (c) hereof.
(a) The Seller meets the requirements for the use of Form S-3 under
the Securities Act of 1933, as amended (the "Act") and has filed with the
Securities and Exchange Commission (the "Commission") a registration
statement (file no. 333-40465), including a related preliminary base
prospectus and a preliminary form of prospectus supplement, on Form S-3
for the registration under the Act of the offering and sale of
asset-backed notes and asset-backed certificates, including the
Certificates. The Seller may have filed one or more amendments thereto,
including a preliminary basic prospectus and preliminary prospectus
supplement, each of which has previously been furnished to you. The Seller
will next file with the Commission either (i) prior to effectiveness of
such registration statement, a further amendment thereto (including the
form of final base prospectus and final form of prospectus supplement),
(ii) after effectiveness of such registration statement, a final base
prospectus and a final prospectus supplement relating to the Certificates
in accordance with Rules 430A and 424(b)(1) or (4) or (iii) a final base
prospectus and final prospectus supplement relating to the Certificates in
accordance with Rules 415 and 424(b)(2) or (5). In the case of clauses
(ii) and (iii) above, the Seller has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to be
included in the Final Prospectus with respect to the Certificates and the
offering thereof. As filed, such amendment and form of final prospectus,
or such final prospectus, as the case may be, shall include all Rule 430A
Information together with all other such required information with respect
to the Certificates and the offering thereof and, except to the extent the
Underwriter shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest preliminary basic prospectus and preliminary
prospectus supplement, if any, that have previously been furnished to you)
as the Seller has advised you, prior to the Execution Time, will be
included or made therein. If the Registration Statement contains the
undertaking specified in Regulation S-K Item 512(a), the Registration
Statement, at the Execution Time, meets the requirements set forth in Rule
415(a)(1)(x).
(b) On the Effective Date, the Registration Statement did or will,
and when the Final Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date, the Final Prospectus (and any
supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the Exchange Act and the respective
rules thereunder; on the Effective Date, the Registration Statement did
not or will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and,
-2-
<PAGE> 3
on the Effective Date, the Final Prospectus, if not filed pursuant to Rule
424(b), did not or will not, and on the date of any filing pursuant to
Rule 424(b) and on the Closing Date (as defined in Section 3 below) the
Final Prospectus (together with any supplement thereto) will not, include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that neither the Seller nor the Representative makes any
representations or warranties as to the information contained in or
omitted from (x) the Registration Statement or the Final Prospectus (or
any supplement thereto) in reliance upon and in conformity with
information furnished in writing to the Seller by or on behalf of the
Underwriter specifically for inclusion in the Registration Statement or
the Final Prospectus (or any supplement thereto) and (y) any Derived
Information set forth in the Computational Materials (each as defined in
Section 9 below), or in any amendment thereof or supplement thereto,
incorporated by reference in such Registration Statement or such Final
Prospectus (or any amendment thereof or supplement thereto) except to the
extent such Derived Information results from an error or omission in any
Seller-Provided Information (as defined in Section 9 below).
(c) For purposes of this Agreement, "Effective Time" means the date
and time as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission, and "Effective Date" means the date of the Effective Time and
each date after the date hereof on which a document incorporated by
reference in the Registration Statement is filed. "Execution Time" shall
mean the date and time that this Agreement is executed and delivered by
the parties hereto. Such registration statement, as amended at the
Effective Time, including all information deemed to be a part of such
registration statement as of the Effective Time pursuant to Rule 430A(b)
under the Act, the exhibits thereto and any material and documents
incorporated by reference therein, is hereinafter referred to as the
"Registration Statement." "Basic Prospectus" shall mean the basic
prospectus referred to in paragraph (a) above contained in the
Registration Statement at the Effective Date; provided, that, if the Basic
Prospectus used in connection with any Preliminary Prospectus Supplement
or the Final Prospectus shall differ from the Basic Prospectus contained
in the Registration Statement at the Effective Date, then "Basic
Prospectus" shall mean the Basic Prospectus included with such Preliminary
Prospectus Supplement or the Final Prospectus, as filed pursuant to Rule
424(b). "Preliminary Prospectus Supplement" shall mean a preliminary
prospectus supplement, if any, to the Basic Prospectus which describes the
Certificates and the offering thereof and is used prior to the filing of
the Final Prospectus. "Final Prospectus" shall mean the prospectus
supplement relating to the Certificates that is first filed pursuant to
Rule 424(b) after the Execution Time, together with the Basic Prospectus
or, if no filing pursuant to Rule 424(b) is required, shall mean the
prospectus supplement relating to the Certificates, including the Basic
Prospectus, included in the Registration Statement at the Effective Date
including in each such case any material and documents incorporated by
reference therein. "Rule 430A Information" means information with respect
to the Certificates and the offering of the Certificates permitted to be
omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A. "Rule 415,"
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"Rule 424," "Rule 430A" and "Regulation S-K" refer to such rules or
regulations under the Act. Any reference herein to the Registration
Statement, any Preliminary Prospectus Supplement or the Final Prospectus
shall be deemed to refer to and include the material and documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which
were filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on or before the Effective Date of the Registration
Statement or the issue date of the Basic Prospectus, such Preliminary
Prospectus Supplement or the Final Prospectus, as the case may be; and any
reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, the Basic Prospectus, any
Preliminary Prospectus Supplement or the Final Prospectus shall be deemed
to refer to and include the filing of any document under the Exchange Act
after the Effective Date of the Registration Statement, or the issue date
of the Basic Prospectus, any Preliminary Prospectus Supplement or the
Final Prospectus, as the case may be, deemed to be incorporated therein by
reference.
(d) No consent, approval, authorization or order of, or filing with,
any court or governmental agency or body is required to be obtained or
made by the Representative, the Seller or any Seller for the consummation
of the transactions contemplated by this Agreement except such as have
been obtained, made under the Act or as may be required under state
securities laws.
(e) None of the Representative, the Seller or any Seller is in
violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained
in any agreement or instrument to which it is a party or by which it or
its properties is bound that would have a material adverse effect on the
transactions contemplated herein or in the Pooling and Servicing
Agreement. The execution, delivery and performance of this Agreement and
the Pooling and Servicing Agreement and the issuance and sale of the
Certificates and compliance with the terms and provisions thereof will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule, regulation or order of any
governmental agency or body or any court having jurisdiction over any of
the Representative, the Seller or any Seller or any of their properties or
any agreement or instrument to which any of them is a party or by which
any of them is bound or to which any of the properties of any of them is
subject or the charter or by-laws of any of them, and each of them has
full power and authority to authorize, issue and sell the Mortgage Loans
and the Certificates as contemplated by this Agreement and to enter into
this Agreement and the Pooling and Servicing Agreement.
(f) The computer tape of the Home Equity Loans created as of _____,
____ and made available to you by the Representative and the Seller, was
complete and accurate as of the date thereof and includes a description of
the Home Equity Loans that are described in a schedule to the Pooling and
Servicing Agreement.
(g) This Agreement has been duly authorized, executed and delivered
by each of the Representative and the Seller.
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(h) Any taxes, fees and other governmental charges in connection
with the execution, delivery and issuance of this Agreement and the
Pooling and Servicing Agreement or the execution, delivery and sale of the
Certificates have been or will be paid at or prior to the Closing Date, to
the extent then due and payable.
(i) (a) Immediately prior to the assignment of the Mortgage Loans to
the Seller as contemplated by the Pooling and Servicing Agreement, each
Originator (i) will have good title to, and will be the sole owner of,
each Mortgage Loan it has conveyed to the Seller and the other property
purported to be transferred by it to the Seller pursuant to the Pooling
and Servicing Agreement free and clear of any pledge, mortgage, lien,
security interest or other encumbrance (collectively, "Liens"), (ii) will
not have assigned to any person any of its right, title or interest in
such Mortgage Loans and (iii) will have the power and authority to sell
such Mortgage Loans and property to the Seller, and upon the execution and
delivery of the Pooling and Servicing Agreement by the parties thereto,
the Seller will have acquired all of the Originators' right, title and
interest in and to such Mortgage Loans and property free and clear of any
Lien.
(b) Immediately prior to the assignment of the Mortgage Loans to the
Trustee as contemplated by the Pooling and Servicing Agreement, the Seller
(i) will have good title to, and will be the sole owner of, each Mortgage
Loan and the other property purported to be transferred by it to the
Trustee pursuant to the Pooling and Servicing Agreement free and clear of
any pledge, mortgage, lien, security interest or other encumbrance
(collectively, "Liens"), (ii) will not have assigned to any person any of
its right, title or interest in such Mortgage Loans and (iii) will have
the power and authority to sell such Mortgage Loans and property to the
Trustee, and upon the execution and delivery of the Pooling and Servicing
Agreement by the parties thereto, the Trustee will have acquired all of
the Seller's right, title and interest in and to such Mortgage Loans and
property free and clear of any Lien.
(j) All actions required to be taken by the Seller and the
Representative as a condition to the offer and sale of the Certificates as
described herein or the consummation of any of the transactions described
in the Final Prospectus have been or, prior to the Closing Date, will be
taken.
(k) The representations and warranties of each of the Originators,
the Seller, the Master Servicer and the Representative in (or incorporated
in) the Pooling and Servicing Agreement and made in any Officers'
Certificate of the Originators, the Seller, the Master Servicer or the
Representative delivered pursuant to the Pooling and Servicing Agreement,
will be true and correct at the time made and on and as of the Closing
Date as if set forth herein.
(l) The Mortgage Loans conveyed to the Trust Fund had aggregate
outstanding balances determined as of the Cut-off Date in the amount set
forth in the Final Prospectus.
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<PAGE> 6
(m) None of the Seller, the Representative or any Originator will
grant, assign, pledge or transfer to any Person a security interest in, or
any other right, title or interest in, the Mortgage Loans, except as
provided in the Pooling and Servicing Agreement, and each will take all
action necessary in order to maintain the security interest in the
Mortgage Loans granted pursuant to the Pooling and Servicing Agreement.
(n) There are no actions, proceedings or investigations pending, or
to the best knowledge of either the Seller or the Representative,
threatened against the Originators, the Seller, the Master Servicer or the
Representative before any court or before any governmental authority,
arbitration board or tribunal which, if adversely determined, could
materially and adversely affect, either in the individual or in the
aggregate, the financial position, business, operations or prospects of
the Seller, the Master Servicer or the Representative.
(o) Under generally accepted accounting principles, each Originator
will record its transfer of the Mortgage Loans to the Seller and the
Seller will record its transfer of the Mortgage Loans to the Trustee, both
pursuant to the Pooling and Servicing Agreement as a sale of the Mortgage
Loans.
2. Purchase and Sale. Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Seller agrees to
sell to the Underwriter, and the Underwriter agrees to purchase from the Seller,
$______ aggregate principal amount of the Certificates, in the principal amounts
and at the purchase prices set forth in Schedule I hereto.
3. Delivery and Payment. Delivery of and payment for the Certificates
shall be made at 10:00 a.m. New York time, on _________, ____, at the offices of
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, or
such later time or date not later than five business days thereafter as the
Underwriter shall designate (such date and time of delivery and payment for the
Certificates being herein called the "Closing Date"). Delivery of 5 (five)
global certificates, each certificate evidencing the full principal amount of
each of the classes of the Certificates, shall be made to the Underwriter,
against payment by the Underwriter of the purchase price thereof to the Seller
by wire transfer in immediately available funds. The global certificates to be
so delivered to the Underwriter shall be registered in the name of Cede & Co.,
as nominee for The Depository Trust Company ("DTC"). The interest of beneficial
owners of the Certificates will be represented by book entries on the records of
DTC and participating members thereof. Definitive certificates evidencing the
Certificates will be available only under limited circumstances.
The Seller agrees to have the Certificates available for inspection,
checking and packaging by the Underwriter in New York, New York, not later than
1:00 PM on the business day prior to the Closing Date.
4. Offering by Underwriter. It is understood that the Underwriter proposes
to offer the
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<PAGE> 7
Certificates for sale to the public (which may include selected dealers) as set
forth in the Final Prospectus.
5. Agreements. Each of the Representative and the Seller agrees with the
Underwriter that:
(a) The Seller will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, to become effective. Prior to the termination of the offering of
the Certificates, the Seller will not file any amendment of the
Registration Statement or supplement to the Final Prospectus or any
Preliminary Prospectus Supplement unless the Seller has furnished you a
copy for your review prior to filing and will not file any such proposed
amendment or supplement to which you reasonably object. Subject to the
foregoing sentence, if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Final Prospectus is
otherwise required under Rule 424(b), the Seller will cause the Final
Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory
to the Underwriter of such timely filing. The Seller will promptly advise
the Underwriter (i) when the Registration Statement, if not effective at
the Execution Time, and any amendment thereto, shall have become
effective, (ii) when the Final Prospectus, and any supplement thereto
shall have been filed with the Commission pursuant to Rule 424(b), (iii)
when, prior to termination of the offering of the Securities, any
amendment to the Registration Statement shall have been filed or become
effective, (iv) of any request by the Commission for any amendment of the
Registration Statement or supplement to the Final Prospectus or for any
additional information, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (vi) of
the receipt by the Seller or the Trust of any notification with respect to
the suspension of the qualification of the Certificates for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and will use their best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Certificates
is required to be delivered under the Act, any event occurs as a result of
which the Final Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Final Prospectus to comply
with the Act or the Exchange Act or the respective rules thereunder, the
Seller promptly will (i) prepare and file with the Commission, subject to
the second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (ii) supply any supplemented Final Prospectus to you in
such quantities as you may reasonably request.
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<PAGE> 8
(c) The Seller will furnish to the Underwriter and counsel for the
Underwriter, without charge, copies of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus by
the Underwriter or a dealer may be required by the Act, as many copies of
any Preliminary Prospectus Supplement and the Final Prospectus and any
supplement thereto as the Underwriter may reasonably request. The Seller
will pay the expenses of printing or other production of all documents
relating to the offering.
(d) The Seller will cooperate, when and if requested by the
Underwriter at Seller's sole expense, in the qualification of the
Certificates for sale under the laws of such jurisdictions as the
Underwriter may designate and will maintain such qualifications in effect
so long as required for the distribution of the Certificates; provided,
however, that the Seller 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.
(e) The Seller will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 under the Act.
(f) As soon as practicable, the Seller will cause the Trust Fund to
make generally available to the Certificateholders and to the Underwriter
an earnings statement or statements of the Trust Fund which will satisfy
the provisions of Section 11(a) of the Act and will satisfy the
requirements of Rule 158.
(g) The Seller will cause any Computational Materials (as defined in
Section 9 hereof) with respect to the Certificates which are delivered by
an Underwriter to the Seller pursuant to Section 9 hereof to be filed with
the Commission on a Current Report on Form 8-K on or before the date of
the filing of the Final Prospectus pursuant to Rule 424.
(h) The Seller and the Representative will cooperate with the
Underwriter and use their best efforts to permit the Certificates to be
eligible for clearance and settlement through The Depository Trust
Company.
(i) For a period from the date of this Agreement until the
retirement of the Certificates, the Master Servicer will deliver to you
the monthly servicing report, the annual statements of compliance and the
annual independent certified public accountants' reports furnished to the
Trustee pursuant to the Pooling and Servicing Agreement, as soon as such
statements and reports are furnished to the Trustee.
(j) So long as any of the Certificates is outstanding, the
Representative will furnish to you (i) as soon as practicable after the
end of the fiscal year all documents required to be distributed to holders
of Certificates or filed with the Commission pursuant to the Exchange Act
or any order of the Commission thereunder and (ii) from time to time, any
other information concerning the Representative, the Master Servicer or
the Seller filed with any government or regulatory authority that is
otherwise publicly available, as you
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<PAGE> 9
may reasonably request.
(k) To the extent, if any, that the rating provided with respect to
the Certificates by _____________ ("_____") or ______________ ("___" and
together with _____, the "Rating Agencies") is conditional upon the
furnishing of documents or the taking of any actions by the Seller, the
Seller shall furnish such documents and take such actions.
(l) Until 30 days following the Closing Date, neither the Seller nor
any trust or other entity originated, directly or indirectly, by the
Seller or the Representative will, without the prior written consent of
the Underwriter, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce the offering of, any asset-backed
securities collateralized by mortgage loans (other than the Certificates).
6. Conditions to the Obligations of the Underwriter. The obligations of
the Underwriter to purchase the Certificates shall be subject to the accuracy of
the representations and warranties on the part of the Representative and the
Seller contained herein as of the Execution Time and the Closing Date, to the
accuracy of the statements of the Representative and the Seller made in any
certificates pursuant to the provisions hereof, to the performance by each of
the Representative and the Seller of its obligations hereunder and to the
following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Underwriter agrees in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 p.m. New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 p.m.
New York City time on such date or (ii) 12:00 noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 p.m. New York City time on such
date; if filing of the Final Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Final Prospectus, and any such
supplement, shall have been filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or threatened.
(b) The Underwriter shall have received the opinion of
_______________, counsel for the Representative, the Master Servicer, the
Originators and the Seller, dated the Closing Date, to the effect that:
(i) Each of the Seller, the Master Servicer, the Originators
and the Representative is a corporation duly organized and validly
existing under the laws of the state of its incorporation with all
corporate power and authority necessary to own or hold its
properties, to conduct its business as described in the Final
Prospectus and to enter into and perform its obligations under this
Agreement and the Pooling and Servicing Agreement and is duly
qualified to do business where its
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<PAGE> 10
ownership or lease of property or the conduct of its business
requires such qualification.
(ii) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by, and constitutes a legal,
valid and binding instrument enforceable against each of the Seller,
the Master Servicer, the Originators and the Representative in
accordance with its terms (subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other
laws affecting creditors' rights generally from time to time in
effect) (such opinion may also state that the enforceability of the
obligations of the Representative, the Master Servicer, the
Originators and the Seller is subject to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law)).
(iii) The Certificates and the Class R Certificates have been
duly authorized and, when executed and authenticated in accordance
with the provisions of the Pooling and Servicing Agreement and
delivered to and paid for by the Underwriter pursuant to this
Agreement, will be validly issued and outstanding and will be
entitled to the benefits of the Pooling and Servicing Agreement.
(iv) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving
the Representative, the Seller, the Master Servicer, any Originator
or any of their subsidiaries, of a character required to be
disclosed in the Registration Statement which is not adequately
disclosed in the Final Prospectus, and there is no franchise,
contract or other document of a character required to be described
in the Registration Statement or Final Prospectus, or to be filed as
an exhibit, which is not described or filed as required.
(v) The Certificates and the Pooling and Servicing Agreement
conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Final Prospectus.
(vi) The Registration Statement has become effective under the
Act; any required filing of the Basic Prospectus, any Preliminary
Prospectus Supplement, and the Final Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened, and the Registration
Statement and the Final Prospectus (other than Computational
Materials, the financial statements and other financial and
statistical information contained therein as to which such counsel
need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act, the Exchange Act and
the respective rules thereunder; and such counsel has no reason to
believe that at the Effective Date the Registration
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<PAGE> 11
Statement contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Final Prospectus, at the date thereof or at the Closing Date,
included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading (other than Computational
Materials, the financial statements and other financial and
statistical information contained therein as to which such counsel
need express no opinion).
(vii) This Agreement has been duly authorized, executed and
delivered by the Representative and the Seller.
(viii) The statements in the Registration Statement and the
Final Prospectus under the headings "Summary--Federal Income Tax
Consequences", "Federal Income Tax Consequences" and "ERISA
Considerations" in the prospectus supplement and "Summary--Federal
Income Tax Consequences", "Summary--ERISA Considerations", "Federal
Income Tax Consequences", "State Tax Consequences" and "ERISA
Considerations" in the basic prospectus, to the extent that they
constitute matters of law or legal conclusions with respect thereto,
are correct in all material respects.
(ix) The statements in the Final Prospectus under the heading
"Certain Legal Aspects of the Home Equity Loans" in the basic
prospectus, to the extent that they constitute matters of law or
legal conclusions with respect thereto, provide a fair and accurate
summary of such law or conclusions.
(x) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended, and
neither the Seller nor the Trust Fund is required to be registered
under the Investment Company Act of 1940, as amended.
(xi) The trust fund as described in the Final Prospectus and
the Pooling and Servicing Agreement will qualify as a "real estate
mortgage investment conduit" ("REMIC") within the meaning of Section
860D of the Internal Revenue Code of 1986, as amended (the "Code"),
the Certificates will be treated as "regular interests" in such
REMIC and the Class R Certificates will be treated as the single
class of "residual interests" in such REMIC, assuming: (i) an
election is made to treat the trust funds as a REMIC, (ii)
compliance with the Pooling and Servicing Agreement and (iii)
compliance with changes in the law, including any amendments to the
Code or applicable Treasury regulations thereunder.
(xii) No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with
any court or governmental agency or body
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is required for the consummation of the transactions contemplated
herein except such as have been obtained under the Act, such as may
be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Certificates by
the Underwriter, and such other approvals (specified in such
opinion) as have been obtained.
(xiii) Neither the execution and delivery of the Pooling and
Servicing Agreement, the issue and sale of the Certificates, nor the
consummation of any other of the transactions herein contemplated
nor the fulfillment of the terms hereof or of the Pooling and
Servicing Agreement will conflict with, result in a breach of, or
constitute a default under the charter or by-laws of the
Representative, the Master Servicer, any of the Originators or the
Seller or the terms of any indenture or other agreement or
instrument known to such counsel and to which the Representative,
the Master Servicer, any of the Originators or the Seller is a party
or bound, or, to the knowledge of such counsel, any law, order or
regulation applicable to the Representative, the Master Servicer,
any of the Originators or the Seller of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Representative, the Master Servicer, any of
the Originators or the Seller.
(xiv) to the best knowledge of such counsel and except as set
forth in the Prospectus, no default exists and no event has occurred
which, with notice, lapse of time or both, would constitute a
default in the due performance and observance of any term, covenant
or condition of any agreement to which the Seller, the
Representative, the Master Servicer or any of the Originators is a
party or by which it is bound, which default is or would have a
material adverse effect on the financial condition, earnings,
prospects, business or properties of the Seller, the Representative,
the Master Servicer or any of the Originators, taken as a whole;
(xv) to the best knowledge of such counsel, the Seller, the
Representative, the Master Servicer and each of the Originators has
obtained all material licenses, permits and other governmental
authorizations that are necessary to the conduct of its business;
such licenses, permits and other governmental authorizations are in
full force and effect, and the Seller, the Representative, the
Master Servicer and each of the Originators is in all material
respects complying therewith; and the Seller, the Representative,
the Master Servicer and each of the Originators is otherwise in
compliance with all laws, rules, regulations and statutes of any
jurisdiction to which it is subject, except where non-compliance
would not have a material adverse effect on the Seller, the
Representative, the Master Servicer or any of the Originators;
(xvi) such counsel shall state that they have participated in
the preparation of the Registration Statement and the Final
Prospectus, and that no facts have come to their attention which
cause them to believe that the Registration Statement relating to
the Certificates as of its effective date, and the Final
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Prospectus, as of the date of this Agreement, and any amendment or
supplement thereto, as of its date when it became effective,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Final
Prospectus on its date contained or on the Closing Date contains,
any untrue statement of a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; provided that such counsel
need not express any view with respect to the financial, statistical
or computational material included in or incorporated by reference
into the Registration Statement relating to the Certificates, the
Final Prospectus or any amendment or supplement thereto.
In rendering such opinions, such counsel may rely as to matters of fact,
to the extent deemed proper by such counsel, on certificates of
responsible officers of the Representative, the Seller, the Originators,
the Master Servicer and the other parties to this Agreement and the
Pooling and Servicing Agreement, and of public officials. References to
the Final Prospectus in this paragraph (b) include any supplements thereto
at the Closing Date.
(c) The Underwriter shall have received from _____________, counsel
for the Underwriter, such opinion or opinions as the Underwriter may
reasonably require, and shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to
pass on such matters.
(d) The Underwriter shall have received from ___________, certified
public accountants, two letters, one such letter dated the date hereof and
satisfactory in form and substance to the Underwriter and its counsel,
confirming that they are independent accountants within the meaning of the
Act and the Exchange Act and the respective applicable published rules and
regulations thereunder and stating to the effect that they have performed
certain specified procedures as a result of which they determined that
certain information of an accounting, financial or statistical nature set
forth in the Final Prospectus, agrees with the provisions of the Pooling
and Servicing Agreement and the records of the Representative, the master
Servicer and the Originators, and the other such letter dated the Closing
Date and satisfactory in form and substance to the Underwriter and its
counsel, confirming that the first such letter remains true as of the
Closing Date.
(e) The representations and warranties in this Agreement and the
representations and warranties of the Representative, the Seller, the
Originators and the Master Servicer in the Pooling and Servicing Agreement
shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and
as of such date, and the Underwriter shall have been furnished a
certificate of each of the Representative and the Seller, signed by the
Chairman of the Board or the President and by the principal financial or
accounting officer of the Representative and the Seller, respectively,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Final Prospectus,
any
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supplement to the Final Prospectus, this Agreement and the Pooling and
Servicing Agreement and that:
(i) the representations and warranties of the Representative
and the Seller in this Agreement and in the Pooling and Servicing
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect, as if made on the Closing
Date, and each of the Representative and the Seller 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 has been issued, and no proceedings for that
purpose have been instituted or, to such officer's knowledge,
threatened; and
(iii) since the date of the Representative's most recent
audited financial statements, there has been no material adverse
change, or any development respecting a prospective change, in the
condition (financial or other) of the Representative, the Seller,
the Master Servicer or any Originator, whether or not arising from
transactions in the ordinary course of business.
(f) Prior to the Closing Date, the Representative, the Master
Servicer, the Seller, and each Originator shall have furnished to the
Underwriter such further information, certificates and documents as the
Underwriter may reasonably request.
(g) The Certificates shall have been given the rating of ____ by
__________ and ___ by ___________.
(h) The Underwriter shall have received from counsel to the Trustee
an opinion, dated the Closing Date and satisfactory in form and substance
to the Underwriter and its counsel to the effect that:
(i) the Trustee is duly organized and validly existing as a
_________ with the power and authority under the laws of _____ to
conduct business and affairs as a trustee;
(ii) the Trustee has the corporate power and lawful authority
to perform the duties and obligation of trustee under, to act as
successor Master Servicer upon the terms and conditions set forth
in, and to accept the trust contemplated by, the Pooling and
Servicing Agreement;
(iii) the Pooling and Servicing Agreement has been duly
authorized, executed, delivered and accepted by the Trustee, and the
Pooling and Servicing Agreement is a legal, valid and binding
obligation enforceable against the Trustee in accordance with its
terms (subject to applicable bankruptcy, insolvency, fraudulent
-14-
<PAGE> 15
transfer, reorganization and other laws affecting creditors' rights
generally from time to time in effect) (such opinion may also state
that the enforceability of the Trustee's obligations is subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law));
(iv) the Certificates have been duly authenticated by the
Trustee; and
(v) neither the execution nor delivery by the Trustee of the
Pooling and Servicing Agreement nor the consummation of any of the
transactions contemplated thereby require the consent or approval
of, the giving of notice to, the registration with, or the taking of
any other action with respect to, any governmental authority or
agency under any existing federal or state law governing the banking
or trust powers of the Trustee.
(i) The Underwriter shall have received such opinions, addressed to
the Underwriter and dated the Closing Date, as are delivered to the Rating
Agencies.
(j) The Underwriter shall have received an opinion from
____________, counsel for the Representative and the Seller, dated the
Closing Date and satisfactory in form and substance to the Underwriter
regarding the true-sale of the Mortgage Loans by the Originators to the
Seller and by the Seller to the Trustee, for the benefit of
Certificateholders.
(k) The Underwriter shall have received an opinion from counsel for
the Representative and the Seller, dated the Closing Date and satisfactory
in form and substance to the Underwriter regarding substantive
consolidation.
(l) The Underwriter shall have received a fully executed Insurance
Agreement by and among the Representative, the Seller and the Insurer,
dated as of ______, ____ (the "Insurance Agreement"), and all
representations and warranties thereunder or made pursuant thereto shall
be true and correct, and the Seller shall have performed its obligations
thereunder.
(m) The Policy relating to the Certificates shall have been duly
executed and issued at or prior to the Closing Date and shall conform in
all material respects to the description thereof in the Final Prospectus.
(n) The Underwriter shall have received an opinion from counsel to
the ___________ (the "Insurer"), dated the Closing Date and satisfactory
in form and substance to the Underwriter, addressed to the Underwriter and
the Trustee.
(o) Subsequent to the Execution Time, there shall not have been any
reduction or withdrawal by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Securities
Act) of the current rating of any securities
-15-
<PAGE> 16
issued or originated by the Seller or the Representative or any notice
given of any intended or potential reduction in or withdrawal of any such
rating or of a possible change in any such rating that does not indicate
the direction of the possible change.
(p) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Final Prospectus and the date
of the most recent audited financial statements of the Representative,
there shall not have been any change, or any development involving a
prospective change, which has not been disclosed to the Underwriter on or
before the date hereof in or affecting the condition, financial or
otherwise, of the Representative, the Master Servicer, the Seller or any
Originator the effect of which is, in the reasonable judgment of the
Underwriter, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or the delivery of the
Certificates as contemplated by the Registration Statement and the Final
Prospectus.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and counsel for the Underwriter, this Agreement
and all obligations of the Underwriter hereunder may be canceled at, or at any
time prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Seller and the Representative in writing or by telephone
or telegraph confirmed in writing.
7. Reimbursement of Underwriter's Expenses. If the sale of the
Certificates provided for herein is not consummated because any condition to the
obligations of the Underwriter set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Representative or the Seller to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by the Underwriter, the Seller 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 Certificates.
8. Indemnification and Contribution. (a) the Representative and the
Seller, jointly and severally, agree to indemnify and hold harmless the
Underwriter and each person who controls the Underwriter within the meaning of
either the Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Basic Prospectus, any Preliminary
Prospectus Supplement or the Final Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage,
-16-
<PAGE> 17
liability or action; provided, however, that (i) neither the Representative nor
the Seller will be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made (x)
therein in reliance upon and in conformity with written information furnished to
the Seller by the Underwriter specifically for inclusion therein, or (y) in any
Derived Information (as defined in Section 9 below) included by the Underwriter
in any Computational Materials provided by the Underwriter to the Seller or any
amendment or supplement thereof unless such untrue statement or alleged untrue
statement or omission or alleged omission made in any Derived Information
results from an error or omission in any Seller-Provided Information (as defined
herein), and (ii) such indemnity with respect to any Preliminary Prospectus
Supplement or Computational Materials shall not inure to the benefit of the
Underwriter (or any person controlling the Underwriter) from whom the person
asserting any such loss, claim, damage or liability purchased the Certificates
which are the subject thereof if such person did not receive a copy of the Final
Prospectus (or the Final Prospectus as supplemented) at or prior to the
confirmation of the sale of such Certificates to such person in any case where
such delivery is required by the Act and the untrue statement or omission of a
material fact contained in the Preliminary Prospectus Supplement was corrected
in the Final Prospectus (or the Final Prospectus as supplemented). This
indemnity agreement will be in addition to any liability which the
Representative or the Seller may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Representative and the Seller, each of their respective directors, each of their
respective officers who signs the Registration Statement, and each person who
controls the Representative or the Seller within the meaning of either the Act
or the Exchange Act, to the same extent as the foregoing indemnity from the
Representative and the Seller to the Underwriter, but only with reference to (x)
written information relating to the Underwriter furnished to the Seller by the
Underwriter specifically for inclusion in the documents referred to in the
foregoing indemnity or (y) any Derived Information included by the Underwriter
in any Computational Materials provided by the Underwriter to the Seller or any
amendment or supplement thereof; provided, however that the indemnity with
respect to clause (y) above shall not apply to any untrue statement or alleged
untrue statement or omission or alleged omission made in any Derived Information
that results from an error or omission in any Seller-Provided Information. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have. For the purpose of clause (x) of this indemnity, the
Representative and the Seller acknowledge that the statements set forth in the
last paragraph of the cover page and under the heading "Underwriting" in any
Preliminary Prospectus Supplement or the Final Prospectus constitute the only
information furnished in writing by the Underwriter for inclusion in the
documents referred to in the foregoing indemnity, and you, as the Underwriter,
confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the
-17-
<PAGE> 18
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to appoint counsel satisfactory to such indemnified party to represent
the indemnified party in such action; provided, however, that if the defendants
in any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
defend such action on behalf of such indemnified party or parties. Upon receipt
of notice from the indemnifying party to such indemnified party of its election
so to appoint counsel to defend such action and approval by the indemnified
party of such counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel, approved by the Underwriter in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action), (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party or (iv) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest; and except that, if clause (i) or (iii) is applicable, such liability
shall be only in respect of the counsel referred to in such clause (i) or (iii).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph (a) of this
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Representative or the Seller on grounds of
policy or otherwise, the Representative and the Seller, on the one hand, and the
Underwriter, on the other, shall contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) to which the Representative
and the Seller, on the one hand, and the Underwriter, on the other, may be
subject in such proportion so that the Underwriter is responsible for that
portion represented by the percentage that the underwriting discount bears to
the sum of such discount and the purchase price of the Certificates, and the
Representative and the Seller are responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls the Underwriter within the meaning of
the Act shall have the same rights to contribution as the Underwriter, and each
person who controls the Representative or the Seller within the meaning of
either the Act or the Exchange Act, each officer of the Representative or the
Seller and each director of the Representative or the Seller shall have the same
rights to contribution as the Representative and the Seller, subject in each
case to the proviso to the first sentence of this paragraph (d). Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of
-18-
<PAGE> 19
which a claim for contribution may be made against another party or parties
under this paragraph (d), notify such party or parties from whom contribution
may be sought, but the omission to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any other
obligation it or they may have hereunder or otherwise than under this paragraph
(d).
9. Computational Materials. It is understood that the Underwriter may
provide to prospective investors certain Computational Materials and ABS Term
Sheets in connection with your offering of the Certificates, subject to the
following conditions:
(a) The Underwriter shall comply with all applicable laws and
regulations in connection with the use of Computational Materials, including the
No-Action Letter of May 20, 1994 issued by the Commission to Kidder, Peabody
Acceptance Corporation I, Kidder, Peabody & Co. Incorporated and Kidder
Structured Asset Corporation, as made applicable to other issuers and
underwriters by the Commission in response to the request of the Public
Securities Association dated May 24, 1994 (collectively, the "Kidder/PSA
Letter"), as well as the PSA Letter referred to below. The Underwriter shall
comply with all applicable laws and regulations in connection with the use of
ABS Term Sheets, including the No Action Letter of February 17, 1995 issued by
the Commission to the Public Securities Association (the PSA Letter" and,
together with the Kidder/PSA Letter, the "No-Action Letters").
(b) For purposes hereof, "Computational Materials" as used herein
shall have the meaning given such term in the No-Action Letters, but shall
include only those Computational Materials that have been prepared or delivered
to prospective investors by or at the direction of the Underwriter. For purposes
hereof, "ABS Term Sheets" and "Collateral Term Sheets" as used herein shall have
the meanings given such terms in the PSA Letter but shall include only those ABS
Term Sheets or Collateral Term Sheets that have been prepared or delivered to
prospective investors by or at the direction of the Underwriter.
(c) (i) All Computational Materials and ABS Term Sheets provided to
prospective investors that are required to be filed with the Commission pursuant
to the No-Action Letters shall bear a legend on each page including the
following statement:
"THE INFORMATION HEREIN IS PRELIMINARY, AND WILL BE SUPERSEDED BY
THE APPLICABLE PROSPECTUS SUPPLEMENT AND BY ANY OTHER INFORMATION
SUBSEQUENTLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION."
(ii) In the case of Collateral Term Sheets, such legend shall also
include the following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED BY THE
DESCRIPTION OF THE MORTGAGE POOL CONTAINED IN THE PROSPECTUS
SUPPLEMENT RELATING TO THE CERTIFICATES AND
-19-
<PAGE> 20
[EXCEPT WITH RESPECT TO THE INITIAL COLLATERAL TERM SHEET]
SUPERSEDES ALL INFORMATION CONTAINED IN ANY COLLATERAL TERM SHEETS
RELATING TO THE MORTGAGE POOL PREVIOUSLY PROVIDED BY SALOMON
BROTHERS INC."
(d) The Underwriter shall provide the Seller with representative
forms of all Computational Materials and ABS Term Sheets prior to their first
use, to the extent such forms have not previously been approved by the Seller
for use by the Underwriter. The Underwriter shall provide to the Seller, for
filing on Form 8-K, copies (in such format as required by the Seller) of all
Computational Materials and ABS Term Sheets that are required to be filed with
the Commission pursuant to the No-Action Letters. The Underwriter may provide
copies of the foregoing in a consolidated or aggregated form including all
information required to be filed. All Computational Materials and ABS Term
Sheets described in this subsection (d) must be provided to the Seller not later
than 10:00 a.m. New York time one business day before filing thereof is required
pursuant to the terms of this Agreement. The Underwriter agrees that it will not
provide to any investor or prospective investor in the Certificates any
Computational Materials or ABS Term Sheets on or after the day on which
Computational Materials and ABS Term Sheets are required to be provided to the
Seller pursuant to this Section 9(d) (other than copies of Computational
Materials or ABS Term Sheets previously submitted to the Seller in accordance
with this Section 9(d) for filing with the Commission), unless such
Computational Materials or ABS Term Sheets are preceded or accompanied by the
delivery of a Prospectus to such investor or prospective investor.
(e) All information included in the Computational Materials and ABS
Term Sheets shall be generated based on substantially the same methodology and
assumptions that are used to generate the information in the Prospectus
Supplement as set forth therein; provided, however, that the Computational
Materials and ABS Term Sheets may include information based on alternative
methodologies or assumptions if specified therein. If any Computational
Materials or ABS Term Sheets that are required to be filed were based on
assumptions with respect to the Mortgage Loans included in the Trust that differ
from the final Pool Information in any material respect or on Certificate
structuring terms that were revised in any material respect prior to the
printing of the Prospectus, the Underwriter shall prepare revised Computational
Materials or ABS Term Sheets, as the case may be, based on the final Pool
Information and structuring assumptions, circulate such revised Computational
Materials and ABS Term Sheets to all recipients of the preliminary versions
thereof that indicated or subsequently indicate orally to the Underwriter they
will purchase all or any portion of the Certificates, and include such revised
Computational Materials and ABS Term Sheets (marked, "as revised") in the
materials delivered to the Seller pursuant to subsection (d) above. As used
herein, "Pool Information" means information with respect to the characteristics
of the Mortgage Loans, as provide by or on behalf of the Seller to the
Underwriter in final form and set forth in the Prospectus Supplement.
(f) The Seller shall not be obligated to file any Computational
Materials or ABS Term Sheets that have been determined to contain any material
error or omission; provided, however, that, at the request of the Underwriter,
the Seller will file Computational Materials or ABS Term Sheets that contain a
material error or omission if clearly marked "superseded by
-20-
<PAGE> 21
materials dated _____" and accompanied by corrected Computational Materials or
ABS Term Sheets that are marked, "material previously dated _____, as
corrected." In the event that, within the period during which the Prospectus
relating to the Certificates is required to be delivered under the Act, any
Computational Materials or ABS Term Sheets are determined, in the reasonable
judgment of the Seller or the Underwriter, to contain a material error or
omission, the Underwriter shall prepare a corrected version of such
Computational Materials or ABS Term Sheets, shall circulate such corrected
Computational Materials and ABS Term Sheets to all recipients of the prior
versions thereof that either indicated orally to the Underwriter they would
purchase all or any portion of the Certificates, and actually purchased all or
any portion thereof, and shall deliver copies of such corrected Computational
Materials and ABS Term Sheets (marked, "as corrected") to the Seller for filing
with the Commission in a subsequent Form 8-K submission.
(g) The Seller and the Underwriter shall receive a letter from
____________, certified public accountants, satisfactory in form and substance
to the Seller and the Underwriter, to the effect that such accountants have
performed certain specified procedures agreed to by the Seller and the
Underwriter, as a result of which they determined that the specified information
that is included in the Computational Materials and ABS Term Sheets (if any)
provided by the Underwriter to the Seller for filing on Form 8-K as provided in
this Section 9 has been accurately computed or compiled from the Seller Provided
Information.
(h) If the Underwriter does not provide any Computational Materials
or ABS Term Sheets to the Seller pursuant to subsection (d) above, the
Underwriter shall be deemed to have represented, as of the Closing Date, that it
did not provide any prospective investors with any information in written or
electronic form in connection with the offering of the Certificates that is
required to be filed with the Commission in accordance with the No-Action
Letters.
(i) In the event of any delay in the delivery by the Underwriter to
the Seller of all Computational Materials and ABS Term Sheets required to be
delivered in accordance with subsection (d) above, or in the delivery of the
accountant's comfort letter in respect thereof pursuant to Section 9(g), the
Seller shall have the right to delay the release of the Prospectus to investors
or to the Underwriter, to delay the Closing Date and to take other appropriate
actions in each case as necessary in order to allow the Seller to comply with
its obligation to file the Computational Materials and ABS Term Sheets with the
Commission.
(j) For purposes of this Agreement, as to the Underwriter, the term
"Derived Information" means such portion, if any, of the information that is:
(i) delivered to the Seller by the Underwriter pursuant to this
Section 9 for filing with the Commission on Form 8-K;
(ii) is not contained in the Final Prospectus without taking into
account information incorporated therein by reference; and
(iii) does not constitute Seller-Provided Information.
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<PAGE> 22
"Seller-Provided Information" means any computer tape concerning the assets
comprising the Trust Fund and any other information with respect to the
Certificates or the Mortgage Loans furnished to the Underwriter by the Seller
for use as contemplated herein.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Underwriter, by notice given to the Seller and
Representative prior to delivery of and payment for the Certificates, if prior
to such time (i) trading in securities generally on the New York Stock Exchange
shall have been suspended or limited or minimum prices shall have been
established on such Exchange, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities or (iii) there shall have
occurred any outbreak or material escalation of hostilities, declaration by the
United States of a national emergency or war or other calamity or crisis the
effect of which on the financial markets of the United States is such as to make
it, in the judgment of the Underwriter, impracticable or inadvisable to proceed
with the offering or delivery of the Certificates as contemplated by the Final
Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the
Representative or the Seller or their respective officers and of the Underwriter
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Underwriter,
the Representative or the Seller or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Certificates. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Underwriter, will be mailed, delivered or
telegraphed and confirmed to _________, ____________, New York, New York
________; or, if sent to the Seller or the Representative, will be mailed,
delivered or telegraphed and confirmed to the Representative at
_______________________, attention: ______, and to the Seller at
_________________, attention: _____.
13. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 8 hereof, and no other
person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
Counterparts will together constitute one and the same agreement.
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<PAGE> 23
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among, the
Seller, the Representative and the Underwriter.
Very truly yours,
AVCO ABS RECEIVABLES CORP.
By:
-----------------------------------------
Name:
Title:
AVCO FINANCIAL SERVICES, INC.
By:
-----------------------------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written
- --------------------------------
By:
-----------------------------
Name:
Title:
-23-
<PAGE> 24
SCHEDULE I
TO
UNDERWRITING
AGREEMENT
<TABLE>
<CAPTION>
Asset-Backed
Certificates, Principal Purchase
Series 199_-_ Amount Price
------------- ----------- ---------
<S> <C> <C>
Class A-1 $__________ ________%
Class A-2 $__________ ________%
Class A-3 $__________ ________%
Class A-4 $__________ ________%
Class A-5 $__________ ________%
</TABLE>
-24-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
AVCO ABS RECEIVABLES CORP.
(A Nevada corporation)
ARTICLE I
OFFICES
1. OFFICE.
The office of the corporation shall be located in the State of Nevada or such
other location as the Board of Directors may determine.
2. ADDITIONAL OFFICES.
The corporation may also have offices and places of business at such other
places, within or without the State of Nevada, as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
SHAREHOLDERS
1. CERTIFICATES REPRESENTING SHARES.
Certificates representing shares shall set forth thereon the statements
prescribed by any applicable provision of law and shall be signed by the
Chairman of the Board of Directors, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and may be sealed with the corporate seal or a facsimile thereof. The signatures
of the officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
corporation itself or its employee. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of its
issue.
A certificate representing shares shall not be issued until the full amount of
consideration
<PAGE> 2
therefor has been paid except as the Nevada Private Corporations Law may
otherwise permit.
No certificate representing shares shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the corporation,
if the Board of Directors shall so require, of a bond of indemnity in such
amount upon such terms and secured by such surety as the Board of Directors may
in its discretion require.
2. FRACTIONAL SHARE INTERESTS.
The corporation may issue certificates for fractions of a share where necessary
to effect transactions authorized by the Nevada Private Corporations Law which
shall entitle the holder in proportion to the holder's fractional holdings, to
exercise voting rights, receive dividends and participate in liquidating
distributions; or it may pay in cash the fair value of fractions of a share as
of the time when those entitled to receive such fractions are determined; or it
may issue scrip in registered or bearer form over the manual or facsimile
signature of an officer of the corporation or of its agent, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder to
any rights of a shareholder except as therein provided.
3. SHARE TRANSFERS.
Upon compliance with provisions restricting the transferability of shares, if
any, transfers of shares of the corporation shall be made only on the share
record of the corporation by the registered holder thereof, or by such holder's
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary of the corporation or with a transfer agent or a registrar, if
any, and on surrender of the certificate or certificates for such shares
properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR SHAREHOLDERS.
For the purpose of determining the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the directors
may fix, in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than fifty days nor less than ten days
before the date of such meeting, nor more than fifty days prior to any other
action. If no record date is fixed, the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if no notice is given, the day on which the meeting is held; the
record date for determining shareholders for any other purpose shall be at the
close of business on the day on which the resolution of the directors relating
thereto is adopted. When a determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders has been made as provided in
this paragraph, such determination shall apply to any adjournment thereof,
unless the directors
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fix a new record date under this paragraph for the adjourned meeting.
MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of a
meeting of shareholders or a waiver thereof or to participate or vote thereat or
to consent or dissent in writing in lieu of a meeting, as the case may be, the
term "share" or "shares" or "shareholder" or "shareholders" refers to an
outstanding share or shares and to a holder or holders of record of outstanding
shares when the corporation is authorized to issue only one class of shares, and
said reference is also intended to include any outstanding share or shares and
any holder or holders of record of outstanding shares of any class upon which or
upon whom the Articles of Incorporation confers such rights where there are two
or more classes or series of shares or upon which or upon whom the Nevada
Private Corporations Law confers such rights notwithstanding that the Articles
of Incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.
5. MEETINGS.
TIME. The annual meeting shall be held on the date fixed, from time to time, by
the directors; provided, however, that each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting. A special meeting shall be held on the date fixed by the directors
except when the Nevada Private Corporations Law confers the right to fix the
date upon shareholders.
PLACE. Annual meetings and special meetings shall be held at such place, within
or without the State of Nevada, as the directors may, from time to time, fix.
Whenever the directors shall fail to fix such place, or, whenever shareholders
entitled to call a special meeting shall call the same, the meeting shall be
held at the office of the corporation in the State of Nevada.
CALL. Annual meetings may be called by the directors or by any officer
instructed by the directors to call the meeting or by the President. Special
meetings may be called in like manner except when the directors are required by
the Nevada Private Corporations Law to call a meeting, or except when the
shareholders are entitled by said Law to demand the call of a meeting.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. The notice of all meetings
shall be in writing, shall state the place, date, and hour of the meeting, and
shall state the name and capacity of the person issuing the same. The notice for
a special meeting shall indicate that it is being issued by or at the direction
of the person or persons calling the meeting. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting need not state the purpose or purposes for which the meeting is
called. If the directors shall adopt, amend, or repeal a By-Law regulating an
impending election of directors, the notice of the next meeting for election of
directors shall contain the statements prescribed by the Nevada Private
Corporations Law. If any action is proposed to be taken which would, if taken,
entitle shareholders to receive
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payment for their shares, the notice shall include a statement of that purpose
and to that effect, together with a copy of the Nevada Private Corporations Law
or an outline of its terms. A copy of the notice of any meeting shall be given,
personally or by first class mail, not less than ten days nor more than fifty
days before the date of the meeting, unless the lapse of the prescribed period
of time shall have been waived, to each shareholder at such shareholder's record
address or at such other address which such shareholder may have furnished by
notice in writing to the Secretary of the corporation. If a meeting is adjourned
to another time or place, and if any announcement of the adjourned time or place
is made at the meeting, it shall not be necessary to give notice of the
adjourned meeting unless the directors, after adjournment, fix a new record date
for the adjourned meeting. Notice of a meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or by proxy, before
or after the meeting. The attendance of a shareholder at a meeting, in person or
by proxy, without protesting prior to the conclusion of the meeting the lack of
notice of such meeting shall constitute a waiver of notice by such shareholder.
SHAREHOLDER LIST AND CHALLENGE. A list of shareholders as of the record date,
certified by the Secretary or other officer responsible for its preparation or
by the transfer agent, if any, shall be produced at any meeting of shareholders
upon the request thereat or prior thereto of any shareholder. If the right to
vote at any meeting is challenged, the inspectors of election, or person
presiding thereat, shall require such list of shareholders to be produced as
evidence of the right of the persons challenged to vote at such meeting, and all
persons who appear from such list to be shareholders entitled to vote thereat
may vote at such meeting.
CONDUCT OF MEETING. Meetings of the shareholders shall be presided over by any
one of the following officers -- the Chairman of the Board, if any, the
President, a Vice President, or, if none of the foregoing is in office and
present, by a chairman to be chosen by the shareholders. The Secretary of the
corporation, or in such person's absence, an Assistant Secretary, shall act as
Secretary of the meeting, but if neither the Secretary nor Assistant Secretary
is present, the chairman of the meeting shall appoint a Secretary of the
meeting.
PROXY REPRESENTATION. Every shareholder may authorize another person or persons
to act for such shareholder by proxy in all matters in which a shareholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the shareholder or such shareholder's
attorney-in-fact. No proxy shall be valid after the expiration of eleven months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the shareholder executing it, except as
otherwise provided by the Nevada Private Corporations Law.
INSPECTORS OF ELECTION. The directors, in advance of any meeting, may appoint
one or more inspectors to act at the meeting or any adjournment thereof. If
inspectors are not so appointed, the person presiding at the meeting may, and,
on the request of any shareholder shall, appoint one or more inspectors. In case
any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the meeting
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by the person presiding thereat. Each inspector, if any, before entering upon
the discharge of the duties of such office, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of such person's ability. The inspectors,
if any, shall determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the meeting
or any shareholder entitled to vote thereat, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by the inspector
or inspectors.
QUORUM. Except for a special election of directors pursuant to the Nevada
Private Corporations Law, and except as herein otherwise provided, the holders
of a majority of the outstanding shares shall constitute a quorum at a meeting
of shareholders for the transaction of any business. When a quorum is once
present to organize a meeting, it is not broken by the subsequent withdrawal of
any shareholders. The shareholders present may adjourn the meeting despite the
absence of a quorum.
VOTING. Each share shall entitle the holder thereof to one vote. In the election
of directors, a plurality of the votes cast shall elect. Any other action shall
be authorized by a majority of the votes cast except where the Nevada Private
Corporations Law prescribes a different proportion of votes.
6. SHAREHOLDER ACTION WITHOUT MEETINGS.
Whenever shareholders are required or permitted to take any action by vote, such
action may be taken without a meeting, on written consent, setting forth the
action so taken, signed by the holders of all shares entitled to vote thereon.
ARTICLE III
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITIONS.
The business of the corporation shall be managed by its Board of Directors. The
word "director" means any member of the Board of Directors. The use of the
phrase "entire Board" herein refers to the total number of directors which the
corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER.
Each director shall be at least eighteen years of age. A director need not be a
shareholder, a
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citizen of the United States, or a resident of the State of Nevada.
The Board of Directors shall consist of three persons or such other number as
may be fixed from time to time by action of the directors or of the
shareholders; provided, however, that the number must be at least the lesser of
three (3) or the number of shareholders of the corporation. The number of
directors may be increased or decreased by action of directors or shareholders,
provided that any action of the directors to effect such increase or decrease
shall require the vote of a majority of the entire Board. No decrease shall
shorten the term of any incumbent directors.
3. ELECTION AND TERM.
Directors who are elected at an annual meeting of shareholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified. In the interim
between annual meetings of shareholders or of special meetings of shareholders
called for the election of directors, newly created directorships and any
vacancies in the Board of Directors, including vacancies resulting from the
removal of directors for cause or without cause, may be filled by the vote of
the remaining directors then in office, although less than a quorum exists.
4. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix, except that
the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
PLACE. Meetings shall be held at such place within or without the State of
Nevada as shall be fixed by the Board.
CALL. No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by the President, a Vice
President, the Secretary, an Assistant Secretary or a majority of the directors
in office.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for regular
meetings for which the time and place have been fixed. Notice of the time and
place of special meetings shall be given to each director orally or by mailing
prior to the meeting. The notice of any meeting need not specify the purpose of
the meeting. Any requirement of furnishing a notice shall be waived by any
director who signs a waiver of notice before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to him.
QUORUM AND ACTION. A majority of the entire Board shall constitute a quorum
except when a vacancy or vacancies prevents such majority, whereupon a majority
of the directors in office shall constitute a quorum, provided such majority
shall constitute at least one-third of the
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entire Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as otherwise
provided herein or in any applicable provision of law, the vote of a majority of
the directors present at the time of the vote at a meeting of the Board, if a
quorum is present at such time, shall be the act of the Board.
CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present,
shall preside at all meetings. Otherwise, the President, if present, or any
other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause or without cause by the
shareholders. Any of the directors may be removed for cause by the Board of
Directors.
6. COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of the entire
Board, designate from their number three or more directors to constitute an
Executive Committee which shall possess and may exercise all the powers and
authority of the Board of Directors in the management of the affairs of the
corporation between meetings of the Board (except to the extent prohibited by
applicable provisions of the Nevada Private Corporations Law) and/or designate
any number of directors to constitute such other committee or committees, which,
to the extent provided in the resolution, shall have and may exercise the powers
of the Board of Directors in the management of the business affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. All such committees shall serve at the pleasure of the
Board. Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
7. CONFERENCE TELEPHONE.
Any one or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Such participation shall
constitute presence in person at such meeting.
8. ACTION IN WRITING.
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Any action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board or the committee, as the case may be, consent in writing to the
adoption of a resolution authorizing the action, and the resolution and the
written consents thereto are filed with the minutes of the proceedings of the
Board or committee.
ARTICLE IV
OFFICERS
1. EXECUTIVE OFFICERS.
The directors may elect or appoint a Chairman of the Board of Directors, a
President, one or more Vice Presidents (one or more of whom may be denominated
"Executive Vice President", "Senior Vice President" or other variations
thereof), a Secretary, one or more Assistant Secretaries, a Treasurer, one or
more Assistant Treasurers, and such other officers as they may determine. Any
two or more offices may be held by the same person, except the offices of
President and Secretary; provided, however, that when all of the issued and
outstanding shares of the corporation are owned by one person, such person may
hold all or any combination of offices.
2. TERM OF OFFICE; REMOVAL.
Unless otherwise provided in the resolution of election or appointment, each
officer shall hold office until the meeting of the Board of Directors following
the next meeting of shareholders and until such officer's successor has been
elected and qualified. The Board of Directors may remove any officer for cause
or without cause.
3. AUTHORITY AND DUTIES.
All officers, as between themselves and the corporation, shall have such
authority and perform such duties in the management of the corporation as may be
provided in these By-Laws, or, to the extent not so provided, by the Board of
Directors.
4. THE PRESIDENT.
The President shall be the chief executive officer of the corporation. Subject
to the direction and control of the Board of Directors, such person shall be in
general charge of the business and affairs of the corporation.
5. VICE PRESIDENTS.
Any Vice President that may have been appointed, in the absence or disability of
the President shall perform the duties and exercise the power of the President,
in the order of their seniority,
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and shall perform such other duties as the Board of Directors shall prescribe.
6. THE SECRETARY.
The Secretary shall keep in safe custody the seal of the corporation and affix
it to any instrument when authorized by the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors.
7. THE TREASURER.
The Treasurer shall have the care and custody of the corporate funds, and other
valuable effects, including securities, and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board, taking proper vouchers for such disbursements, and
shall render to the President and directors, at the regular meetings of the
Board, or whenever they may require it, an account of all transactions as
Treasurer and of the financial condition of the corporation. If required by the
Board of Directors, the Treasurer shall give the corporation a bond for such
term, in such sum and with such surety or sureties as shall be satisfactory to
the Board for the faithful performance of the duties of office and for the
restoration to the corporation, in case of death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in such person's possession or under such person's control
belonging to the corporation.
ARTICLE V
BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of account and
shall keep minutes of the proceedings of the shareholders, of the Board of
Directors, and any committee which the directors may appoint, and shall keep at
the office of the corporation in the State of Nevada or at the office of the
transfer agent or registrar, if any, in said state, a record containing the
names and addresses of all shareholders, the number and class of shares held by
each, and the date when they respectively became the owners of record thereof.
Any of the foregoing books, minutes, or records may be in written form or in any
other form capable of being converted into written form within a reasonable
time.
ARTICLE VI
CORPORATE SEAL
The corporate seal, if any, shall be in such form as the Board of Directors
shall prescribe.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be as fixed by the Board of Directors.
ARTICLE VIII
CONTROL OVER BY-LAWS
The shareholders entitled to vote in the election of directors or the directors
upon compliance with any statutory requisite may amend or repeal the By-Laws and
may adopt new By-Laws, except that the directors may not amend or repeal any
By-Law or adopt any new By-Law, the statutory control over which is vested
exclusively in the said shareholders or in the incorporators. By-Laws adopted by
the incorporators or directors may be amended or repealed by the said
shareholders.
ARTICLE IX
INDEMNIFICATION
1. The corporation shall indemnify any person made, or threatened to be made, a
party to an action or proceeding, whether civil or criminal or investigative (a
"proceeding"), including an action by or in the right of the corporation or any
other corporation of any type or kind, domestic or foreign, or any partnership,
joint venture, trust, employee benefit plan or other enterprise, which any
director or officer of the corporation served in any capacity at the request of
the corporation, by reason of the fact that such person, his or her testator or
intestate, was a director or officer of the corporation, or served such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid in settlement
and reasonable expenses, including attorney's fees actually and necessarily
incurred as a result of such proceeding, or any appeal therein, if such director
or officer acted, in good faith, for a purpose which such person reasonably
believed to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal
proceedings, in addition, had no reasonable cause to believe that his or her
conduct was unlawful.
2. The termination of any such civil or criminal proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not in itself create a presumption that any such director of officer did
not act, in good faith, for a purpose which such person reasonably believed to
be in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interests of the corporation or that such person had reasonable cause
to believe that his or her conduct was unlawful.
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3. For the purpose of this Article, the corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his or her duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
4. The right to indemnification conferred in this Article shall be a contract
right and shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Nevada Private Corporations Law requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer in advance of the final disposition of a
proceeding shall be made only upon receipt by the corporation of an undertaking,
by or on behalf of such director or officer, to repay all amounts so advanced if
it shall ultimately be determined that such director or officer is not entitled
to be indemnified under this Article or otherwise.
5. Any determination as to whether a person has met an applicable standard of
conduct shall be made in accordance with the provisions of the Nevada Private
Corporations Law.
6. If a claim for indemnification under this Article is not paid in full by the
corporation within thirty days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct prescribed hereunder, but the burden of proving
such defense shall be on the corporation. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth herein or
in the Nevada Private Corporations Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or its
shareholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
7. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Articles of Incorporation,
By-Laws, agreement, vote of shareholders or disinterested directors or
otherwise. The corporation is authorized to provide for such additional
indemnification by (a) a
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resolution of shareholders, (b) a resolution of directors, or (c) an agreement
providing for such indemnification.
8. Notwithstanding any provision hereof, no indemnification shall be made to or
on behalf of any person if a judgment or other final adjudication adverse to
such person establishes that his or her acts were committed in bad faith or were
the result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that such person personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.
9. If any provision of this Article is determined to be unenforceable in whole
or in part, such provision shall nonetheless be enforced to the fullest extent
permissible, it being the intent of this Article to provide indemnification to
all persons eligible hereunder to the fullest extent permitted under law.
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EXHIBIT 4.1
________________________________________________________________________________
AVCO ABS RECEIVABLES CORP.,
as Seller,
and
AVCO FINANCIAL SERVICES MANAGEMENT COMPANY,
as Master Servicer,
and
AVCO FINANCIAL SERVICES, INC.
as Representative,
and
____________________________________________
as Trustee
and
THE ORIGINATORS LISTED HEREIN
____________________________________________
FORM OF POOLING AND SERVICING AGREEMENT
Dated as of ________________
____________________________
Home Equity Loan Asset-Backed Certificates
Series 199_-_
________________________________________________________________________________
<PAGE> 2
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ARTICLE I
DEFINITIONS
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Interest Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE II
CONVEYANCE OF HOME EQUITY LOANS; ORIGINAL
ISSUANCE OF CERTIFICATES; TAX TREATMENT
Section 2.01. Conveyance of Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.02. Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.03. Representations and Warranties Regarding the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.04. Representations and Warranties Regarding the Representative and the Originators . . . . . . . . . . . . . 33
Section 2.05. Representations and Warranties of the Originators Regarding the Home Equity Loans . . . . . . . . . . . . 38
Section 2.06. Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 2.07. Substitution of Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 2.08. Execution and Authentication of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 2.09. Designation of Interests in REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 2.10. Designation of Startup Day of REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 2.11. REMIC Certificate Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 2.12. Tax Returns and Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 2.13. Tax Matters Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 2.14. REMIC Related Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE III
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
Section 3.01. The Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 3.02. Collection of Certain Home Equity Loan Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 3.03. Withdrawals from the Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.04. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 3.05. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 3.06. Management and Realization Upon Defaulted Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . 59
Section 3.07. Trustee to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 3.08. Servicing Compensation; Payment of Certain Expenses by Master Servicer . . . . . . . . . . . . . . . . . . 62
Section 3.09. Annual Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 3.10. Annual Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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Section 3.11. Access to Certain Documentation and Information Regarding the Home Equity Loans . . . . . . . . . . . . . 63
Section 3.12. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 3.13. Reports to the Securities and Exchange Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 3.14. Reports of Foreclosures and Abandonments of Mortgaged Properties, Returns Relating to
Mortgage Interest Received from Individuals and Returns Relating to Cancellation of Indebtedness . . . . . 63
Section 3.15. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 3.16. Optional Purchase of Defaulted Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 3.17. Superior Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 3.18. Assumption Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 3.19. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE IV
CERTIFICATE INSURANCE POLICY
Section 4.01. Certificate Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 4.02. Claims Upon the Certificate Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE V
PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS;
RIGHTS OF CERTIFICATEHOLDERS
Section 5.01. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 5.02. Compensating Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 5.03. Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 5.04. Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 5.05. Investment of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 6.02. Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 6.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 6.05. Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE VII
THE SELLER, THE MASTER SERVICER AND THE
REPRESENTATIVE
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 7.01. Liability of the Seller, the Master Servicer and the Representative . . . . . . . . . . . . . . . . . . . 81
Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Seller, the
Master Servicer or the Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 7.03. Limitation on Liability of the Master Servicer and Others . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 7.04. Master Servicer Not to Resign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 7.05. Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 7.06. Indemnification of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 7.07. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
ARTICLE VIII
DEFAULT
Section 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 8.02. Trustee to Act; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 8.03. Waiver of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 8.04. Rights of the Certificate Insurer to Exercise Rights of Class A Certificateholders . . . . . . . . . . . . 87
Section 8.05. Trustee to Act Solely with Consent of the Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . 88
Section 8.06. Home Equity Loans, Trust and Accounts Held for Benefit of the Certificate Insurer . . . . . . . . . . . . 89
Section 8.07. Certificate Insurer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 8.08. Notification to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE IX
THE TRUSTEE
Section 9.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 9.02. Certain Matters Affecting the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 9.03. Trustee Not Liable for Certificates or Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 9.04. Trustee May Own Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 9.05. Master Servicer to Pay Trustee Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 9.06. Eligibility Requirements for Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 9.07. Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 9.08. Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 9.09. Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 9.10. Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 9.11. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 9.12. Trustee May Enforce Claims Without Possession of Certificates; Inspection . . . . . . . . . . . . . . . . 101
Section 9.13. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
ARTICLE X
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
TERMINATION
Section 10.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 10.02. Additional Termination Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 11.02. Recordation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 11.03. Limitation on Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 11.04. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 11.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 11.06. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 11.07. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 11.08. Certificates Nonassessable and Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 11.09. Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 11.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 11.11. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 11.12. Insurance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 11.13. Claims Upon the Certificate Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 11.14. Effect of Payments by the Certificate Insurer; Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 11.15. Notices to the Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
EXHIBITS
</TABLE>
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<PAGE> 6
This Pooling and Servicing Agreement, dated as of ____________, 199_,
among Avco ABS Receivables Corp., as Seller (the "Seller"), Avco Financial
Services Management Company, as Master Servicer (the "Master Servicer"), Avco
Financial Services, Inc., as Representative (the "Representative"), the
entities listed on Exhibit D hereto (collectively, the "Originators") and
_________________________________________, as Trustee (the "Trustee").
W I T N E S S E T H T H A T:
In consideration of the mutual agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accounts: Collectively, the Collection Account and the Distribution
Account.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Aggregate Class A Principal Balance: As to any Distribution Date, the
sum of the Class Principal Balances of each Class of Class A Certificates
immediately prior to such Distribution Date.
Aggregate Principal Balance: As of any date of determination, the sum
of all the Principal Balances of the Home Equity Loans.
Agreement: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
Amortized Overcollateralized Amount Requirement: With respect to any
Distribution Date, the product of (x) _____% and (y) the Aggregate Principal
Balance of the Home Equity Loans at the end of the related Due Period.
<PAGE> 7
Appraised Value: The appraised value of the Mortgaged Property based
upon the appraisal made by or for the originator at the time of the origination
of the related Home Equity Loan or sales price of such property at such time.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Trustee.
Authorized Newspaper: A newspaper of general circulation in the
Borough of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
Available Funds: As to any Distribution Date, the sum of all amounts
described in clauses (i) through (vii) inclusive, of Section 3.02(b) received
by the Master Servicer (including any amounts paid by the Master Servicer and
the Seller and excluding (a) any amounts not required to be deposited in the
Collection Account pursuant to Section 3.02(b), (b) any amounts paid to the
Master Servicer pursuant to Sections 3.03(ii), (iii), (iv), (v), (vi), (vii)
and (viii) in respect of the Home Equity Loans as of the related Determination
Date and (c) any amounts paid by the Seller pursuant to clause (iv) of the
definition of Purchase Price or clause (d) of the definition of Substitution
Adjustment in respect of the Home Equity Loans to the extent such payment is in
respect of amounts incurred by or imposed on the Seller or the Trustee) during
the related Due Period and deposited into the Collection Account as of the
Determination Date. No amount included in this definition by virtue of being
described by any component of the definition thereof shall be included twice by
virtue of also being described by any other component or otherwise.
Balloon Loan: Any Home Equity Loan that provided on the date of
origination for scheduled monthly payment in level amounts substantially lower
than the amount of the final scheduled payment.
BIF: The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or, if at any time after the execution of this Agreement the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Blanket Mortgage: The mortgage or mortgages encumbering a Cooperative
Property.
Book-Entry Certificate: Any Class A Certificate registered in the name
of the Depository or its nominee, ownership of which is reflected on the books
of the Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the rules
of such Depository).
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<PAGE> 8
Business Day: Any day other than a Saturday, a Sunday or a day on
which the Certificate Insurer or banking institutions in New York City or the
city in which the corporate trust office of the Trustee under this Agreement is
located are authorized or obligated by law or executive order to close.
Certificate: Any one of the Class A Certificates or the Class R
Certificates.
Certificate Principal Balance: As to any date of determination, the
aggregate of the Class Principal Balances of the Classes of Certificates.
Certificate Insurance Policy: The Financial Guaranty Insurance Policy
(No._____) with respect to the Class A Certificates, and all endorsements
thereto dated, the Closing Date, issued by the Certificate Insurer for the
benefit of the Holders of the Class A Certificates.
Certificate Insurer: _______________________, a ______________ company
organized and created under the laws of _____________, or any successor
thereto.
Certificate Insurer Default: The existence and continuance of any of
the following:
(a) the Certificate Insurer fails to make a payment
required under the Certificate Insurance Policy in accordance with its
terms; or
(b) the entry by a court having jurisdiction in the
premises of (i) a decree or order for relief in respect of the
Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency,
rehabilitation, reorganization or other similar law or (ii) a decree
or order adjudging the Certificate Insurer a bankrupt or insolvent or
approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in
respect of the Certificate Insurer under any applicable United States
federal or state law, or appointing a custodian, receiver, liquidator,
rehabilitator, assignee, trustee, sequestrator or other similar
official of the Certificate Insurer or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs,
and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60
consecutive days; or
(c) the commencement by the Certificate Insurer of a
voluntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by the Certificate Insurer to
the entry of a decree or order for relief in respect of the
Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Certificate
Insurer, or the filing by the Certificate Insurer of a
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<PAGE> 9
petition or answer or consent seeking reorganization or relief under
any applicable United States federal or state law, or the consent by
the Certificate Insurer to the filing of such petition or to the
appointment of or the taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the
Certificate Insurer or of any substantial part of its property, or the
making by the Certificate Insurer of an assignment for the benefit of
its creditors, or the failure by the Certificate Insurer to pay debts
generally as they become due, or the admission by the Certificate
Insurer in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Certificate
Insurer in furtherance of any such action.
Certificate Owner: The Person who is the beneficial owner of a
Book-Entry Certificate.
Certificate Rate: As to any Class of Certificates, the respective per
annum rate set forth or described below:
<TABLE>
<CAPTION>
Class Certificate Rate
----- ----------------
<S> <C>
A-1 %
A-2 %
A-3 %
A-4 %
R (1)
</TABLE>
___________________
(1) The Class R Certificates have no Certificate Rate.
Certificate Register and Certificate Registrar: The register
maintained and the registrar appointed pursuant to Section 6.02.
Certificateholder or Holder: The Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent, direction, waiver or request pursuant to this Agreement,
(x) any Certificate registered in the name of the Seller or any Person known to
a Responsible Officer to be an Affiliate of the Seller and (y) any Certificate
for which the Seller or any Person known to a Responsible Officer to be an
Affiliate of the Seller is the Certificate Owner or Holder shall be deemed not
to be outstanding (unless to the knowledge of a Responsible Officer (i) the
Seller or such Affiliate is acting as trustee or nominee for a Person who is
not an Affiliate of such Seller and who makes the voting decision with respect
to such Certificates or (ii) the Seller or such Affiliate is the Certificate
Owner or Holder of all the Certificates of a Class, but only with respect to
the Class as to which the Seller or such Affiliate owns all the Certificates)
and the Percentage Interest evidenced thereby shall not be taken into
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<PAGE> 10
account in determining whether the requisite amount of Percentage Interests
necessary to effect any such consent, direction, waiver or request has been
obtained.
Civil Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940,
as amended.
Civil Relief Act Interest Shortfall: With respect to any Distribution
Date, for any Home Equity Loan as to which there has been a reduction in the
amount of interest collectible thereon for the most recently ended Due Period
as a result of the application of the Civil Relief Act, the amount by which (i)
interest collectible on such Home Equity Loan during such Due Period is less
than (ii) one month's interest on the Principal Balance of such Home Equity
Loan at the Loan Rate for such Home Equity Loan before giving effect to the
application of the Civil Relief Act.
Class: All Certificates having the same designation.
Class A Certificate: Any certificate executed and authenticated by the
Trustee substantially in the form set forth in Exhibit A and designated as a
Class A-1, Class A-2, Class A-3 or Class A-4 Certificate pursuant to Section
6.01.
Class A Certificateholder: A Holder of a Class A Certificate.
Class A Monthly Principal Distributable Amount: With respect to any
Distribution Date, the amount equal to the sum of the following amounts
(without duplication) with respect to the immediately preceding Due Period: (i)
that portion of all Monthly Payments allocable to principal on Home Equity
Loans, including all full and partial principal prepayments received during the
related Due Period, (ii) the Principal Balance of all Home Equity Loans that
became Liquidated Home Equity Loans for the first time during the related Due
Period, (iii) the portion of the Purchase Price allocable to principal of all
Defective Home Equity Loans that were repurchased during the related Due
Period, and any Substitution Adjustments for Home Equity Loans, deposited to
the Distribution Account pursuant to Section 2.06 on or prior to the related
Determination Date and not previously distributed, and (iv) Distributable
Excess Spread.
Class A Principal Shortfall Amount: With respect to any Distribution
Date, the amount, if any by which the Aggregate Class A Principal Balance,
after giving effect to all distributions of the Class A Monthly Principal
Distributable Amount (exclusive of Distributable Excess Spread) and any draws
under the Certificate Insurance Policy for such Distribution Date, exceeds the
Aggregate Principal Balance as of the end of the related Due Period.
Class A Principal Distribution: With respect to any Distribution Date
(other than the Final Scheduled Distribution Date), the excess of (A) the sum
of the Class A Monthly Principal Distributable Amount for such Distribution
Date and Class A Principal Shortfall Amount over (B) the O/C Reduction Amount
for such Distribution Date; provided, however, that the Class A Principal
Distribution shall not exceed the Aggregate Class A Principal Balance. The
"Class A
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<PAGE> 11
Principal Distribution" on the Final Scheduled Distribution Date will equal the
Aggregate Class A Principal Balance as of such Distribution Date.
Class A-1 Certificate: Any Certificate executed and authenticated by
the Trustee substantially in the form attached hereto as Exhibit A and
designated as a Class A-1 Certificate pursuant to Section 6.01.
Class A-2 Certificate: Any Certificate executed and authenticated by
the Trustee substantially in the form attached hereto as Exhibit A and
designated as a Class A-2 Certificate pursuant to Section 6.01.
Class A-3 Certificate: Any Certificate executed and authenticated by
the Trustee substantially in the form attached hereto as Exhibit A and
designated as a Class A-3 Certificate pursuant to Section 6.01.
Class A-4 Certificate: Any Certificate executed and authenticated by
the Trustee substantially in the form attached hereto as Exhibit A and
designated as a Class A-4 Certificate pursuant to Section 6.01.
"Class A-4 Lockout Distribution Amount": With respect to any
Distribution Date means the product of (i) the applicable Class A-4 Lockout
Percentage for such Distribution Date and (ii) the Class A-4 Lockout Pro Rata
Distribution Amount for such Distribution Date.
"Class A-4 Lockout Percentage": With respect to each Distribution Date
occurring during the indicated periods means the indicated percentage:
<TABLE>
<CAPTION>
Class A-4
Period Lockout Percentage
------ ------------------
<S> <C>
___________ 199_ - ______ 200_ __%
___________ 200_- ______ 200_ __%
___________ 200_ - ______ 200_ __%
___________ 200_ - ______ 200_ __%
___________ 200_ and thereafter __%
</TABLE>
"Class A-4 Lockout Pro Rata Distribution Amount": With respect to any
Distribution Date means an amount equal to the product of (x) a fraction, the
numerator of which is the Class Principal Balance of the Class A-4 Certificates
immediately prior to such Distribution Date and the denominator of which is the
Aggregate Class Principal Balance immediately prior to such Distribution Date,
and (y) the Class A Monthly Principal Distribution Amount for such Distribution
Date.
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<PAGE> 12
Class Interest Carryover Shortfall: With respect to any Class of Class
A Certificates and any Distribution Date, the amount by which the Class
Interest Distribution for such Class for each prior Distribution Date exceeded
the amount of interest actually distributed on such prior Distribution Dates.
Class Interest Distribution: With respect to any Distribution Date and
each Class of Class A Certificates, the sum of (i) the applicable Class Monthly
Interest Distributable Amount for such Class on such Distribution Date and (ii)
the applicable Outstanding Class Interest Carryover Shortfall for such Class on
such Distribution Date.
Class Monthly Interest Distributable Amount: As to any Distribution
Date and Class of Class A Certificates, interest accrued during the related
Interest Period at the applicable Certificate Rate on the related Class
Principal Balance, reduced by an amount equal to such Class' pro rata share
(based on the amount of interest to which such Class would have otherwise been
entitled) of the related Civil Relief Act Interest Shortfall, if any, for such
Distribution Date.
Class Principal Balance: As of any date of determination and Class of
Class A Certificates, the Original Class Certificate Principal Balance for such
Class reduced by the sum of all amounts previously distributed to the
Certificateholders of such Class in respect of principal on all previous
Distribution Dates.
Class R Certificate: Any Certificate designated as such and executed
and authenticated by the Trustee substantially in the form set forth in Exhibit
B hereto.
Class R Certificateholder: The Holder of a Residual Certificate.
Closing Date: ___________, 199_.
Code: The Internal Revenue Code of 1986, as the same may be amended
from time to time (or any successor statute thereto).
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Certificateholders pursuant to Section
3.02(b). The Collection Account shall be an Eligible Account.
Combined Loan-to-Value Ratio or CLTV: With respect to any Home Equity
Loan, the sum of the original principal balance of such Home Equity Loan and
the outstanding principal balance of the First Lien, if any, as of the date of
origination of the Home Equity Loan, divided by the Appraised Value.
[Compensating Interest: As to any Distribution Date, the amount
calculated pursuant to Section 5.02.]
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<PAGE> 13
Cooperative Corporation: The entity that holds title (fee or an
acceptable leasehold estate) to the real property and improvements constituting
the Cooperative Property and which governs the Cooperative Property, which
Cooperative Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.
Cooperative Loan: Any Home Equity Loan secured by Cooperative Shares
and a Proprietary Lease.
Cooperative Property: The real property and improvements owned by the
Cooperative Corporation, including the allocation of individual dwelling units
to the holders of the Cooperative Shares of the Cooperative Corporation.
Cooperative Shares: Shares issued by a Cooperative Corporation.
Cooperative Unit: A single family dwelling located in a Cooperative
Property.
Corporate Trust Office: The principal office of the Trustee at which
at any particular time its corporate business shall be administered, which
office on the Closing Date is located at _______________________, Attention:
_________________.
Cumulative Net Losses: The amount by which the aggregate Principal
Balance of, and accrued interest on, all Liquidated Home Equity Loans exceeds
the Net Liquidation Proceeds for such Home Equity Loans allocated to principal
and accrued interest.
Curtailment: With respect to a Home Equity 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 Home Equity Loan in full, nor is intended to cure a
delinquency.
Cut-Off Date: The close of business on ___________, 199_.
Cut-Off Date Pool Principal Balance: $______________.
Cut-Off Date Principal Balance: With respect to any Home Equity Loan,
the unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to an Eligible Substitute Home
Equity Loan pursuant to Section 2.02 or 2.04).
Defective Home Equity Loan: Any Home Equity Loan subject to repurchase
or substitution pursuant to Section 2.02 or 2.04.
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<PAGE> 14
Deficiency Amount: With respect to any Distribution Date, the excess,
if any, of (A) (i) the Class Monthly Interest Distributable Amount for each
Class of Class A Certificates (net of any Civil Relief Act Interest Shortfalls)
plus any Outstanding Class Interest Carryover Shortfall for each Class of Class
A Certificates and (ii) the Guaranteed Principal Distribution Amount over (B)
Available Funds without regard to any Insured Payments to be made as of such
Distribution Date).
Definitive Certificates: As defined in Section 6.02(c).
Delinquency Loss Factor: The sum of:
(a) the principal balance of all loans 30-59 days
contractually delinquent multiplied by ____%;
(b) the principal balance of all loans 60-89 days
contractually delinquent multiplied by _____%; and
(c) the principal balance of all loans 90 or more days
(including loans in foreclosure and REO) contractually delinquent
multiplied by ____%.
Delinquent: A Home Equity Loan is "Delinquent" if any Monthly Payment
due thereon is not made by the close of business on the day the related Monthly
Payment is scheduled to be due. A Home Equity Loan is "30 days Delinquent" if
such Monthly Payment has not been received by the close of business on the
corresponding day of the month immediately succeeding the month in which such
Monthly Payment was due, or, if there is not such corresponding day (e.g., as
when a 30-day month follows a 31-day month in which a payment was due on the
31st day of such month), then on the last day of such immediately succeeding
month. Similarly for "60 days Delinquent," "90 days Delinquent" and so on.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Class
A-1, Class A-2, Class A-3 and Class A-4, Certificates. The Depository shall at
all times be a "clearing corporation" as defined in Section 8-102(3) of the UCC
of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: With respect to any Distribution Date, the _____
Business Day prior to such Distribution Date.
Distributable Excess Spread: As to any Distribution Date, the excess,
if any, of the Specified O/C Amount for such Distribution Date over the O/C
Amount on such date.
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Distribution Account: The account established by the Trustee pursuant
to Section 5.04. The Distribution Account shall be an Eligible Account.
Distribution Date: The _______ day of each month, or, if such day is
not a Business Day, then the next Business Day, beginning in ______ 199_.
Due Date: As to any Home Equity Loan, the day of the month on which
the Monthly Payment is due from the Mortgagor.
Due Period: With respect to (a) the first Determination Date (i) for
collections of principal, the period from and including __________, 199_
through and including __________, 199_ and (ii) for collections of interest,
the period from and including __________, 199_ through and including
__________, 199_ and (b) with respect to each Determination Date thereafter,
for collections of both interest and principal, the period from and including
the ____ day of the month preceding the month of such Determination Date to and
including the ____ day of the month of such Determination Date.
Electronic Ledger: The electronic master record of Home Equity Loans
maintained by the Master Servicer.
Eligible Account: A segregated account that is (i) maintained with a
depository institution whose short-term debt obligations and long- term debt
obligations at the time of any deposit therein and throughout the time the
interest is maintained are rated at least "P-1" by Moody's, "A-1" by Standard &
Poor's and "F-1" by Fitch and "A2" by Moody's and "A" by Standard & Poor's and
Fitch, respectively, and that the deposits in such account or accounts are
fully insured by either the BIF or the SAIF and which is any of (a) a federal
savings and loan association duly organized, validly existing and in good
standing under the applicable banking laws of any state, (b) an institution
duly organized, validly existing and in good standing under the applicable
banking laws of any state, (c) a national banking association duly organized,
validly existing and in good standing under the federal banking laws or (d) a
principal subsidiary of a bank holding company, and in each case of (a)-(d),
approved in writing by the Certificate Insurer, (ii) a segregated trust account
maintained with the corporate trust department of a federal or state chartered
depository or trust company, having capital and surplus of not less than
$50,000,000, acting in its fiduciary capacity, or (iii) an account otherwise
acceptable to each Rating Agency and the Certificate Insurer as evidenced by a
letter from each Rating Agency and the Certificate Insurer to the Trustee,
without reduction or withdrawal of the then current ratings of the
Certificates.
Eligible Investments: One or more of the following (excluding any
callable investments purchased at a premium):
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<PAGE> 16
(i) direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof, provided that
such obligations are backed by the full faith and credit of the United
States;
(ii) repurchase agreements on obligations specified in
clause (i) maturing not more than three months from the date of
acquisition thereof, provided that the short-term unsecured debt
obligations of the party agreeing to repurchase such obligations are
at the time rated by each Rating Agency in its highest short-term
rating category (which, if Standard & Poor's and/or Moody's is a
rating Agency, is "A-1+" for Standard & Poor's and "P-1" for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days) of any U.S. depository
institution or trust company incorporated under the laws of the United
States or any state thereof and subject to supervision and examination
by federal and/or state banking authorities, provided that the
unsecured short-term debt obligations of such depository institution
or trust company at the date of acquisition thereof have been rated by
each Rating Agency in its highest unsecured short-term debt rating
category;
(iv) commercial paper (having original maturities of not
more than 90 days) of any corporation incorporated under the laws of
the United States or any state thereof which on the date of
acquisition has been rated by each Rating Agency in its highest
short-term rating categories;
(v) short term investment funds ("STIFS") sponsored by
any trust company or national banking association incorporated under
the laws of the United States or any state thereof which on the date
of acquisition has been rated by each Rating Agency in its highest
rating category of long term unsecured debt;
(vi) interests in any money market fund which at the date
of acquisition of the interests in such fund and throughout the time
as the interest is held in such fund has a rating of "Aaa" by Moody's
and either "AAAm" or "AAAm-G" by Standard & Poor's; and
(vii) other obligations or securities that are acceptable
to each Rating Agency and the Certificate Insurer as an Eligible
Investment hereunder and will not result in a reduction in the then
current rating of the Certificates without regard to the Certificate
Insurance Policy, as evidenced by a letter to such effect from such
Rating Agency and the Certificate Insurer and with respect to which
the Master Servicer has received confirmation that, for tax purposes,
the investment complies with the last clause of this definition;
provided that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest
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payments derived from obligations underlying such instrument and the interest
and principal payments with respect to such instrument provided a yield to
maturity at par greater than 120% of the yield to maturity at par of the
underlying obligations; and provided, further, that no instrument described
hereunder may be purchased at a price greater than par if such instrument may
be prepaid or called at a price less than its purchase price prior to its
stated maturity.
Eligible Substitute Home Equity Loan: A Home Equity Loan substituted
by the Representative or the applicable Originator for a Defective Home Equity
Loan which must, on the date of such substitution, (i) have an outstanding
Principal Balance (or in the case of a substitution of more than one Home
Equity Loan for a Defective Home Equity Loan, an aggregate Principal Balance),
not in excess of and not more than 5% less than the Principal Balance of the
Defective Home Equity Loan; (ii) have a Loan Rate not less than the Loan Rate
of the Defective Home Equity Loan and not more than 2% in excess of the Loan
Rate of such Defective Home Equity Loan; (iii) have a Mortgage of the same or
higher level of priority as the Mortgage relating to the Defective Home Equity
Loan at the time such Mortgage was transferred to the Trust; (v) have a
remaining term to maturity not more than two years earlier and not later than
the remaining term to maturity of the Defective Home Equity Loan; (v) comply
with each representation and warranty set forth in Section 2.05 (deemed to be
made as of the date of substitution); (vi) have an original Combined
Loan-to-Value Ratio not greater than that of the Defective Home Equity Loan;
and (vii) be of the same type of Mortgaged Property as the Defective Home
Equity Loan or a detached single family residence. More than one Eligible
Substitute Home Equity Loan may be substituted for a Defective Home Equity Loan
if such Eligible Substitute Home Equity Loans meet the foregoing attributes in
the aggregate and such substitution is approved in writing in advance by the
Certificate Insurer.
Event of Default: As defined in Section 8.01.
Excess O/C Amount: As to any Distribution Date, the amount by which
(i) the O/C Amount for such Distribution Date exceeds (ii) the Specified O/C
Amount for such Distribution Date.
Excess Spread: With respect to any Distribution Date, the excess, if
any, of (x) Available Funds for such Distribution Date over (y) (a) the amount
required to be distributed pursuant to Section 5.01(a)(i)(1)-(4), on such
Distribution Date.
FDIC: The Federal Deposit Insurance Corporation or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation.
Final Scheduled Distribution Date: The Distribution Date in
___________.
First Lien: With respect to any Home Equity Loan which is a second
priority lien, the Home Equity Loan relating to the corresponding Mortgaged
Property having a first priority lien.
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Fiscal Agent: As defined in the Certificate Insurance Policy.
Fitch: Fitch IBCA, Inc., or it successor in interest.
FNMA: The Federal National Mortgage Association.
Foreclosure Profits: With respect to a Liquidated Home Equity Loan,
the amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance (plus accrued and unpaid interest
thereon at the applicable Loan Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Home Equity Loan immediately prior to the final recovery of its
Liquidation Proceeds.
Guaranteed Principal Distribution Amount: With respect to any
Distribution Date, (a) the amount, if any, by which the Certificate Principal
Balance exceeds the Pool Principal Balance at the end of the previous month
(after giving effect to all distributions of principal on the related Class A
Certificates on such Distribution Date).
Home Equity Loan Schedule: With respect to any date, the schedule of
Home Equity Loans transferred to the Trust on the Closing Date and constituting
assets of the Trust. The Home Equity Loan Schedule is the schedule set forth
herein as Exhibit C, which schedule sets forth as to each Home Equity Loan: (i)
the Cut-Off Date Principal Balance, (ii) the account number, (iii) the original
principal amount, (iv) the CLTV as of the date of the origination of the
related Home Equity Loan, (v) the Due Date, (vi) the Loan Rate as of the
Cut-Off Date, (vii) the first date on which a Monthly Payment is or was due
under the Mortgage Note, (viii) the original stated maturity date of the
Mortgage Note and if the Home Equity Loan is a Balloon Loan, the amortization
terms, (ix) the remaining number of months to maturity as of the Cut-Off Date,
(x) the state in which the related Mortgaged Property is situated, (xi) the
type of property and (xii) the lien status. The Seller shall indicate to the
Trustee which Home Equity Loans are Cooperative Loans. The Home Equity Loan
Schedule will be amended from time to time to reflect the substitution of an
Eligible Substitute Home Equity Loan for a Defective Home Equity Loan from time
to time hereunder.
Home Equity Loans: The Home Equity Loans that are transferred and
assigned to the Trustee pursuant to Sections 2.01, 2.07 and 2.14, together with
the Related Documents, exclusive of Home Equity Loans that are transferred to
the Representative, an Originator or the Seller, as the case may be, from time
to time pursuant to Section 2.02, 2.05 or 3.16, as from time to time are held
as a part of the Trust, such Home Equity Loans originally so held being
identified in the Home Equity Loan Schedule delivered on the Closing Date.
Insurance Agreement: The Insurance Agreement dated as of ___________,
199_ among the Master Servicer, the Seller, the Trustee, the Representative,
the Originators listed therein and the Certificate Insurer, including any
amendments and supplements thereto.
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Insurance Proceeds: Proceeds paid by any insurer (other than the
Certificate Insurer) pursuant to any insurance policy covering a Home Equity
Loan or Mortgaged Property, [or amounts required to be paid by the Master
Servicer pursuant to Section 3.05], net of any component thereof (i) covering
any expenses incurred by or on behalf of the Master Servicer in connection with
obtaining such proceeds, (ii) applied to the restoration or repair of the
related Mortgaged Property, (iii) released to the Mortgagor in accordance with
the Master Servicer's normal servicing procedures or (iv) required to be paid
to any holder of a mortgage senior to such Home Equity Loan.
Insured Payment: With respect to any Distribution Date, (i) any
Deficiency Amount and (ii) any Preference Amount.
Interest Period: With respect to any Distribution Date, the period
from the first day of the calendar month preceding the month of such
Distribution Date through the last day of such calendar month.
Late Payment Rate: For any Distribution Date, the lesser of (i) the
rate of interest, [as it is publicly announced by Citibank, N.A. at its
principal office in New York, New York as its prime rate (any change in such
prime rate of interest to be effective on the date such change is announced by
Citibank, N.A.), plus 2%] and (ii) the maximum rate permissible under any
applicable law limiting interest rates. The Late Payment Rate shall be
computed on the basis of a 365-day year and the actual number of days elapsed.
Liquidated Home Equity Loan: As to any Distribution Date, any Home
Equity Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified herein, as of the end of the
related Due Period, that all Liquidation Proceeds which it expects to recover
with respect to the liquidation of the Home Equity Loan or disposition of the
related REO Property have been recovered.
Liquidation Loan Losses: For each Liquidated Home Equity Loan the
amount, if any, by which the Principal Balance thereof plus accrued and unpaid
interest thereon plus unreimbursed Servicing Advances is in excess of the
Liquidation Proceeds realized thereon.
Liquidation Proceeds: Proceeds (including Insurance Proceeds but not
including amounts drawn under the Certificate Insurance Policy) received in
connection with the liquidation of any Home Equity Loan or related REO
Property, whether through trustee's sale, foreclosure sale or otherwise.
Loan Losses: The aggregate of the Liquidation Loan Losses for all
Liquidated Home Equity Loans.
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Loan Rate: With respect to any Home Equity Loan as of any day, the per
annum rate of interest applicable under the related Mortgage Note to the
calculation of interest for such day on the Principal Balance.
Loss Factor: For the first 30 Distribution Dates, (i) if the
Cumulative Net Losses divided by the Maximum Collateral Amount is less than or
equal to _________, then the Loss Factor shall be equal to one and (ii) if the
Cumulative Net Losses divided by the Maximum Collateral Amount is greater than
_________ the Loss Factor shall be equal to ___________. Thereafter, (i) if
the Cumulative Net Losses divided by the Maximum Collateral Amount is less than
or equal to _________ and the Cumulative Net Losses were not in excess of the
product of _________ and the Maximum Collateral Amount at the close of the
period described in clause (a) of the definition of Specified O/C Amount, then
the Loss Factor shall be equal to one and (ii) if the Cumulative Net Losses
divided by the Maximum Collateral Amount is greater than _________ the Loss
Factor shall be equal to _______; provided, however, that if the Loss Factor
pursuant to the first sentence of this definition was ______ on the 30th
Distribution Date, the factor referred to above shall remain ________.
Maintenance: With respect to any Cooperative Unit, the rent paid by
the Mortgagor to the Cooperative Corporation pursuant to the Proprietary Lease.
Majority Certificateholder: The Holder or Holders of Class A
Certificates evidencing Voting Rights in excess of 51% in the aggregate.
Master Servicer: Avco Financial Services Management Company, or its
successors or assigns.
Maximum Collateral Amount: The Aggregate Principal Balance as of the
Cut-Off Date.
Monthly Advance: An advance made by the Master Servicer pursuant to
Section 3.15.
Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Mortgagor on the related Home Equity Loan.
Moody's: Moody's Investors Service, Inc. or its successor in
interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Home Equity Loan.
Mortgage File: The mortgage documents listed in Section 2.01
pertaining to a particular Home Equity Loan and any additional documents
required to be added to the Mortgage File pursuant to this Agreement.
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<PAGE> 21
Mortgage Note: With respect to a Home Equity Loan, the note pursuant
to which the related mortgagor agrees to pay the indebtedness evidenced thereby
which is secured by the related Mortgage.
Mortgaged Property: The underlying property, including real property
and improvements thereon, securing a Home Equity Loan, which, with respect to a
Cooperative Loan, is the related Cooperative Shares and Proprietary Lease.
Mortgagor: The obligor or obligors under a Mortgage Note.
Net Liquidation Proceeds: With respect to any Liquidated Home Equity
Loan, Liquidation Proceeds net of unreimbursed Servicing Fees, Servicing
Advances and Monthly Advances with respect thereto.
Net Loan Rate: With respect to any Home Equity Loan as to any day, the
Loan Rate less the Servicing Fee Rate.
Nonrecoverable Advances: With respect to any Home Equity Loan, (i) any
Servicing Advance or Monthly Advance previously made and not reimbursed
pursuant to Section 3.03(ii) or (ii) a Servicing Advance or Monthly Advance
proposed to be made in respect of a Home Equity Loan or REO Property which, in
the good faith business judgment of the Master Servicer, as evidenced by an
Officer's Certificate delivered to the Certificate Insurer, the Seller and the
Trustee no later than the Business Day following such determination, would not
be ultimately recoverable pursuant to Sections 3.03(ii) or (vi) or
5.01(a)(ii)(2) or (3).
O/C Amount: As to any Distribution Date, the excess, if any, of (a)
the Pool Principal Balance as of the close of business on the last day of the
related Due Period over (b) the Aggregate Class A Principal Balance (after
giving effect to amounts otherwise available in respect of the Class A Monthly
Principal Distributable Amount for such Distribution Date).
O/C Reduction Amount: As to any Distribution Date, an amount equal to
the lesser of (i) the Excess O/C Amount for such Distribution Date and (ii)
Available Funds remaining after making the distributions required to be made
pursuant to Section 5.01(a)(i)(1) and (2).
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a First Vice President, a
Vice President, Assistant Vice President, the Treasurer, Assistant Treasurer,
Assistant Secretary, Controller or Assistant Controller of the Master Servicer
and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel reasonably acceptable
to the Trustee, who may be in-house counsel for the Master Servicer or the
Seller (except that any opinion relating to the qualification of the Trust as a
REMIC or compliance with the REMIC Provisions must be an
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<PAGE> 22
opinion of independent outside counsel) and who, in the case of opinions
delivered to each of the Certificate Insurer and the Rating Agency, is
reasonably acceptable to it.
Optional Termination Date: The Distribution Date following the Due
Period at the end of which the Pool Principal Balance is less than 10% of the
Aggregate Principal Balance as of the Cut-off Date.
Original Class Certificate Principal Balance: As to any Class, the
respective amount set forth below opposite such Class:
<TABLE>
<CAPTION>
Original Class Certificate
Class Principal Balance
-------- -----------------
<S> <C>
A-1 $
A-2 $
A-3 $
A-4 $
R (1)
- ----------
</TABLE>
(1) This Class has no Class Certificate Principal Balance.
Originator: Any of the entities listed on Exhibit D hereto, each of
which is a direct or indirect wholly-owned subsidiary of the Representative.
Outstanding Class Interest Carryover Shortfall: As to any Class of
Class A Certificates and any Distribution Date, the amount of Class Interest
Carryover Shortfall for such Distribution Date plus one month's interest
thereon, at the related Certificate Rate, to the extent permitted by law.
Ownership Interest: As to any Certificate 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.
Paying Agent: Any paying agent appointed pursuant to Section 6.05.
Percentage Interest: With respect to any Class A Certificate, the
percentage obtained by dividing the principal denomination of such Certificate
by the aggregate of the principal denominations of all Class A Certificates of
the same Class. With respect to the Class R Certificates, the portion of the
Class evidenced thereby as stated on the face thereof, which shall be either
99.999999% or, but only with respect to the Tax Matters Person Residual
Interest held by the Tax Matters Person, 0.000001%.
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Permitted Transferee: Any Person other than (i) the United States or
any State or any political subdivision thereof or any agency or instrumentality
of any of the foregoing, (ii) a foreign government, international organization
or any agency or instrumentality of either of the foregoing, (iii) an
organization which is exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by section 511 of the Code on unrelated business
taxable income) (except certain farmers' cooperatives describe in Code section
521) on any excess inclusions (as defined in section 860E(c)(1) of the Code)
with respect to any Class R Certificate, (iv) rural electric and telephone
cooperatives described in Code section 1381(a)(2)(C), (v) a Person that is not
a citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust whose income from sources
without the United States is includible in gross income for United States
federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States unless such Person has furnished the
transferor and the Trustee with a duly completed Internal Revenue Service Form
4224, and (vi) any other Person so designated by the Trustee based on an
Opinion of Counsel to the effect that any transfer to such Person may cause the
Trust to fail to qualify as a REMIC at any time the Certificates are
outstanding. The terms "United States", "State" and "international
organization" shall have the meanings set forth in Code section 7701 or
successor provisions. A corporation will not be treated as an instrumentality
of the United States or of any State or political subdivision thereof if all of
its activities are subject to tax, and, with the exception of the FHLMC, a
majority of its board of directors is not selected by such governmental unit.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool Principal Balance: With respect to any date, the aggregate of the
Principal Balances of all Home Equity Loans as of such date.
Preference Amount: Any amount previously distributed to a Mortgagor on
a Home Equity Loan 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.
Preference Claim: As defined in Section 4.03.
Premium Amount: As to any Distribution Date occurring on or after
______ 199_, the product of the Premium Percentage and the Aggregate Class A
Principal Balance after giving effect to distributions to be made on such
Distribution Date.
Premium Percentage: As defined in the Insurance Agreement.
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[Prepayment Assumption: A conditional rate of prepayment equal to
______% per annum in the first month of the life of the Home Equity Loans and
an additional ______% (precisely in each month thereafter until the tenth
month; beginning in the tenth month and in each month thereafter during the
life of the Home Equity Loans, a conditional prepayment rate of ______% per
annum each month is assumed.]
Prepayment Interest Shortfall: With respect to any Distribution Date,
for each Home Equity Loan that was the subject during the related Due Period of
a Principal Prepayment in full an amount equal to the excess, if any, of (i) 30
days' interest on the Principal Balance of such Home Equity Loan at the Net
Loan Rate (or at such lower rate as may be in effect for such Home Equity Loan
pursuant to application of the Civil Relief Act) over (ii) the amount of
interest actually remitted by the Mortgagor in connection with such Principal
Prepayment less the Servicing Fee for such Home Equity Loan in such month.
Principal Balance: As to any Home Equity Loan and any day, other than
a Liquidated Home Equity Loan, the related Cut-Off Date Principal Balance,
minus all collections credited against the Principal Balance of any such Home
Equity Loan. For purposes of this definition, a Liquidated Home Equity Loan
shall be deemed to have a Principal Balance equal to the Principal Balance of
the related Home Equity Loan immediately prior to the final recovery of related
Liquidation Proceeds and a Principal Balance of zero thereafter.
Principal Prepayment: Any payment or other recovery of principal on a
Home Equity Loan equal to the outstanding principal balance thereof, received
in advance of the final scheduled Due Date which is intended to satisfy a Home
Equity Loan in full.
Projected Monthly Excess Cashflow: As of any date of calculations,
[five] times the Excess Spread existing on the Distribution Date immediately
preceding such date of calculation.
Proprietary Lease: With respect to any Cooperative Unit, a lease or
occupancy agreement between a Cooperative Corporation and a holder of related
Cooperative Shares.
Prospectus: The base prospectus of the Seller dated ________, 199_.
Prospectus Supplement: The prospectus supplement dated ____________,
199_, relating to the offering of the Class A Certificates.
Purchase Price: As to any Home Equity Loan repurchased on any date
pursuant to Section 2.02 or 2.05, an amount equal to the sum of (i) the unpaid
Principal Balance thereof, (ii) the greater of (a) all unpaid accrued interest
thereon to the end of the Due Period preceding the Distribution Date on which
such Purchase Price is included in Available Funds and (b) 30 days' interest
thereon, computed at the applicable Loan Rate, (iii) (x) any unreimbursed
Servicing Advances with respect to such Home Equity Loan and (y) expenses
reasonably incurred or to be incurred by the Master
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<PAGE> 25
Servicer, the Trust or the Trustee in respect of the breach or defect giving
rise to the purchase obligation and (iv) the amount of any penalties, fines,
forfeitures, legal fees and related costs, judgments and any other costs, fees
and expenses incurred by or imposed on the Seller, the Trustee or the Trust or
with respect to which any of them are liable arising from a breach by the
Representative or the applicable Originator of its representations and
warranties in Section 2.05.
Rating Agency: Any statistical credit rating agency, or its successor,
that rated the Class A Certificates at the request of the Seller at the time of
the initial issuance of the Certificates. If such agency or a successor is no
longer in existence, "Rating Agency" shall be such statistical credit rating
agency, or other comparable Person, designated by the Seller, notice of which
designation shall be given to the Trustee. References herein to the highest
short term unsecured rating category of a Rating Agency shall mean "A-1+" or
better in the case of Standard & Poor's and "P-1" or better in the case of
Moody's and in the case of any other Rating Agency shall mean such equivalent
ratings. References herein to the highest long-term rating category of a
Rating Agency shall mean "AAA" in the case of Standard & Poor's and "Aaa" in
the case of Moody's and in the case of any other Rating Agency, such equivalent
rating.
Rating Agency Condition: With respect to any action, that (i) each
Rating Agency (other than Standard & Poor's) shall have been given 10 days'
prior notice thereof (or such shorter period as shall be acceptable to the
Rating Agencies) and that none of the Rating Agencies shall have notified the
Seller, the Master Servicer or the Trustee in writing that such action will, in
and of itself, result in a reduction or withdrawal of the then current rating
of any class of the Certificates and (ii) Standard & Poor's, if it is still a
Rating Agency, shall have notified the Seller, the Master Servicer or the
Trustee in writing that such action will not, in and of itself, result in a
reduction or the withdrawal of the then current rating of any class of the
Certificates.
Recognition Agreement: With respect to any Cooperative Loan, an
agreement between the Cooperative Corporation and the originator of such Home
Equity Loan, which establishes the rights of such originator in the Cooperative
Property.
Record Date: The last Business Day of the month immediately preceding
the month in which the related Distribution Date occurs.
Regular Certificates: The Class A-1, Class A-2, Class A-3, and Class
A-4, Certificates.
Reimbursement Amount: As of any Distribution Date, the sum of (x) (i)
Insured Payments previously received by the Trustee and not previously re-paid
to the Certificate Insurer pursuant to Sections 5.01(a)(i)(4) and
5.01(a)(ii)(3) plus (ii) interest accrued on such Insured Payment not
previously repaid calculated at the Late Payment Rate from the date the Trustee
received such Insured Payment and (y) (i) the amount of any Premium Amount not
paid on the date due plus (ii) interest on such amount at the Late Payment Rate
and (z) (i) any other amounts then owing to the Certificate Insurer under the
Insurance Agreement plus (ii) interest on such amounts at the Late
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Payment Rate. The Certificate Insurer shall notify the Trustee and the Seller
of the amount of any Reimbursement Amount.
Related Documents: As defined in Section 2.01.
Released Mortgaged Property Proceeds: As to any Home Equity 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 and
mortgage servicing standards the Master Servicer would use in servicing Home
Equity Loans for its own account and this Agreement.
REMIC: A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.
REMIC Certificate Maturity Date: The "latest possible maturity date"
as that term is defined in Section 2.11.
REMIC Change of Law: Any proposed, temporary or final regulation,
revenue ruling, revenue procedure or other official announcement or
interpretation relating to REMICs and the REMIC Provisions issued after the
Closing Date.
REMIC Provisions: Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at Sections 860A through
860G of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations promulgated thereunder, as the foregoing may be in effect from time
to time.
REO Property: A Mortgaged Property that is acquired by the Master
Servicer on behalf of the Trustee in foreclosure or by deed in lieu of
foreclosure.
Representative: Avco Financial Services, Inc., or any successor
thereto or successor hereunder.
Residential Dwelling: A one- to four-family dwelling, a unit in a
planned unit development, a unit in a condominium development or a townhouse.
Residual Certificates: The Class R Certificates.
Responsible Officer: When used with respect to the Trustee, any
officer assigned to the corporate trust group (or any successor thereto),
including any vice president, assistant vice president, trust officer, any
assistant secretary, any trust officer or any other officer of the Trustee
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customarily performing functions similar to those performed by any of the above
designated officers and having direct responsibility for the administration of
this Agreement. When used with respect to the Seller, the Master Servicer or
the Representative, the President or any Vice President, Assistant Vice
President or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or, if at any time after the execution of this
Agreement the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Security Agreement: With respect to any Cooperative Loan, the
agreement between the owner of the related Cooperative Shares and the
originator of the related Mortgage Note, which defines the terms of the
security interest in such Cooperative Shares and the related Proprietary Lease.
Seller: Avco ABS Receivables Corp. a Nevada corporation, or any
successor thereto.
Servicing Advances: All reasonable and customary "out of pocket" costs
and expenses incurred in the performance by the Master Servicer of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, including reasonable fees paid
to any independent contractor in connection therewith, (iv) compliance with the
obligations under Section 3.04, 3.06 or 3.19 and (v) in connection with the
liquidation of a Home Equity Loan, expenditures relating to the purchase or
maintenance of the First Lien pursuant to Section 3.17, all of which reasonable
and customary out-of-pocket costs and expenses are reimbursable to the Master
Servicer to the extent provided in Sections 3.03(ii) and (vi), 3.06 and
5.01(a)(ii)(2).
Servicing Certificate: A certificate completed and executed by a
Servicing Officer on behalf of the Master Servicer.
Servicing Compensation: The Servicing Fee and other amounts to which
the Master Servicer is entitled pursuant to Section 3.08.
Servicing Fee: As to each Distribution Date and each Home Equity Loan,
the annual fee payable to the Master Servicer, which subject to Section 3.02 is
calculated as an amount equal to the product of the Servicing Fee Rate and the
Principal Balance thereof at the beginning of the related Due Period. The
Master Servicer will pay any fees due the Sub-Servicers from the Servicing Fee.
Servicing Fee Rate: ___% per annum.
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Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Home Equity Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Trustee (with a copy to the Certificate Insurer) by the Master
Servicer, as such list may be amended from time to time.
Specified O/C Amount: (a) For any Distribution Date occurring during
the period commencing on the Closing Date and ending on the later of the date
upon which principal in the amount of one-half the Maximum Collateral Amount
has been received by the Class A Certificateholders and the 30th Distribution
Date following the Closing Day, the greater of (i) an amount equal to ______%
of the related Maximum Collateral Amount and (ii) the product of the applicable
Loss Factor and the excess of (A) one-half of the aggregate Principal Balances
of the sum of (x) all Home Equity Loans which are 90 or more days Delinquent or
for which foreclosure proceedings have commenced and (y) of Home Equity Loans
with respect to which the related Mortgaged Property is REO Property and which
became REO Property prior to the related Home Equity Loan becoming 90 days'
Delinquent over (B) the related Projected Monthly Excess Cash Flow as of such
Distribution Date;
(b) for any Distribution Date occurring after the end of
the period in clause (a) above, the greatest of (i) an amount equal to
the lesser of (A) ______% of the Maximum Collateral Amount and (B) the
Amortized Overcollateralized Amount Requirement, (ii) the product of
the applicable Loss Factor and the excess of (A) one-half of the
aggregate Principal Balances of the sum of (x) all Home Equity Loans
which are 90 or more days Delinquent or for which foreclosure
proceedings have commenced and (y) of Home Equity Loans with respect
to which the related Mortgaged Property is REO Property and which
became REO Property prior to the Home Equity Loan becoming 90 days'
Delinquent over (B) the Projected Monthly Excess Cashflow as of such
date, (iii) an amount equal to ______% of the Maximum Collateral
Amount and (iv) the sum of the three largest Principal Balances; and
(c) notwithstanding anything to the contrary set forth in
clauses (a) and (b) above, on the earlier of (i) any Distribution Date
on which an Event of Default has occurred and is continuing and (ii)
any Distribution Date after which there has been a draw on the
Certificate Insurance Policy, the Specified O/C Amount shall be the
same as the Specified O/C Amount which existed on the last
Distribution Date on which an event specified in clause (i) or (ii) as
applicable had not occurred and was not continuing;
provided, however, that the Certificate Insurer may, in its sole discretion, at
the request of the Seller, modify clause (a) and/or clause (b) above for the
purpose of reducing or eliminating, in whole or in part, the application of
clause (a) and/or clause (b) above and the Trustee and the Rating Agencies
shall be notified in writing of such modification prior to the related
Distribution Date and such modification shall not result in a downgrading of
the then-current ratings of the Certificates.
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Standard & Poor's: Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. or its successor in interest.
Startup Day: The day designated as such pursuant to Section 2.10.
Stayed Funds: As defined in Section 8.02(b).
Sub-Servicer: Any Person with whom the Master Servicer has entered
into a Sub-Servicing Agreement and who satisfies the requirements set forth in
Section 3.01(b) in respect of the qualification of a Sub-Servicer.
Sub-Servicing Agreement: Any agreement between the Master Servicer and
any Sub-Servicer relating to sub-servicing and/or administration of certain
Home Equity Loans as provided in Section 3.01(b), a copy of which shall be
delivered, along with any modifications thereto, to the Trustee and the
Certificate Insurer.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Section 2.06, the sum of (a) the excess of (i) the aggregate
Principal Balances of all Defective Home Equity Loans to be replaced by
Eligible Substitute Home Equity Loans (after application of principal payments
received on or before the date of substitution of any Eligible Substitute Home
Equity Loans as of the date of substitution) over (ii) the Principal Balance of
such Eligible Substitute Home Equity Loans and (b) the greater of (x) accrued
and unpaid interest on such excess through the Due Period relating to the
Distribution Date for which such Substitution Adjustment will be included as
part of Available Funds and (y) 30 days' interest on such excess calculated on
a 360-day year in each case at the Loan Rate and (c) the amount of any
unreimbursed Servicing Advances made by the Master Servicer with respect to
such Defective Home Equity Loan and (d) the amount referred to in clause (iv)
of the definition of Purchase Price in respect of such Defective Home Equity
Loan.
Tax Matters Person: As defined in Section 2.13.
Tax Matters Person Residual Interest: A 0.000001% interest in the
Class R Certificates, which shall be issued to and held by the Trustee
throughout the term hereof unless another person shall accept an assignment of
such interest and the designation of Tax Matters Person pursuant to Section
2.13.
Total Expected Losses: The sum of the (i) Cumulative Net Losses from
the Closing Date through and including the date of determination and (ii) the
Delinquency Loss Factor.
Trust: The trust created by this Agreement, the corpus of which
consists of the Home Equity Loans, such assets as shall from time to time be
deposited in the Collection Account and the Distribution Account in accordance
with this Agreement, property that secured a Home Equity
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Loan and that has become REO Property, the Certificate Insurance Policy,
certain hazard insurance policies maintained by the Mortgagors [or the Master
Servicer] in respect of the Home Equity Loans, and all proceeds of each of the
foregoing.
Trustee: _______________________, or any successor Trustee appointed
in accordance with this Agreement that has accepted such appointment in
accordance with this Agreement.
Trustee Fee: The fee owed to the Trustee pursuant to a letter
agreement between the Master Servicer and the Trustee.
Trustee Fee Rate: The per annum rate at which the Trustee Fee is
calculated.
Voting Rights: The right to vote evidenced by a Certificate as
follows: The Class A Certificates, in the aggregate, shall evidence 99% of all
Voting Rights and the Class R Certificates shall evidence 1% of all Voting
Rights. The Voting Rights allocated to the Class A Certificates shall be
allocated among the Classes thereof in proportion to their respective Class
Principal Balances. Voting Rights allocated to a Class of Certificates shall
be allocated among the Certificates of such Class in proportion to their
respective Percentage Interests.
Section 1.02. Interest Calculations. All calculations of interest
that are made in respect of the Principal Balance of a simple interest Home
Equity Loan shall be made on the basis of a 365-day year and the actual number
of days elapsed. [All calculations of interest that are made in respect of the
Principal Balance of an actuarial Home Equity Loan shall be made on the basis
of a 360-day year consisting of twelve 30-day months.] The Certificate Rate for
the Class A Certificates shall be calculated on the basis of a 360-day year
consisting of twelve 30-day months. The calculation of the Servicing Fee and
the Trustee Fee shall be made on the basis of a 360-day year consisting of
twelve 30-day months. All dollar amounts calculated hereunder shall be rounded
to the nearest penny with one-half of one penny being rounded down.
ARTICLE II
Conveyance of Home Equity Loans; Original Issuance of
Certificates; Tax Treatment
Section 2.01. Conveyance of Home Equity Loans (a) The Originators,
concurrently with the execution and delivery of this Agreement, hereby
transfer, assign, set over and otherwise convey to the Seller and the Seller
does hereby transfer, assign, set over and otherwise convey to the Trustee for
the benefit of the Certificateholders, without recourse (subject to Sections
2.02 and 2.05) (i) all of Originators' right, title and interest in and to each
Home Equity Loan, including the Cut-Off Date Principal Balance and all
collections in respect of interest and principal received after the Cut-Off
Date (other than payments in respect of accrued interest due on or before
___________,
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199_); (ii) property which secured such Home Equity Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Originators'
interest in any insurance policies in respect of the Home Equity Loans and (iv)
all proceeds of any of the foregoing. In addition, on or prior to the Closing
Date, the Seller shall cause the Certificate Insurer to deliver the Certificate
Insurance Policy to the Trustee.
In connection with such transfer, assignment and conveyance by the
Originators to the Seller and by the Seller to the Trustee on behalf of the
Certificateholders, the Seller has delivered or caused to be delivered to, the
Trustee for the benefit of the Certificateholders, on or before the Closing
Date, the following documents or instruments with respect to each Home Equity
Loan (the "Related Documents") and the related Home Equity Loan Schedule in
computer readable format and:
(i) The original Mortgage Note, with all prior and
intervening endorsements showing a complete chain of endorsements from
the originator of the Home Equity Loan to the Person so endorsing the
Home Equity Loan to the Trustee, endorsed by such Person "Pay to the
order of ______________________ without recourse" and signed, by
facsimile or manual signature, in the name of the Person delivering
the Mortgage Note by a Responsible Officer;
(ii) Any of: (1) the original Mortgage and related power
of attorney, if any, with evidence of recording thereon, (2) a copy of
the Mortgage and related power of attorney, if any, certified as a
true copy of the original Mortgage or power of attorney by a
Responsible Officer by facsimile or manual signature or by the closing
attorney or by an officer of the title insurer or agent of the title
insurer that issued the related title insurance policy, in each case,
if the original has been transmitted for recording until such time as
the original is returned by the public recording office or (3) a copy
of the original recorded Mortgage and related power of attorney, if
any, certified by the public recording office;
(iii) The original Assignment of Mortgage in recordable
form, from the Person delivering such Assignment to [Name of Trustee];
(iv) The original lender's policy of title insurance or a
true copy thereof or, if such original lender's title insurance policy
has been lost, a copy thereof certified by the appropriate title
insurer to be true and complete or, if such lender's title insurance
policy has not been issued as of the Closing Date, a marked up
commitment (binder) to issue such policy;
(v) All intervening assignments, if any, showing a
complete chain of assignments from the originator to the Person
delivering such assignment, including any recorded warehousing
assignments, with evidence of recording thereon, or a copy thereof
certified by a Responsible Officer by facsimile or manual signature,
or by the closing
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attorney or by an officer of the title insurer or agent of the title
insurer that issued the related title insurance policy, as a true copy
of the original of such intervening assignments if the original has
been transmitted for recording until such time as the original is
returned by the public recording office or a copy of the original
recorded intervening assignments certified by the public recording
office;
(vi) Originals of all assumption, written assurance,
substitution and modification agreements, if any; and
(vii) in the case of a Cooperative Loan, the originals of
the following documents or instruments:
(a) The Cooperative Shares, together with a stock power
in blank;
(b) The executed Security Agreement;
(c) The executed Proprietary Lease;
(d) The executed Recognition Agreement;
(e) The executed assignment of Recognition Agreement;
(f) The executed UCC-1 financing statement with evidence
of recording thereon which have been filed in all
places required to perfect the applicable
Originator's interest in the Cooperative Shares and
the Proprietary Lease; and
(g) Executed UCC-3 financing statements or other
appropriate UCC financing statements required by
state law, evidencing a complete and unbroken line
from the mortgagee to the Trustee with evidence of
recording thereon (or in a form suitable for
recordation).
In instances where the original recorded Mortgage is not delivered as
provided above, and in instances where intervening assignments called for by
clause (v) above are unavailable, the Seller will deliver or cause to be
delivered the original recorded Mortgage and intervening assignments to the
Trustee promptly upon receipt thereof but in no event later than one year after
the Closing Date.
The Master Servicer hereby confirms to the Trustee that it has caused
the portions of the Electronic Ledger relating to the Home Equity Loans to be
clearly and unambiguously marked, and has made and caused each Originator to
make the appropriate entries in its general accounting records, to indicate
that such Home Equity Loans have been transferred to the Trustee and constitute
part of the Trust in accordance with the terms of the trust created hereunder.
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(h) The parties hereto intend that the transactions set
forth herein be a sale by the Originators to the Seller and by the Seller to
the Trust of all right, title and interest of the applicable Originator in and
to each Home Equity Loan and other property described above. In the event
either of the transactions set forth herein is deemed not to be a sale, this
Agreement shall constitute a security agreement under applicable law. The
Seller, the Master Servicer, the Representative, the Originators and the
Trustee shall, to the extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement were deemed to be a
security agreement, the related 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.
Except as may otherwise expressly be provided herein, neither the
Seller, the Master Servicer, the Representative, any Originator nor the Trustee
shall (and the Master Servicer shall ensure that no Sub-Servicer shall) assign,
sell, dispose of or transfer any interest in the Trust or any portion thereof,
or permit the Trust or any portion thereof to be subject to any lien, claim,
mortgage, security interest, pledge or other encumbrance of, any other Person.
In the event that the parties hereto have failed to transfer the
entire legal ownership in and to each Home Equity Loan to the Trust, the
parties hereto intend that this document operate to transfer the entire
equitable ownership interest in and to each Home Equity Loan to the Trust.
(i) Within 30 days of the Closing Date, the Master
Servicer, shall prepare and send, or cause to be prepared and sent, for
recording the Assignments of Mortgage in favor of the Trustee in the
appropriate real property or other records. With respect to any Assignment of
Mortgage as to which the related recording information is unavailable within 30
days following the Closing Date, such Assignment of Mortgage shall be submitted
for recording within 30 days after receipt of such information but in no event
later than one year after the Closing Date. The Trustee shall be required to
retain a copy of each Assignment of Mortgage submitted for recording. In the
event that any such Assignment of Mortgage is lost or returned unrecorded
because of a defect therein, the Master Servicer shall promptly prepare, or
cause to be prepared, a substitute Assignment of Mortgage or cure such defect,
or cause such defect to be cured, as the case may be, and thereafter the Master
Servicer shall be required to submit, or cause to be submitted, each such
Assignment of Mortgage for recording. Any failure of the Master Servicer to
comply with this Section 2.01(c) shall result in the obligation of the
Representative to purchase or substitute, or cause the applicable Originator to
purchase or substitute, for the related Home Equity Loans pursuant to the
provisions of Section 2.02.
(j) The Trustee shall have no responsibility for
reviewing any Mortgage File except as expressly provided in Section 2.02.
Without limiting the effect of the preceding sentence, in reviewing any
Mortgage File pursuant to such subsection, the Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any
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assignment or endorsement is in proper or recordable form (except, if
applicable, to determine if the Trustee is the assignee or endorsee), whether
any document has been recorded in accordance with the requirements of any
applicable jurisdiction, or whether a blanket assignment is permitted in any
applicable jurisdiction, but shall only be required to determine whether a
document has been executed, that it appears to be what it purports to be, and,
where applicable, that it purports to be recorded, but shall not be required to
determine whether any Person executing any document is authorized to do so or
whether any signature thereon is genuine.
Section 2.02. Acceptance by Trustee. The Trustee hereby acknowledges
its receipt of the Certificate Insurance Policy and the sale and assignment of
the Home Equity Loans, and, subject to the review and period for delivery
provided for in Section 2.01, its receipt of the Mortgage Files, and declares
that the Trustee holds and will hold such documents and all amounts received by
it thereunder and hereunder in trust, upon the terms herein set forth, for the
use and benefit of all present and future Certificateholders and the
Certificate Insurer. If the Seller and the Representative are given notice
under this Section 2.02 that a Mortgage File is defective or incomplete and if
the Representative does not cause such omission or defect to be corrected or
cured within the 60-day period specified in Section 2.02, the Representative
shall purchase, or cause the applicable Originator to purchase, such Home
Equity Loan from the Trustee (i) on the Determination Date in the month
following the month in which such 60-day period expired at the Purchase Price
of such Home Equity Loan or (ii) upon the expiration of such 60-day period if
the omission or defect would result in the related Home Equity Loan not being a
Qualified Home Equity Loan for purposes of Section 860G(a)(3) of the Code. The
Purchase Price for the purchased Home Equity Loan shall be deposited in the
Collection Account no later than the applicable Determination Date or the
Business Day preceding the expiration of such 60-day period, as the case may
be; provided that the Trustee shall remit to the Seller the portion of the
amount, if any, of the Purchase Price referred to in clause (iv) of the
definition thereof to the extent such amount is incurred by or imposed on the
Seller, and, upon receipt by the Trustee of written notification of such
deposit signed by an officer of the Representative, the Trustee shall release
to the Representative or the applicable Originator the related Mortgage File
and the Trustee shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest in the
Representative, the applicable Originator or any designee or the Representative
or such Originator, as applicable, any Home Equity Loan released pursuant
hereto. It is understood and agreed that the obligation of the Representative
to purchase, or cause to be purchased, any Home Equity Loan as to which a
material defect in or omission of a constituent document exists shall
constitute the sole remedy against the Representative and the applicable
Originator respecting such defect or omission available to the Certificate
Insurer, the Certificateholders or the Trustee on behalf of Certificateholders.
An Opinion of Counsel to the effect set forth in Section 2.07(d) shall be
delivered to the Trustee and the Certificate Insurer in connection with any
such repurchase.
The Master Servicer, promptly following the transfer of (i) a
Defective Home Equity Loan from or (ii) an Eligible Substitute Home Equity Loan
to the Trust pursuant to this Section 2.02 or
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Section 2.07, as the case may be, shall amend the Home Equity Loan Schedule,
appropriately mark the Electronic Ledger and make appropriate entries in its
general account records to reflect such transfer and the addition of any
Eligible Substitute Home Equity Loan, if applicable.
No later than the 30th day following the Closing Date, the Trustee
shall certify to the Seller, the Certificate Insurer, the Representative and
the Master Servicer that it has reviewed each Mortgage File and that, as to
each Home Equity Loan listed in the related Home Equity Loan Schedule (other
than any Home Equity Loan paid in full or any Home Equity Loan specifically
identified in the certification in the form annexed hereto as Exhibit M as not
covered by such certification), (i) all documents constituting part of such
Mortgage File required to be delivered to it pursuant to paragraphs (i) - (v)
of Section 2.01(a) are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Home Equity
Loan, (iii) based on its examination and only as to the foregoing, the
information set forth in the Home Equity Loan Schedule which corresponds to
items (i), (ii), (iii), (v) and (vii) of the definition of "Home Equity Loan
Schedule" accurately reflects information set forth in the Mortgage File. If
within such 30-day period the Trustee finds any document constituting a part of
a Mortgage File not to have been executed or received or to be unrelated to the
Home Equity Loans identified in said Home Equity Loan Schedule or, if in the
course of its review, the Trustee determines that such Mortgage File is
otherwise defective in any material respect, the Trustee shall promptly upon
the conclusion of its review notify the Seller, the Representative and the
Certificate Insurer, in the form of an exception report and the Seller shall
have a period of 60 days after such notice within which to cause any such
defect to be corrected or cured.
On the 360th day following the Closing Date, the Trustee shall deliver
to the Seller, the Master Servicer, the Representative and the Certificate
Insurer an updated exception report showing the documents outstanding pursuant
to Section 2.01(a) along with a final certification annexed hereto as Exhibit N
from the previous certification issued in the form of Exhibit M. The Trustee
shall also maintain records adequate to determine the date on which any
document required to be delivered to it after such 360th day following the
Closing Date must be delivered to it, and on each such date, the Trustee shall
review the related Mortgage File to determine whether such document has, in
fact, been delivered. After the delivery of the final certification, a form of
which is attached hereto as Exhibit N, (i) the Trustee shall provide to the
Seller, the Master Servicer, the Representative and the Certificate Insurer, no
less frequently than monthly, updated exception reports showing the documents
outstanding pursuant to Section 2.01(a) until all such exceptions have been
eliminated and (ii) the Seller shall provide to the Certificate Insurer, the
Trustee, the Master Servicer and the Representative, no less frequently than
monthly, updated certifications indicating the then current status of
exceptions until all such exceptions have been eliminated; provided that the
delivery of the final certification shall not act as a waiver of any of the
rights the Certificate Insurer and the Certificateholders may have with respect
to such exceptions, and all rights are reserved with respect thereto.
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The Trustee makes no representations as to and shall not be
responsible to verify (i) the validity, sufficiency, legality, due
authorization, recordation or genuineness of any document or (ii) the
collectibility, insurability or effectiveness of any of the Home Equity Loans.
Section 2.03. Representations and Warranties Regarding the Master
Servicer. The Master Servicer represents and warrants that, as of the Closing
Date:
(i) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is in compliance with the laws of each state in which any
Mortgaged Property is located and is in good standing in each
jurisdiction in which the nature of its business, or the properties
owned or leased by it make such qualification necessary. The Master
Servicer has, and had at all relevant times, full corporate power, to
own its property, to carry on its business as presently conducted and
to enter into and perform its obligations under this Agreement and
each Sub-Servicing Agreement.
(ii) The execution and delivery of this Agreement and each
Sub-Servicing Agreement by the Master Servicer and the performance by
the Master Servicer of and compliance with the terms of this Agreement
and each Sub-Servicing Agreement will not violate the Master
Servicer's articles of incorporation or by-laws or constitute a
default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument
to which the Master Servicer is a party or which may be applicable to
the Master Servicer or any of its assets;
(iii) The Master Servicer has the full power and authority
to enter into and consummate all transactions contemplated by this
Agreement and each Sub-Servicing Agreement to be consummated by it,
has duly authorized the execution, delivery and performance of this
Agreement and each Sub-Servicing Agreement, and has duly executed and
delivered this Agreement and each Sub-Servicing Agreement. This
Agreement and each Sub-Servicing Agreement, assuming due
authorization, execution and delivery by the other parties hereto and
thereto, constitutes a valid, legal and binding obligation of the
Master Servicer, enforceable against it in accordance with the terms
hereof and thereof, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, 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);
(iv) The Master Servicer is not in violation of, and the
execution and delivery of this Agreement and each Sub-Servicing
Agreement by the Master Servicer and the performance by the Master
Servicer and compliance with the terms of this Agreement and each
Sub-Servicing Agreement will not constitute a violation with respect
to, any order or
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decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or
otherwise) or operations of the Master Servicer or any of its
properties or materially and adversely affect the performance of any
of its duties hereunder or thereunder;
(v) There are no actions or proceedings against, or
investigations of, the Master Servicer pending or, to the knowledge of
the Master Servicer, threatened, before any court, administrative
agency or other tribunal (A) that, if determined adversely, would
prohibit its entering into this Agreement or any Sub-Servicing
Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any Sub-Servicing
Agreement or (C) that, if determined adversely, would prohibit or
materially and adversely affect the performance by the Master Servicer
of any of its obligations under, or the validity or enforceability of,
this Agreement or any Sub-Servicing Agreement;
(vi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution,
delivery and performance by the Master Servicer of, or compliance by
the Master Servicer with, this Agreement and each Sub- Servicing
Agreement, or for the consummation of the transactions contemplated by
this Agreement and each Sub-Servicing Agreement, except for such
consents, approvals, authorizations and orders, if any, that have been
obtained prior to the Closing Date;
(vii) The collection practices used by the Master Servicer
with respect to the Home Equity Loans have been, in all material
respects, legal, proper, prudent and customary in the non-conforming
mortgage servicing business;
(viii) No Officer's Certificate, statement, report or other
document prepared by the Master Servicer and furnished or to be
furnished by it pursuant to this Agreement or any Sub-Servicing
Agreement or in connection with the transactions contemplated hereby
or thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained
herein or therein not misleading;
(ix) The Master Servicer believes that the Servicing Fee
Rate provides a reasonable level of base compensation to the Master
Servicer for master servicing the Home Equity Loans on the terms set
forth herein;
(x) The transactions contemplated by this Agreement and
each Sub-Servicing Agreement are in the ordinary course of business of
the Master Servicer; and
(xi) The statements contained in the Registration
Statement which describe the Master Servicer or matters or activities
for which the Master Servicer is responsible in accordance with the
Registration Statement, this Agreement and all documents referred to
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therein or delivered in connection therewith, or which are
attributable to the Master Servicer therein are true and correct in
all material respects, and the Registration Statement does not contain
any untrue statement of a material fact with respect to the Master
Servicer and does not omit to state a material fact necessary to make
the statements contained therein with respect to the Master Servicer
not misleading. The Master Servicer is not aware that the
Registration Statement contains any untrue statement of a material
fact or omits to state any material fact necessary to make the
statements contained therein not misleading. There is no fact
peculiar to the Master Servicer or the Home Equity Loans and known to
the Master Servicer that materially adversely affects or in the future
may (so far as the Master Servicer can now reasonably foresee)
materially adversely affect the Master Servicer or the Home Equity
Loans or the ownership interests therein represented by the
Certificates that has not been set forth in the Registration
Statement; and
(xii) The Master Servicer has caused or hereby agrees to
cause to be performed any and all acts required to be performed to
preserve the rights and remedies of the Trustee in any insurance
policies applicable to the Home Equity Loans, including, without
limitation, any necessary notifications of insurers, assignments of
policies or interests therein, and establishments of co-insured, joint
loss payee and mortgagee rights in favor of the Trustee.
The representations and warranties set forth in this Section 2.03 shall survive
the sale and assignment of the Home Equity Loans to the Trust. Upon discovery
of a breach of any representations and warranties which materially and
adversely affects the interests of the Certificateholders or the Certificate
Insurer, the Person discovering such breach shall give prompt written notice to
the other parties and to the Certificate Insurer. Within 60 days of its
discovery or its receipt of notice of such breach, or, with the prior written
consent of a Responsible Officer of the Trustee and the Certificate Insurer,
such longer period specified in such consent, the Master Servicer shall cure
such breach in all material respects.
Section 2.04. Representations and Warranties Regarding the
Representative and the Originators. (a) The Representative represents and
warrants that, as of the Closing Date:
(i) The Representative is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware 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 hereunder and is in good standing in each
jurisdiction in which the nature of its business, or the property
owned or leased by it make such a qualification necessary. The
Representative has, and had at all relevant times, full corporate
power to own its property, to carry on its business as presently
conducted and to enter into and perform its obligations under this
Agreement;
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(ii) The execution and delivery of this Agreement by the
Representative and the performance by the Representative and
compliance with the terms of this Agreement will not violate the
Representative's articles of incorporation or by-laws or constitute a
default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument
to which the Representative is a party or which may be applicable to
the Representative or any of its assets;
(iii) The Representative has the full power and authority
to enter into and consummate all transactions contemplated by this
Agreement to be consummated by it, has duly authorized the execution,
delivery and performance of this Agreement, and has duly executed and
delivered this Agreement. This Agreement, assuming due authorization,
execution and delivery by the other parties hereto, constitutes a
valid, legal and binding obligation of the Representative enforceable
against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, 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);
(iv) The Representative is not in violation of, and the
execution and delivery of this Agreement by the Representative and the
performance by the Representative and compliance with the terms of
this Agreement will not constitute a violation with respect to, any
order or decree of any court or any order or regulation of any
federal, state, municipal or governmental agency having jurisdiction,
which violation would materially and adversely affect the condition
(financial or otherwise) or operations of the Representative or any of
its properties or materially and adversely affect the performance of
any of its duties hereunder;
(v) There are no actions or proceedings against, or
investigations of, the Representative pending or, to the knowledge of
the Representative, threatened, before any court, administrative
agency or other tribunal (A) that, if determined adversely, would
prohibit its entering into this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement
or (C) that, if determined adversely, would prohibit or materially and
adversely affect the performance by the Representative of any of its
obligations under, or the validity or enforceability of, this
Agreement;
(vi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution,
delivery and performance by the Representative of, or compliance by
the Representative with, this Agreement, or for the consummation of
the transactions contemplated by this Agreement, except for such
consents, approvals, authorizations and orders, if any, that have been
obtained prior to the Closing Date;
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(vii) No Officer's Certificate, statement, report or other
document prepared by the Representative and furnished or to be
furnished by it pursuant to this Agreement or in connection with the
transactions contemplated hereby contains any untrue statement of
material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading;
(viii) The transactions contemplated by this Agreement are
in the ordinary course of business of the Representative;
(ix) The statements contained in the Registration
Statement which describe the Representative or matters or activities
for which the Representative is responsible in accordance with the
Registration Statement, this Agreement and all documents referred to
therein or delivered in connection therewith, or which are
attributable to the Representative therein are true and correct in all
material respects, and the Registration Statement does not contain any
untrue statement of a material fact with respect to the Representative
and does not omit to state a material fact necessary to make the
statements contained therein with respect to the Representative not
misleading. The Representative is not aware that the Registration
Statement contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements contained
therein not misleading. There is no fact peculiar to the
Representative or the Home Equity Loans and known to the
Representative that materially adversely affects or in the future may
(so far as the Representative can now reasonably foresee) materially
adversely affect the Representative or the Home Equity Loans or the
ownership interests therein represented by the Certificates that has
not been set forth in the Registration Statement;
(x) Each Originator received fair consideration and
reasonably equivalent value in exchange for the sale of the interest
in the Home Equity Loans;
(xi) No Originator sold any interest in any Home Equity
Loan, evidenced by the Certificates, as provided in the Agreement,
with any intent to hinder, delay or defraud any of its respective
creditors; and
(xii) The Originators are solvent and the Originators will
not be rendered insolvent as a result of the sale of the Home Equity
Loans to the Seller or the sale of the Certificates.
(b) Each Originator represents and warrants that, as of
the Closing Date:
(i) Such Originator is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is licensed by and in compliance
with the laws of each state in which any Mortgaged Property relating
to a Home
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Equity Loan originated by it and/or to be serviced by it to the extent
necessary to enable it to perform its obligations under this Agreement
and the Sub-Servicing Agreement to which it is a party and is in good
standing in each jurisdiction in which the nature of its business, or
the property owned or leased by it make such qualification necessary.
Such Originator has, and had at all relevant times, full corporate
power to originate the Home Equity Loans originated by it, to own its
property, to carry on its business as presently conducted and to enter
into and perform its obligations under this Agreement and the
Sub-Servicing Agreement to which it is a party;
(ii) The execution and delivery of this Agreement and the
Sub-Servicing Agreement to which it is a party by such Originator and
the performance by such Originator of and compliance with the terms of
this Agreement and the Sub-Servicing Agreement to which it is a party
will not violate such Originator's articles of incorporation or
by-laws or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in
the breach or acceleration of, any material contract, agreement or
other instrument to which such Originator is a party or which may be
applicable to the such Originator or any of its assets;
(iii) Such Originator has the full power and authority to
enter into and consummate all transactions contemplated by this
Agreement and the Sub-Servicing Agreement to which it is a party to be
consummated by it, has duly authorized the execution, delivery and
performance of this Agreement and the Sub-Servicing Agreement to which
it is a party, and has duly executed and delivered this Agreement and
the Sub-Servicing Agreement to which it is a party. Each of this
Agreement and the Sub-Servicing Agreement to which it is a party,
assuming due authorization, execution and delivery by the other
parties hereto and thereto, constitutes a valid, legal and binding
obligation of such Originator, enforceable against it in accordance
with the terms hereof, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, 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);
(iv) Such Originator is not in violation of, and the
execution and delivery of this Agreement and the Sub-Servicing
Agreement to which it is a party by such Originator and the
performance by such Originator and compliance with the terms of this
Agreement and the Sub-Servicing Agreement to which it is a party will
not constitute a violation with respect to, any order or decree of any
court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise)
or operations of such Originator or any of its properties or
materially and adversely affect the performance of any of its duties
hereunder or thereunder;
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(v) There are no actions or proceedings against, or
investigations of, such Originator pending or, to the knowledge of
such Originator, threatened, before any court, administrative agency
or other tribunal (A) that, if determined adversely, would prohibit
its entering into this Agreement or the Sub-Servicing Agreement to
which it is a party, (B) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or the Sub-Servicing
Agreement to which it is a party or (C) that, if determined adversely,
would prohibit or materially and adversely affect the performance such
Originator of any of its obligations under, or the validity or
enforceability of, this Agreement or the Sub-Servicing Agreement to
which it is a party;
(vi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution,
delivery and performance by such Originator of, or compliance by such
Originator with, this Agreement or the Sub-Servicing Agreement to
which it is a party, or for the consummation of the transactions
contemplated by this Agreement or the Sub-Servicing Agreement to which
it is a party, except for such consents, approvals, authorizations and
orders, if any, that have been obtained prior to the Closing Date;
(vii) No Officer's Certificate, statement, report or other
document prepared by such Originator and furnished or to be furnished
by it pursuant to this Agreement or the Sub-Servicing Agreement to
which it is a party or in connection with the transactions
contemplated hereby or thereby contains any untrue statement of
material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading;
(viii) The statements contained in the Registration
Statement which describe such Originator or matters or activities for
which such Originator is responsible in accordance with the
Registration Statement, this Agreement and all documents referred to
therein or delivered in connection therewith, or which are
attributable to such Originator therein are true and correct in all
material respects, and the Registration Statement does not contain any
untrue statement of a material fact with respect to such Originator or
the Home Equity Loans and does not omit to state a material fact
necessary to make the statements contained therein with respect to
such Originator or the Home Equity Loans not misleading. Such
Originator is not aware that the Registration Statement contains any
untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained therein not
misleading. There is no fact peculiar to such Originator or the Home
Equity Loans and known to such Originator that materially and
adversely affects or in the future may (so far as such Originator can
now reasonably foresee) materially and adversely affect such
Originator or the Home Equity Loans or the ownership interests therein
represented by the Certificates that has not been set forth in the
Registration Statement;
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(ix) Upon the receipt of each Mortgage File by the
Trustee, the Trustee will have good and marketable title on behalf of
the Trust to each Home Equity Loan and such other items comprising the
corpus of the Trust free and clear of any lien (other than liens which
will be simultaneously released);
(x) The transfer, assignment and conveyance of the
Mortgage Notes and the Mortgages by such Originator pursuant to this
Agreement are not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction;
(xi) The origination and collection practices used by such
Originator with respect to each Mortgage Note and Mortgage relating to
the Home Equity Loans have been, in all material respects, legal, and
in accordance with the Originator's policies and procedures in effect
at the time;
(xii) Each Home Equity Loan was randomly selected from
among the existing Home Equity Loans in the respective Originator's
portfolio at the date hereof;
(xiii) Such Originator received fair consideration and
reasonably equivalent value in exchange for the sale of its interest
in the Home Equity Loans evidenced by the Certificates;
(xiv) Such Originator did not sell any interest in any Home
Equity Loan evidenced by the Certificates with any intent to hinder,
delay or defraud any of its respective creditors; and
(xv) Such Originator is solvent, and such Originator will
not be rendered insolvent as a result of the sale of the Home Equity
Loans to the Seller or the sale of the Certificates.
The representations and warranties set forth in this Section 2.04 shall survive
the sale and assignment of the Home Equity Loans to the Trust. Upon discovery
of a breach of any representations and warranties which materially and
adversely affects the interests of the Certificateholders or the Certificate
Insurer, the Person discovering such breach shall give prompt written notice to
the other parties and to the Certificate Insurer. Within 60 days of its
discovery or its receipt of notice of such breach, or, with the prior written
consent of a Responsible Officer of the Trustee and the Certificate Insurer,
such longer period specified in such consent, the Representative or the
applicable Originator shall cure such breach in all material respects.
Section 2.05. Representations and Warranties of the Originators
Regarding the Home Equity Loans. (a) Each Originator with respect to each Home
Equity Loan it has conveyed hereunder represents and warrants to the Trustee on
behalf of the Certificateholders as follows as of the Closing Date:
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(i) The information set forth on the Home Equity Loan
Schedule relating to the Home Equity Loans is complete, true and
correct as of the Cut-Off Date;
(ii) The Mortgage Notes and the Mortgages have not been
assigned or pledged by the applicable Originator to any Person, and
immediately prior to the transfer and assignment of the Home Equity
Loans by the Originators to the Seller herein contemplated, the
applicable Originator had good and marketable title thereto, and was
the sole owner and holder of the Home Equity Loans free and clear of
any and all liens, claims, encumbrances, participation interests,
equities, pledges, charges or security interests of any nature
(collectively, a "Lien"), other than any such Lien released
simultaneously with the sale contemplated herein, and had full right
and authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the same pursuant
to this Agreement, and immediately upon the transfer and assignment of
the Home Equity Loans by the Originators to the Seller and by the
Seller to the Trustee on behalf of the Certificateholders as
contemplated herein, the Trustee will be the sole beneficial owner of,
each Home Equity Loan free and clear of any lien, claim, participation
interest, mortgage, security interest, pledge, charge or other
encumbrance or other interest of any nature;
(iii) Each Mortgage is a valid and existing lien on the
property therein described, and each Mortgaged Property is free and
clear of all encumbrances and liens having priority over the lien of
the Mortgage, except (i) liens for real estate taxes and special
assessments not yet due and payable, (ii) in the case of a Mortgaged
Property that is a condominium or an individual unit in a planned unit
development, liens for common charges permitted by statute, (iii) in
the case of a Home Equity Loan secured by a second lien on the related
Mortgaged Property, the related First Lien and (iv) easements, mineral
rights and covenants, conditions and restrictions of record. Any
security agreement, chattel mortgage or equivalent document related to
the Mortgage and delivered to the Trustee establishes in the
applicable Originator a valid and subsisting lien on the property
described therein, and such Originator has full right to sell and
assign the same hereunder;
(iv) The terms of each Mortgage Note and Mortgage have not
been impaired, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary to protect the
interests of the Certificateholders and the Certificate Insurer, and
which has been delivered to the Trustee. The substance of any such
alteration or modification is reflected on the Home Equity Loan
Schedule;
(v) No instrument of release or waiver has been executed
in connection with any Home Equity Loan, and no Mortgagor has been
released, in whole or in part, except in connection with an assumption
agreement which has been approved by the primary mortgage guaranty
insurer, if any, and which has been delivered to the Trustee
[carve-out for sale of one of multiple parcels];
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(vi) Except with respect to delinquencies described in
clause (xiii) hereof, to the best of the Originator's knowledge, no
Mortgagor is in default in complying with the terms of its Mortgage
Note or Mortgage, and no Originator has waived any default, breach,
violation or event of acceleration except that an Originator may have
accepted late payments, and all taxes, governmental assessments,
insurance premiums or water, sewer and municipal charges which
previously became due and owing have been paid. No Originator has
advanced funds or induced, solicited or knowingly received any advance
of funds by a party other than the Mortgagor, directly or indirectly,
for the payment of any amount required by the Mortgage, except for
interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage proceeds, whichever is more recent, to
the day which precedes by one month the Due Date of the first
installment of principal and interest;
(vii) To the best of the Originator's knowledge, there is
no proceeding pending or threatened for the total or partial
condemnation of any Mortgaged Property, nor is such a proceeding
currently occurring, and such property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or otherwise,
so as to affect adversely the value of the Mortgaged Property as
security for the Home Equity Loan or the use for which the premises
were intended;
(viii) To the best of the Originator's knowledge, there are
no mechanics' or similar liens or claims which have been filed for
work, labor or material (and no rights are outstanding that under law
could give rise to such lien) affecting any Mortgaged Property which
are, or may be, liens prior or equal to, or coordinate with, the lien
of the Mortgage except those that are stated in the title insurance
policy and for which related losses are affirmatively insured against
by such policy;
(ix) To the best of the Originator's knowledge, all of the
improvements that were included for the purpose of determining the
Appraised Value of each Mortgaged Property lie wholly within the
boundaries and building restriction lines of such property, and no
improvements on adjoining properties encroach upon the Mortgaged
Property except those that are stated in the title insurance policy
and for which related losses are affirmatively insured against by such
policy;
(x) To the best of the Originator's knowledge, there do
not exist any circumstances or conditions with respect to any Home
Equity Loan, any Mortgaged Property, any Mortgagor or any Mortgagor's
credit standing that can be reasonably expected to adversely affect
the value or marketability of the Home Equity Loan;
(xi) To the best of the Originator's knowledge, no
improvement located on or being part of any Mortgaged Property is in
violation of any applicable zoning law or
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regulation. All inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged
Property and, with respect to the use and occupancy of the same,
including, but not limited to, certificates of occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully
occupied under applicable law;
(xii) To the best of the Originator's knowledge, all
parties that have had any interest in any Home Equity Loan, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) (1) in
compliance with any and all licensing requirements of the United
States and of the laws of the state wherein the Mortgaged Property is
located that are applicable to such parties and (2)(A) organized under
the laws of such state or (B) qualified to do business in such state
or exempt from such qualification in a manner so as not to affect
adversely the enforceability of such Home Equity Loan or (C) federal
savings and loan associations or national banks having principal
offices in such state or (D) not doing business in such state;
(xiii) With respect to the Home Equity Loans, as of the
Cut-Off Date, (i) all payments required to be made on each Initial
Home Equity Loan under the terms of the related Mortgage Note have
been made [except for ___% of the Home Equity Loans (by Cut-Off Date
Pool Principal Balance) are up to 60 days Delinquent and (ii) no
payment required to be made on any Home Equity Loan has been more than
60 days Delinquent more than once during the twelve month period
immediately preceding the Cut-Off Date];
(xiv) Each of the documents and instruments included in a
Mortgage File is duly executed and in due and proper form and each
such document or instrument is in a form generally acceptable to
prudent institutional mortgage lenders that regularly originate or
purchase Home Equity Loans;
(xv) The Mortgage Notes and the related Mortgages are
genuine, and each is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, 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). All parties to the
Mortgage Note and the Mortgage had legal capacity to execute the
Mortgage Note and the Mortgage, and each Mortgage Note and Mortgage
have been duly and properly executed by such parties. The Mortgagor
is a natural person who is a party to the Mortgage Note and the
Mortgage in an individual capacity, and not in the capacity of a
trustee or otherwise;
(xvi) Any and all requirements of any federal, state or
local law, including, without limitation, usury, truth-in-lending,
real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws, applicable to the origination
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and servicing of the Home Equity Loans or otherwise applicable to the
Home Equity Loans have been complied with, and the Representative has
and shall maintain, or shall cause the applicable Originator to
maintain, in its possession, available for the Trustee's inspection,
and shall deliver to the Trustee upon demand, evidence of compliance
with all such requirements;
(xvii) The proceeds of the Home Equity Loans have been fully
disbursed, there is no requirement for future advances thereunder and
any and all requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making,
closing or recording the Home Equity Loan have been paid;
(xviii) [Except for _____ Home Equity Loans with an aggregate
original principal balance of $__________ for which an attorney's
opinion of title has been obtained,] each Home Equity Loan with an
original principal balance greater than $10,000 is covered by an ALTA
mortgage title insurance policy or such other form of policy
acceptable to FNMA or FHLMC, issued by and constituting the valid and
binding obligation of a title insurer approved by the applicable
Originator and qualified to do business in the jurisdiction where the
Mortgaged Property is located, insuring the applicable Originator, its
successors and assigns, as to the first priority lien of the Mortgage
in the case of a Home Equity Loan secured by a First Lien on the
related Mortgaged Property and the second priority lien of the
Mortgage in the case of a Home Equity Loan secured by a second lien on
the related Mortgaged Property, in the original principal amount of
the Home Equity Loan. The applicable Originator is the sole named
insured of such mortgage title insurance policy. The assignment to
the Trustees, as assignee of the Seller, of the Originator's interest
in such mortgage title insurance policy does not require the consent
of or notification to the insurer or the same has been obtained, and
such mortgage title insurance policy is in full force and effect and
will be in full force and effect and inure to the benefit of the
Trustee, as assignee of the Seller, upon the consummation of the
transactions contemplated by this Agreement. No claims have been made
under such mortgage title insurance policy and no prior holder of the
related Mortgage, including the applicable Originator, has done, by
act or omission, anything that would impair the coverage of such
mortgage title insurance policy;
(xix) The Mortgage obligates the Mortgagor thereunder to
maintain all hazard insurance at the Mortgagor's cost and expense;
(xx) No Home Equity Loan is subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, nor will the operation of any of the terms of any Mortgage Note
or the related Mortgage, or the exercise of any right thereunder in
accordance with the terms thereof, render either the Mortgage Note or
the Mortgage unenforceable, in whole or in part, or subject to any
right of rescission, set-off, counterclaim
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or defense, including the defense of usury, and no such right of
rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(xxi) Each Home Equity Loan was originated or purchased and
reunderwritten by an Originator. No more than __% of the Home Equity
Loans, measured by outstanding principal balances as of the Cut-Off
Date, were originated by independent originators and acquired by an
Originator;
(xxii) Except with respect to any Balloon Loan, each Home
Equity Loan is payable in substantially equal monthly installments of
principal and interest which would be sufficient, in the absence of
late payments, to fully amortize such loan within the term thereof,
beginning no later than 60 days after disbursement of the proceeds of
the Home Equity Loan. Each Home Equity Loan bears a fixed interest
rate for the term of the Home Equity Loan. Each Balloon Loan has an
original term of not less than [five (5)] years and provides for level
monthly payments based on a thirty (30) year amortization schedule and
a final Monthly Payment substantially greater than the preceding
Monthly Payments;
(xxiii) Each Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of the
Home Equity Loan in the event the related Mortgaged Property is sold
without the prior consent of the holder thereunder;
(xxiv) No Home Equity Loan is a loan for which the
disbursements are made as construction proceeds;
(xxv) Reserved;
(xxvi) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale and (ii) otherwise by
judicial or nonjudicial foreclosure. There is no homestead or other
exemption available to the Mortgagor that would interfere with the
right to sell the Mortgaged Property at a trustee's sale or the right
to foreclose the Mortgage;
(xxvii) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will become
payable by the Trustee or the Certificateholders to the trustee under
the deed of trust, except in connection with a trustee's sale after
default by the Mortgagor, which fees and expenses shall constitute
Servicing Advances;
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(xxviii) Each Mortgaged Property is located in the
state identified in the Home Equity Loan Schedule and consists of at
least one parcel of real property with a one family residence erected
thereon, or a two- to four-family dwelling, or an individual
condominium unit or townhome, provided, however, that no residence or
dwelling is a mobile home or a manufactured dwelling. [No Mortgaged
Properties are held under a ground lease];
(xxix) The Home Equity Loans were underwritten in accordance
with the Originators' underwriting guidelines described in the
Prospectus Supplement under the heading "THE HOME EQUITY LOAN PROGRAM
-- Underwriting Standards;"
(xxx) There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary
arrangements for repayment thereof have not been made, and no other
charges or payments due an Originator have been capitalized under any
Mortgage or the related Mortgage Note;
(xxxi) No Home Equity Loan was originated under a buy-down
plan;
(xxxii) Other than as provided by this Agreement, there is no
obligation on the part of an Originator or any other party to make
payments in addition to those made by the Mortgagors;
(xxxiii) With respect to each Home Equity Loan, the
Trustee is in possession of a complete Mortgage File, and there are no
custodial agreements in effect adversely affecting the right or
ability of the applicable Person to make the document deliveries
required hereby;
(xxxiv) No Home Equity Loan was selected for inclusion under
this Agreement on any basis which was intended to have a material
adverse effect on the Certificateholders or the Certificate Insurer;
(xxxv) No Home Equity Loan has a shared appreciation or
other contingent interest feature;
(xxxvi) With respect to each Home Equity Loan secured by a
second lien on the related Mortgaged Property:
(a) if the Combined Loan-to-Value Ratio is higher
than __%, either the related First Lien does not provide for a balloon
payment or, if the related First Lien does provide for a balloon
payment, the maturity date of the second lien is prior to the maturity
date of the First Lien;
(b) the related First Lien does not provide for
negative amortization; and
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(c) either no consent for the Home Equity Loan
secured by a second lien on the related Mortgaged Property is required
by the holder of the related First Lien or such consent has been
obtained and is contained in the Mortgage File.
(xxxvii) Each Home Equity Loan conforms, and all the
Home Equity Loans in the aggregate conform, in all material respects
to the description thereof set forth in the Prospectus Supplement;
(xxxviii) A full appraisal on forms approved by the
Originator was performed in connection with the origination of each
Home Equity Loan. Each appraisal meets guidelines that would be
generally acceptable to prudent mortgage lenders that regularly
originate or purchase Home Equity Loans comparable to the Home Equity
Loans for sale to prudent investors in the secondary market that
invest in Home Equity Loans such as the Home Equity Loans;
(xxxix) To the best knowledge of the Representative and the
applicable Originator, no Mortgaged Property was, as of the related
Cut-Off Date, located within a one-mile radius of any site listed in
the National Priorities List as defined under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, or on any similar state list of hazardous waste sites which
are known to contain any hazardous substance or hazardous waste;
(xl) None of the Home Equity Loans are subject to a
bankruptcy proceeding;
(xli) No more than __% of the aggregate Principal Balance
of all the Home Equity Loans as of Cut-Off Date relates to Home Equity
Loans originated or purchased under the Originators' limited
documentation program for self-employed borrowers;
(xlii) The range of points financed or "net funded" on Home
Equity Loans originated after ________________ is 0% to __%;
(xliii) Each Home Equity Loan constitutes a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code;
(xliv) With respect to any Home Equity Loan that is not a
Cooperative Loan, each Mortgage is a valid and enforceable first or
second lien on the Mortgaged Property subject only to (a) the lien of
non-delinquent current real property taxes and assessments, (b)
covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally or specifically reflected in
the appraisal made in connection with the origination of the related
Home Equity Loan, (c)
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other matters to which like properties are commonly subject which do
not materially interfere with the benefits of the security intended to
be provided by such Mortgage and (d) the related First Lien, if any;
(xlv) Each Cooperative Loan is secured by a valid,
subsisting and enforceable perfected first or second lien and security
interest in the related Mortgaged Property, subject only to (i) the
rights of the Cooperative Corporation to collect Maintenance and
assessments from the Mortgagor, (ii) the lien of the Blanket Mortgage,
if any, on the Cooperative Property and of real property taxes, water
and sewer charges, rents and assessments on the Cooperative Property
not yet due and payable, (iii) the related First Lien, if any and (iv)
other matters to which like Cooperative Units are commonly subject
which do not materially interfere with the benefits of the security
intended to be provided by the Security Agreement or the use,
enjoyment, value or marketability of the Cooperative Unit. Each
original UCC financing statement, continuation statement or other
governmental filing or recordation necessary to create or preserve the
perfection and priority of the first or second, as applicable,
priority lien and security interest in the Cooperative Shares and
Proprietary Lease has been timely and properly made. Any security
agreement, chattel mortgage or equivalent document related to the
Cooperative Loan and delivered to the applicable Originator or any
designee of the applicable Originator establishes in such Person a
valid and subsisting perfected first or second, as applicable, lien on
and security interest in the property described therein, and such
Person has full right to sell and assign the same;
(xlvi) Each Cooperative Corporation qualifies as a
"cooperative housing corporation" as defined in Section 216 of the
Code; and
(xlvii) Each Mortgaged Property is free of substantial damage
and is in reasonably good repair.
(b) It is understood and agreed that the representations
and warranties set forth in this Section 2.05 shall survive delivery of the
respective Mortgage Files to the Trustee and the termination of the rights and
obligations of the Master Servicer pursuant to Section 7.04 or 8.01. Upon
discovery by the Seller, the Master Servicer, the Representative, an
Originator, the Certificate Insurer or a Responsible Officer of the Trustee of
a breach of any of the foregoing representations and warranties (disregarding
any qualification with respect to knowledge), which materially and adversely
affects the interests of the Trust or the Certificateholders or the Certificate
Insurer in the related Home Equity Loan, the party discovering such breach
shall give prompt written notice to the other parties and the Certificate
Insurer. Within 60 days of its discovery or its receipt of notice of breach,
the Representative shall use all reasonable efforts to cure, or cause the
applicable Originator to cure, such breach in all material respects or shall
purchase, or cause the applicable Originator to purchase, such Home Equity Loan
from the Trust or substitute, or cause the applicable Originator to substitute,
an Eligible Substitute Home Equity Loan as provided in Section 2.07 for such
Home Equity Loan. Any such purchase by the Representative or an Originator
shall
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be at the Purchase Price, and in each case shall be accomplished in the manner
set forth in Section 2.02. It is understood and agreed that the obligation of
the Representative to cure, substitute or purchase, or to cause the applicable
Originator to cure, substitute or purchase, any Home Equity Loan as to which
such a breach has occurred and is continuing shall constitute the sole remedy
against the Representative and the applicable Originator, or another affiliate
of the Representative respecting such breach available to Certificateholders or
the Trustee on behalf of Certificateholders. An Officer's Certificate and
Opinion of Counsel to the effect set forth in Section 2.07(d) shall be
delivered to the Trustee in connection with any such repurchase.
Section 2.06. Representations and Warranties of the Seller. (a) The
Seller represents and warrants to the Trustee on behalf of the
Certificateholders as follows:
(i) The Seller is a corporation duly organized,
validly existing and in good standing under the laws governing its
creation and existence and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business,
or the properties owned or leased by it make such qualification
necessary. The Seller has all requisite corporate power and authority
to own and operate its properties, to carry out its business as
presently conducted and as proposed to be conducted and to enter into
and discharge its obligations under this Agreement;
(ii) This Agreement constitutes a legal, valid and
binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforcement may be
limited by general principles of equity (whether considered in a
proceeding at law or in equity);
(iii) Immediately prior to the sale and assignment
by the Seller to the Trustee of each Home Equity Loan, the Seller was
the sole beneficial owner of each Home Equity Loan (insofar as such
title was conveyed to it by the applicable Originator) subject to no
prior lien, claim, participation interest, mortgage, security
interest, pledge, charge or other encumbrance or other interest of any
nature;
(iv) As of the Closing Date, the Seller has
transferred all right, title and interest in the Home Equity Loans to
the Trustee; and
(v) The Seller has not transferred the Home
Equity Loans to the Trustee with any intent to hinder, delay or
defraud any of its creditors.
Section 2.07. Substitution of Home Equity Loans (a) On a
Determination Date within [two] years following the Closing Date and which is
on or before the date on which the Representative would otherwise be required
to repurchase, or cause the applicable Originator to repurchase, such
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Home Equity Loan under Section 2.02 or 2.05, the Representative may deliver to
the Trustee one or more Eligible Substitute Home Equity Loans in substitution
for any one or more of the Defective Home Equity Loans which the Representative
would otherwise be required to repurchase, or cause the applicable Originator
to repurchase, pursuant to Section 2.02 or 2.05.
(b) The Representative shall notify the Master Servicer
and the Trustee in writing not less than five Business Days before the related
Determination Date which is on or before the date on which the Representative
would otherwise be required to repurchase, or cause the applicable Originator
to repurchase, such Home Equity Loan pursuant to Section 2.02 or 2.05 of its or
the applicable Originator's intention to effect a substitution under this
Section 2.07. On such Determination Date (the "Substitution Date"), the
Representative shall deliver, or cause the applicable Originator to deliver, to
the Trustee (1) the Eligible Substitute Home Equity Loans to be substituted for
the Defective Home Equity Loans, (2) a list of the Defective Home Equity Loans
to be substituted for by such Eligible Substitute Home Equity Loans, (3) an
Officer's Certificate (A) stating that no failure by the Master Servicer
described in Section 8.01 shall have occurred and be continuing, (B) stating
that the aggregate Principal Balance of all Eligible Substitute Home Equity
Loans (determined with respect to each Eligible Substitute Home Equity Loan as
of the Determination Date on which it was substituted) including the principal
balance of Eligible Substitute Home Equity Loans being substituted on such
Determination Date does not exceed an amount equal to 5% of the Aggregate
Principal Balance as of the Closing Date, (C) stating that all conditions
precedent to such substitution specified in subsection (a) have been satisfied
and attaching as an exhibit a supplemental Home Equity Loan schedule (the
"Supplemental Home Equity Loan Schedule") setting forth the same type of
information as appears on the Home Equity Loan Schedule and representing as to
the accuracy thereof and (D) confirming that the representations and warranties
contained in Section 2.05 are true and correct in all material respects with
respect to the Substitute Home Equity Loans on and as of such Determination
Date, provided that remedies for the inaccuracy of such representations are
limited as set forth in Sections 2.02, 2.05 and this Section 2.07, (4) an
Opinion of Counsel to the effect set forth below and (5) a certificate stating
that cash in the amount of the related Substitution Adjustment, if any, has
been deposited to the Collection Account; provided that the Trustee shall remit
to the Seller the portion of the amount, if any, of the Substitution Adjustment
referred to in clause (b) of the definition thereof to the extent such amount
is incurred by or imposed on the Seller. Upon receipt of the foregoing, the
Trustee shall release such Defective Home Equity Loans to the Representative or
the applicable Originator.
(c) Concurrently with the satisfaction of the conditions
set forth in Sections 2.07(a) and (b) above and the transfer of such Eligible
Substitute Home Equity Loans to the Trustee pursuant to Section 2.07(a),
Exhibit C to this Agreement shall be deemed to be amended to exclude all Home
Equity Loans being replaced by such Eligible Substitute Home Equity Loans and
to include the information set forth on the Supplemental Home Equity Loan
Schedule with respect to such Eligible Substitute Home Equity Loans, and all
references in this Agreement to Home Equity Loans shall include such Eligible
Substitute Home Equity Loans and be deemed to be made on or
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after the related Substitution Date, as the case may be, as to such Eligible
Substitute Home Equity Loans.
(d) In connection with any Home Equity Loan that the
Representative is required to purchase or replace, or cause the applicable
Originator to replace, the Representative shall deliver, or cause the
applicable Originator to deliver, to the Trustee and the Certificate Insurer an
Opinion of Counsel to the effect that such purchase or substitution will not
cause (x) any federal tax to be imposed on the Trust, including, without
limitation, any Federal tax imposed on "prohibited transactions" under Section
860F(a)(1) of the Code or on "contributions after the start-up day" under
Section 860G(d)(1) of the Code or (y) any portion of the Trust to fail to
qualify as a REMIC at any time that any Certificate is outstanding. In the
event that such opinion indicates that a repurchase or substitution will result
in the imposition of a prohibited transaction tax, give rise to net taxable
income or be deemed a contribution to a REMIC after its Startup Day, the
Representative shall not be required to cause any such Home Equity Loan to be
repurchased or replaced unless and until the Master Servicer has determined
there is an actual or imminent default with respect thereto or that such defect
or breach adversely affects the enforceability of such Home Equity Loan.
Section 2.08. Execution and Authentication of Certificates. The
Trustee on behalf of the Trust shall cause to be executed, authenticated and
delivered on the Closing Date to or upon the order of the Seller, in exchange
for the Home Equity Loans, concurrently with the sale, assignment and
conveyance to the Trustee of the Home Equity Loans, each Class of Regular
Certificates in authorized denominations and the Residual Certificates,
together evidencing the ownership of the entire Trust.
Section 2.09. Designation of Interests in REMIC. (a) For Federal tax
purposes, the Trust will consist of a single REMIC. The beneficial ownership
interest in the REMIC created hereunder shall be evidenced by the interests
having the following characteristics and terms as follows:
<TABLE>
<CAPTION>
Original Class Certificate
Class Designation Principal Balance
----------------- -----------------
<S> <C>
Class A-1 $
Class A-2 $
Class A-3 $
Class A-4 $
Class R (1)
- ------------
</TABLE>
(1) The Class R Certificates do not have a Certificate Principal Balance.
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(b) The Seller hereby designates the Regular Certificates
as "regular interests," and the Residual Certificates as the single class of
"residual interests" in the REMIC created hereunder for purposes of the REMIC
Provisions.
Section 2.10. Designation of Startup Day of REMIC. The Closing Date
is hereby designated as the "start-up day" of the REMIC created hereunder
within the meaning of Section 860G(a)(9) of the Code.
Section 2.11. REMIC Certificate Maturity Date. Solely for purposes
of satisfying Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the
"latest possible maturity date" of the REMIC created hereunder is the
Distribution Date in __________________.
Section 2.12. Tax Returns and Reports to Certificateholders. (a) For
Federal income tax purposes, the Trust shall have a calendar year and shall
maintain its books on the accrual method of accounting.
(b) The Trustee shall prepare, or cause to be prepared,
execute and deliver to the Master Servicer or Certificateholders, as
applicable, any income tax information returns for each taxable year with
respect to the Trust containing such information at the times and in the manner
as may be required by the Code or state or local tax laws, regulations or
rules, and shall furnish or cause to be furnished to the Trust and the
Certificateholders the schedules, statements or information at such times and
in such manner as may be required thereby. Within thirty (30) days of the
Closing Date, the Trustee shall furnish or cause to be furnished to the
Internal Revenue Service, on Form 8811 or as otherwise required by the Code,
the name, title, address and telephone number of the person that Holders of the
Certificates may contact for tax information relating thereto, together with
such additional information at the time or times and in the manner required by
the Code. Such federal, state or local income tax or information returns shall
be signed by the Trustee or such other Person as may be required to sign such
returns by the Code or state or local tax laws, regulations or rules.
(c) In the first federal income tax return of the Trust
for its short taxable year ending December 31, 199_, a REMIC election shall be
made for such taxable year and all succeeding taxable years.
(d) The Trustee will maintain or cause to be maintained
such records relating to the Trust, including, but not limited to, the income,
expenses, assets and liabilities of the Trust, and the fair market value and
adjusted basis of the Trust property and assets determined at such intervals as
may be required by the Code, as may be necessary to prepare the foregoing
returns, schedules, statements or information.
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(e) The Master Servicer, upon request, shall promptly
furnish the Trustee with all such information as may be required in connection
with the Trustee's REMIC reporting obligations pursuant to this Agreement.
Section 2.13. Tax Matters Person. A Tax Matters Person will be
appointed for the REMIC created hereunder for all purposes of the Code and such
Tax Matters Person will perform, or cause to be performed, such duties and
take, or cause to be taken, such actions as are required to be performed or
taken by the Tax Matters Person under the Code. The Tax Matters Person for the
REMIC created hereunder shall be the Trustee as long as it owns a Class R
Certificate. If the Trustee does not own a Class R Certificate, the Tax Matters
Person may be any other entity that owns a Class R Certificate and accepts a
designation hereunder as Tax Matters Person by delivering an affidavit in the
form of Exhibit G.
Section 2.14. REMIC Related Covenants. For as long as the Trust
shall exist, the Trustee shall act in accordance herewith to assure continuing
treatment of the REMIC created hereunder as a REMIC and avoid the imposition of
tax on the Trust. In particular:
(a) The Trustee shall not create, or permit the creation
of, any "interests" in the REMIC created hereunder within the meaning of Code
Section 860D(a)(2) other than the interests represented by the Regular
Certificates and the Residual Certificates.
(b) Except as otherwise provided in the Code, neither the
Seller nor any Originator shall grant and the Trustee shall not accept property
unless (i) substantially all of the property held in the Trust constitutes
either "qualified mortgages" or "permitted investments" as defined in Code
Sections 860G(a)(3) and (5), respectively, and (ii) no property shall be
contributed to the Trust after the Startup Day unless such grant would not
subject the Trust to the 100% tax on contributions to a REMIC after its Startup
Day imposed by Code Section 860G(d).
(c) The Trustee shall not accept on behalf of the Trust
any fee or other compensation for services (other than as otherwise provided
herein) and shall not accept on behalf of the Trust any income from assets
other than those permitted to be held by a REMIC.
(d) The Trustee shall not sell or permit the sale of all
or any portion of the Home Equity Loans (other than in accordance with Section
2.02, 2.05 or 3.16), unless such sale is pursuant to a "qualified liquidation"
as defined in Code Section 860F(a)(4)(A) and in accordance with Article VIII.
(e) The Trustee shall maintain books with respect to the
REMIC created hereunder on a calendar year and on an accrual basis.
(f) Upon filing with the Internal Revenue Service, the
Trustee shall furnish to the Holders of the Residual Certificates the Form 1066
and each Form 1066Q for the REMIC
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created hereunder and shall respond promptly to written requests made not more
frequently than quarterly by any Holder of Residual Certificates with respect
to the following matters:
(i) The original projected principal and interest cash
flows on the Closing Date on each class of regular and residual
interests created hereunder and on the Home Equity Loans, based on the
applicable Prepayment Assumption;
(ii) The projected remaining principal and interest cash
flows as of the end of any calendar quarter with respect to each class
of regular and residual interests created hereunder and the Home
Equity Loans, based on the applicable Prepayment Assumption;
(iii) The Prepayment Assumption and any interest rate
assumptions used in determining the projected principal and interest
cash flows described above;
(iv) The original issue discount (or, in the case of the
Home Equity Loans, market discount) or premium accrued or amortized
through the end of such calendar quarter with respect to each class of
regular or residual interests created hereunder and with respect to
the Home Equity Loans, together with each constant yield to maturity
used in computing the same;
(v) The treatment of losses realized with respect to the
Home Equity Loans or the regular interests created hereunder,
including the timing and amount of any cancellation of indebtedness
income of the REMIC created hereunder with respect to such regular
interests or bad debt deductions claimed with respect to the Home
Equity Loans;
(vi) The amount and timing of any non-interest expenses of
the REMIC created hereunder; and
(vii) Any taxes (including penalties and interest) imposed
on the REMIC created hereunder, including, without limitation, taxes
on "prohibited transactions," "contributions" or "net income from
foreclosure property" or state or local income or franchise taxes.
In the event that any tax is imposed on "prohibited transactions" of
the Trust as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of a REMIC as defined in Section 860G(c) of the Code, on
any contribution to the Trust after the Startup Day pursuant to Section 860G(d)
of the Code, or any other tax (other than any minimum tax imposed by Section
23151(a) or 23153(a) of the California Revenue and Taxation Code) is imposed,
such tax shall be paid by (i) the Trustee, if such tax arises out of or results
from a breach by the Trustee of any of its obligations under this Agreement,
(ii) the Master Servicer, if such tax arises out of or results from a breach by
the Master Servicer of any of its obligations under this Agreement, (iii) the
Representative or the applicable Originator, if such tax arises out of or
results from a breach by the Representative or such Originator of any of their
respective obligations hereunder or (iv) otherwise
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the Holders of the Residual Certificates in proportion to their Percentage
Interests. Notwithstanding the previous sentence, any tax imposed on the Trust
by Section 23151 or Section 23153 of the California Revenue and Taxation Code
shall be timely paid by the Trustee out of its own funds without right of
reimbursement therefor if such taxes arise solely from the Trustee's presence
in California, and otherwise by the Master Servicer. To the extent any tax is
chargeable against the Holders of the Residual Certificates, notwithstanding
anything to the contrary contained herein, the Trustee is hereby authorized to
retain from amounts otherwise distributable to the Holders of the Residual
Certificates on any Distribution Date sufficient funds to reimburse the Trustee
for the payment of such tax (to the extent that the Trustee has not been
previously reimbursed or indemnified therefor).
The Trustee shall not engage in a "prohibited transaction" (as defined
in Code Section 860F(a)(2)), except that, with the prior written consent of the
Seller, the Trustee may engage in the activities otherwise prohibited by the
foregoing clauses (b), (c) and (d), provided that the Seller shall have
delivered to the Trustee an Opinion of Counsel to the effect that such
transaction will not result in the imposition of a contribution or prohibited
transaction tax on the Trust and will not disqualify the REMIC from treatment
as a REMIC; and provided that the Seller shall have demonstrated to the
satisfaction of the Trustee that such action will not adversely affect the
rights of the holders of the Certificates and the Trustee and that such action
will not adversely impact the ratings of the Class A Certificates.
(g) Except as provided below, the Trustee shall pay out
of its own funds, without any right of reimbursement, any and all tax related
expenses of the Trust (including, but not limited to, tax return preparation
and filing expenses and any professional fees or expenses related to audits or
any administrative or judicial proceedings with respect to the Trust that
involve the Internal Revenue Service or state tax authorities), other than the
expense of obtaining any Opinion of Counsel required pursuant to Sections 2.07,
3.07 and 10.02 and other than taxes except as specified herein. The Trustee
shall be entitled to be reimbursed for any professional fees or expenses
related to audits or any administrative or judicial proceedings that do not
result from any breach of the Trustee's duties hereunder.
ARTICLE III
Administration and Servicing
of Home Equity Loans
Section 3.01. The Master Servicer. (a) It is intended that the Trust
formed hereunder shall constitute, and that the affairs of the Trust shall be
conducted so as to qualify the Trust as, a "real estate mortgage investment
conduit" ("REMIC") as defined in and in accordance with the REMIC Provisions.
In furtherance of such intentions, the Master Servicer covenants and agrees
that it shall
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not knowingly or intentionally take any action or omit to take any action that
would cause the termination of the REMIC status of the Trust.
(b) The Master Servicer shall service and administer the
Home Equity Loans and shall have full power and authority, acting alone and/or
through Sub-Servicers, to do or cause to be done any and all things in
connection with such servicing and administration which the Master Servicer may
deem necessary or desirable and consistent with the terms of this Agreement.
The Master Servicer may enter into Sub- Servicing Agreements for any servicing
and administration of Home Equity Loans with any institution which (i) is in
compliance with the laws of each state necessary to enable it to perform its
obligations under such Sub-Servicing Agreement and (ii) (w) has been designated
an approved Seller-Servicer by FHLMC or FNMA for first and second Home Equity
Loans, (x) is one of the Originators, (y) is an affiliate of the Master
Servicer and satisfactory to the Certificate Insurer or (z) is otherwise
approved by the Certificate Insurer. The Master Servicer shall give notice to
the Certificate Insurer and the Trustee of the appointment of any Sub-Servicer.
Any such Sub-Servicing Agreement shall be consistent with and not violate the
provisions of this Agreement. The Master Servicer shall be entitled to
terminate any Sub-Servicing Agreement in accordance with the terms and
conditions of such Sub-Servicing Agreement and either itself directly service
the related Home Equity Loans or enter into a Sub-Servicing Agreement with a
successor Sub-Servicer which qualifies hereunder. The Master Servicer hereby
appoints each Originator to initially act as Sub-Servicer with respect to the
Home Equity Loans sold by such Originator to the Seller. The Originators, as
Sub-Servicers shall service the Home Equity Loans in accordance with the terms
of this Agreement.
(c) Notwithstanding any Sub-Servicing Agreement or any of
the provisions of this Agreement relating to agreements or arrangements between
the Master Servicer and a Sub-Servicer or reference to actions taken through a
Sub-Servicer or otherwise, the Master Servicer shall remain obligated and
primarily liable for the servicing and administering of the Home Equity Loans
in accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreements or
arrangements or by virtue of indemnification from the Sub-Servicer and to the
same extent and under the same terms and conditions as if the Master Servicer
alone were servicing and administering the Home Equity Loans. For purposes of
this Agreement, the Master Servicer shall be deemed to have received payments
on Home Equity Loans when the Sub-Servicer has received such payments. The
Master Servicer shall be entitled to enter into any agreement with a
Sub-Servicer for indemnification of the Master Servicer by such Sub-Servicer,
and nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
(d) Any Sub-Servicing Agreement that may be entered into
and any transactions or services relating to the Home Equity Loans involving a
Sub-Servicer in its capacity as such and not as an Originator shall be deemed
to be between the Sub-Servicer and the Master Servicer alone, and the Trustee
and Certificateholders shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect to the
Sub-Servicer except as set forth in Section
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3.01(e). The Master Servicer shall be solely liable for all fees owed by it to
any Sub-Servicer irrespective of whether the Master Servicer's compensation
pursuant to this Agreement is sufficient to pay such fees.
(e) In the event the Master Servicer shall for any reason
no longer be the Master Servicer (including by reason of an Event of Default),
the Trustee or its designee approved by the Certificate Insurer shall thereupon
assume all of the rights and obligations of the Master Servicer under each
Sub-Servicing Agreement that the Master Servicer may have entered into, unless
the Trustee or its designee approved by the Certificate Insurer elects to
terminate any Sub-Servicing Agreement. Any fee payable in connection with such
a termination will be payable by the outgoing Master Servicer. If the Trustee
does not terminate the Sub-Servicing Agreements, the Trustee, its designee or
the successor Master Servicer for the Trustee shall be deemed to have assumed
all of the Master Servicer's interest therein and to have replaced the Master
Servicer as a party to each Sub-Servicing Agreement to the same extent as if
the Sub-Servicing Agreements had been assigned to the assuming party, except
that the Master Servicer shall not thereby be relieved of any liability or
obligations under the Sub-Servicing Agreements with regard to events that
occurred prior to the date the Master Servicer ceased to be the Master Servicer
hereunder. The Master Servicer, at its expense and without right of
reimbursement therefor, shall, upon the request of the Trustee, deliver to the
assuming party all documents and records relating to each Sub-Servicing
Agreement and the Home Equity Loans then being serviced and an accounting of
amounts collected and held by it and otherwise use its best efforts to effect
the orderly and efficient transfer of the Sub-Servicing Agreements to the
assuming party.
(f) Consistent with the terms of this Agreement, the
Master Servicer may waive, modify or vary any term of any Home Equity Loan or
consent to the postponement of strict compliance with any such term or in any
manner grant indulgence to any Mortgagor if in the Master Servicer's good faith
determination such waiver, modification, postponement or indulgence is not
materially adverse to the interests of the Certificateholders and the
Certificate Insurer, provided, however, that (unless (x) the Mortgagor is in
default with respect to the Home Equity Loan, or such default is, in the
judgment of the Master Servicer, imminent, (y) with respect to any modification
lowering the Loan Rate or effecting the forgiveness of any amount owed under
the Mortgage Note, or extending the final maturity date on such Home Equity
Loan, the Certificate Insurer has consented to such modification and (z) such
waiver, modification, postponement or indulgence would not cause the REMIC
created hereunder to be disqualified or otherwise cause a tax to be imposed on
the REMIC) the Master Servicer may not permit any modification with respect to
any Home Equity Loan that would change the Loan Rate, defer or forgive the
payment of any principal or interest (unless in connection with the liquidation
of the related Home Equity Loan) or extend the final maturity date on the Home
Equity Loan. No costs incurred by the Master Servicer or any Sub-Servicer in
respect of Servicing Advances shall, for the purposes of distributions to
Certificateholders, be added to the amount owing under the related Home Equity
Loan. Without limiting the generality of the foregoing, the Master Servicer
shall continue, and is hereby authorized and empowered to execute and deliver
on behalf of the Trustee and each
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Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments with
respect to the Home Equity Loans and with respect to the Mortgaged Properties.
If reasonably required by the Master Servicer, the Trustee shall furnish the
Master Servicer with any powers of attorney and other documents necessary or
appropriate to enable the Master Servicer to carry out its servicing and
administrative duties under this Agreement.
Notwithstanding anything to the contrary contained herein, the Master
Servicer, in servicing and administering the Home Equity Loans, shall employ or
cause to be employed procedures (including collection, foreclosure and REO
Property management procedures) and exercise the same care that it customarily
employs and exercises in servicing and administering Home Equity Loans for its
own account, in accordance with accepted mortgage servicing practices of
prudent lending institutions servicing Home Equity Loans similar to the Home
Equity Loans and giving due consideration to the Certificate Insurer's and the
Certificateholders' reliance on the Master Servicer.
(g) On and after such time as the Trustee receives the
resignation of, or notice of the removal of, the Master Servicer from its
rights and obligations under this Agreement, and with respect to resignation
pursuant to Section 7.04, after receipt by the Trustee and the Certificate
Insurer of the Opinion of Counsel required pursuant to Section 7.04, the
Trustee or its designee approved by the Certificate Insurer shall assume all of
the rights and obligations of the Master Servicer, subject to Section 8.02.
The Master Servicer shall, upon request of the Trustee but at the expense of
the Master Servicer, deliver to the Trustee all documents and records relating
to the Home Equity Loans and each Sub-Servicing Agreement and an accounting of
amounts collected and held by the Master Servicer and otherwise use its best
efforts to effect the orderly and efficient transfer of servicing rights and
obligations to the assuming party.
(h) The Master Servicer shall deliver a list of Servicing
Officers to the Trustee and the Certificate Insurer on or before the Closing
Date.
(i) Consistent with the terms of this Agreement, the
Master Servicer may consent to the placing of a lien senior to that of the
Mortgage on the related Mortgaged Property; provided that such senior lien
secures a Home Equity Loan that refinances a First Lien and the Combined
Loan-to-Value ratio of the related Home Equity Loan immediately following the
refinancing (based on the outstanding principal balance of the Home Equity Loan
and the original principal balance of such refinanced Home Equity Loan) is not
greater than the Combined Loan-to-Value Ratio of such Home Equity Loan as of
the related Cut-Off Date.
Section 3.02. Collection of Certain Home Equity Loan Payments. (a)
The Master Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Home Equity Loans and shall,
to the extent such procedures shall be consistent with this Agreement, follow
such collection procedures as it follows with respect to Home Equity Loans in
its servicing portfolio comparable to the Home Equity Loans. Consistent with
the foregoing, and
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without limiting the generality of the foregoing, the Master Servicer may in
its discretion (i) waive any prepayment penalty or late payment charge or any
assumption fees or other fees which may be collected in the ordinary course of
servicing such Home Equity Loan and (ii) arrange with a Mortgagor a schedule
for the payment of interest due and unpaid; provided that such arrangement is
consistent with the Master Servicer's policies with respect to the Home Equity
Loans it owns or services; provided, further, that notwithstanding such
arrangement such Home Equity Loans will be included in the monthly information
delivered by the Master Servicer to the Trustee pursuant to Section 5.03.
(b) The Master Servicer shall establish and maintain a
separate trust account (the "Collection Account") titled "[Trustee], as
Trustee, in trust for the registered holders of Avco Financial Home Equity Loan
Asset-Backed Certificates, Series 199__." The Collection Account shall be an
Eligible Account. Unless the conditions specified in Section 3.02(c) are
satisfied, the Master Servicer shall on the Closing Date deposit or cause to be
deposited any amounts representing payments on and any collections in respect
of the Home Equity Loans received after the related Cut-Off Date and prior to
the Closing Date, and thereafter shall use its best efforts to deposit or cause
to be deposited within one Business Day, and shall in any event deposit or
cause to be deposited within two Business Days, following receipt thereof the
following payments and collections received or made by it (without
duplication):
(i) all payments received after the related Cut-Off Date
on account of principal on the Home Equity Loans and all Principal
Prepayments and Curtailments collected after the related Cut-Off Date;
(ii) all payments received after the related Cut-Off Date
on account of interest on the Home Equity Loans (exclusive of payments
in respect of interest on the Home Equity Loans which have accrued and
were due on or prior to _____________, 199_);
(iii) all Net Liquidation Proceeds net of Foreclosure
Profits;
(iv) all Insurance Proceeds other than any portion thereof
constituting Net Liquidation Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase
of any Home Equity Loan and the amount of any Substitution Adjustment
pursuant to Sections 2.02, 2.05, 2.07 and 3.16; and
(vii) any amount required to be deposited in the Collection
Account pursuant to Sections 3.06, 3.07, 5.02 or 5.05;
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provided, however, that, with respect to each Due Period, the Master Servicer
shall be permitted to retain (x) from payments in respect of interest on a Home
Equity Loan, the Servicing Fee for such Home Equity Loan and (y) from payments
from Mortgagors, Liquidation Proceeds, Insurance Proceeds and Released
Mortgaged Property Proceeds, any unreimbursed Servicing Advances and Monthly
Advances related thereto. The foregoing requirements respecting deposits to
the Collection Account are exclusive, it being understood that, without
limiting the generality of the foregoing, the Master Servicer need not deposit
in the Collection Account amounts representing Servicing Compensation or
amounts received by the Master Servicer for the accounts of Mortgagors for
application toward the payment of taxes, insurance premiums, assessments and
similar items.
The Master Servicer may cause the institution maintaining the
Collection Account to invest any funds in the Collection Account in Eligible
Investments (including obligations of the Master Servicer or any of its
Affiliates, if such obligations otherwise qualify as Eligible Investments)
pursuant to Section 5.05.
(c) For so long as (i) the Master Servicer is Avco
Financial Services Management Company, (ii) no Event of Default shall have
occurred and be continuing, (iii) if the Servicer does not have a short term
debt rating or deposit rating as applicable, of at least A-1 from Standard &
Poor's and P-1 from Moody's, a guaranty, letter of credit, surety bond or other
similar instrument is issued covering the amounts described in the definition
of Available Funds, which is acceptable to the Rating Agencies and issued by an
entity, which has a short- term debt or deposit rating, as applicable, of at
least A-1 from Standard & Poor's and P-1 from Moody's; and (iv) the Rating
Agency Condition shall have been satisfied (and any conditions or limitations
imposed by the Rating Agencies in connection therewith are complied with), the
Servicer shall remit such collections to the Collection Account on or before
the second Business Day preceding the related Distribution Date. The Rating
Agency Condition with respect to this Section 3.2 and the Closing Date shall be
deemed to be satisfied upon the issuance to the Seller of the rating letters on
the Closing Date.
Section 3.03. Withdrawals from the Collection Account. The Master
Servicer shall withdraw or cause to be withdrawn funds from the Collection
Account for the following purposes:
(i) on the second Business Day preceding each
Distribution Date, to withdraw the portion of Available Funds then in
the Collection Account and remit such funds to the Trustee for deposit
to the Distribution Account;
(ii) to reimburse the Master Servicer for any accrued
unpaid Servicing Compensation which the Master Servicer would not have
been required to deposit in the Collection Account and for
unreimbursed Monthly Advances and Servicing Advances. The Master
Servicer's right to reimbursement for unpaid Servicing Fees and
unreimbursed Servicing Advances shall be limited to late collections
on the related Home Equity Loan,
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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 Home Equity Loan in respect of which such reimbursed amounts are
owed. The Master Servicer's right to reimbursement for unreimbursed
Monthly Advances shall be limited to late collections of interest on
any Home Equity Loan and to Liquidation Proceeds, Released Mortgaged
Property Proceeds and Insurance Proceeds on related Home Equity Loans;
(iii) 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;
(iv) to withdraw any funds deposited in the Collection
Account that were not required to be deposited therein (such as
Servicing Compensation) or were deposited therein in error and to pay
such funds to the appropriate Person;
(v) to withdraw funds necessary for the conservation and
disposition of REO Property pursuant to Section 3.06 to the extent not
advanced by the Master Servicer;
(vi) to reimburse the Master Servicer for Nonrecoverable
Advances that are not, with respect to aggregate Servicing Advances on
any single Home Equity Loan or REO Property, in excess of the
Principal Balance thereof;
(vii) to pay to the applicable Originator collections
received in respect of accrued interest on the Home Equity Loans due
on or before ______________, 199_;
(viii) to pay to the Master Servicer, the Trustee or remit
to the Seller the portion of any Purchase Price in respect of clause
(iv) of the definition thereof or of any Substitution Adjustment in
respect of clause (b) of the definition thereof to the extent paid in
respect of amounts incurred by or imposed on the Master Servicer, the
Seller or the Trustee, as the case may be; and
(ix) to clear and terminate the Collection Account upon
the termination of this Agreement.
Section 3.04. Reserved.
Section 3.05. Reserved.
Section 3.06. Management and Realization Upon Defaulted Home Equity
Loans. The Master Servicer shall manage, conserve, protect and operate each
REO Property for the
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Certificateholders solely for the purpose of its prudent and prompt disposition
and sale. The Master Servicer shall, either itself or through an agent
selected by the Master Servicer, manage, conserve, protect and operate the REO
Property in the same manner that it manages, conserves, protects and operates
other foreclosed property for its own account, and in the same manner that
similar property in the same locality as the REO Property is managed. The
Master Servicer shall attempt to sell the same (and may temporarily rent the
same) on such terms and conditions as the Master Servicer deems to be in the
best interest of the Certificate Insurer and the Certificateholders.
The Master Servicer shall cause to be deposited, no later than two
Business Days after the receipt thereof, in the Collection Account, all
revenues received with respect to the related REO Property and shall retain, or
cause the Trustee to withdraw therefrom, funds necessary for the proper
operation, management and maintenance of the REO Property and the fees of any
managing agent acting on behalf of the Master Servicer.
The disposition of REO Property shall be carried out by the Master
Servicer for cash at such price, and upon such terms and conditions, as the
Master Servicer deems to be in the best interest of the Certificateholders and,
as soon as practicable thereafter, the expenses of such sale shall be paid.
The cash proceeds of sale of the REO Property shall be promptly deposited in
the Collection Account, net of Foreclosure Profits and of any related
unreimbursed Servicing Advances, accrued and unpaid Servicing Fees and
unreimbursed Monthly Advances payable to the Master Servicer in accordance with
Section 3.03, for distribution to the Certificateholders in accordance with
Section 5.01.
The Master Servicer shall foreclose upon or otherwise comparably
convert to ownership Mortgaged Properties securing such of the Home Equity
Loans as come into and continue in default either when no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.02 subject to the provisions contained in the last paragraph of this
Section 3.06.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee or to its nominee on behalf of
Certificateholders and the Certificate Insurer.
In the event any Mortgaged Property is acquired as aforesaid or
otherwise in connection with a default or imminent default on a Home Equity
Loan, the Master Servicer shall (i) dispose of such Mortgaged Property within
two years after its acquisition or (ii) prior to the expiration of any
extension to such two-year grace period which is requested on behalf of the
Trust by the Master Servicer (at the expense of the Trust) more than 60 days
prior to the end of such two-year grace period and granted by the Internal
Revenue Service, unless the Master Servicer shall have received an Opinion of
Counsel to the effect that the holding of such Mortgaged Property subsequent to
two years after its acquisition will not result in the imposition of taxes on
"prohibited transactions" as defined in Section 860F of the Code or cause the
REMIC created hereunder to fail to qualify as a
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REMIC at any time that any Class A Certificates are outstanding.
Notwithstanding any other provision of this Agreement, (i) no Mortgaged
Property acquired by the Master Servicer pursuant to this Section 3.06 shall be
rented (or allowed to continue to be rented) or otherwise used for the
production of income by or on behalf of the Trust and (ii) no construction
shall take place on such Mortgaged Property in such a manner or pursuant to any
terms, in either case, that would cause such Mortgaged Property to fail to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or result in the receipt by the Trust of any "net income from
foreclosure property" which is subject to taxation within the meaning of
Sections 860G(c) and 857(b)(4)(B) of the Code. If a period greater than two
years is permitted under this Agreement and is necessary to sell any REO
Property, the Master Servicer shall give appropriate notice to the Trustee and
the Certificate Insurer and shall report monthly to the Trustee as to the
progress being made in selling such REO Property.
If the Master Servicer has actual knowledge that a Mortgaged Property
which the Master Servicer is contemplating acquiring in foreclosure or by deed
in lieu of foreclosure is located within a one-mile radius of any site with
environmental or hazardous waste risks known to the Master Servicer, the Master
Servicer will notify the Certificate Insurer prior to acquiring the Mortgaged
Property and shall not take any action without prior written approval to the
Certificate Insurer. Nothing in this Section 3.06 shall affect the Master
Servicer's right to deem certain advances proposed to be made Nonrecoverable
Advances. For the purpose of this Section 3.06, actual knowledge of the Master
Servicer means actual knowledge of a Responsible Officer of the Master Servicer
or any Sub-Servicer involved in the servicing of the relevant Home Equity Loan.
Actual knowledge of the Master Servicer does not include knowledge imputable by
virtue of the availability of or accessibility to information relating to
environmental or hazardous waste sites or the locations thereof.
Section 3.07. Trustee to Cooperate. Upon any Principal Prepayment,
the Master Servicer is authorized to execute, pursuant to the authorization
contained in Section 3.01(f), if the related Assignment of Mortgage has been
recorded or an Opinion of Counsel has been delivered as required hereunder, an
instrument of satisfaction regarding the related Mortgage, which instrument of
satisfaction shall be recorded by the Master Servicer if required by applicable
law and be delivered to the Person entitled thereto. It is understood and
agreed that no expenses incurred in connection with such instrument of
satisfaction or transfer shall be reimbursed from amounts deposited in the
Collection Account. If the Trustee is holding the Mortgage Files, from time to
time and as appropriate for the servicing or foreclosure of any Home Equity
Loan, the Trustee shall, upon request of the Master Servicer and delivery to
the Trustee of a Request for Release, in the form annexed hereto as Exhibit I,
signed by a Servicing Officer, release the related Mortgage File to the Master
Servicer, and the Trustee shall execute such documents, in the forms provided
by the Master Servicer, as shall be necessary for the prosecution of any such
proceedings or the taking of other servicing actions. Such Request for Release
shall obligate the Master Servicer to return the Mortgage File to the Trustee
when the need therefor by the Master Servicer no longer exists unless the Home
Equity Loan shall be liquidated, in which case, upon receipt of a certificate
of a Servicing
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Officer similar to that hereinabove specified, the Request for Release shall be
released by the Trustee to the Master Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Home Equity Loan that is in default following recordation of the related
Assignment of Mortgage in accordance with the provisions hereof, the Trustee
shall, if so requested in writing by the Master Servicer, execute an
appropriate assignment in the form provided to the Trustee by the Master
Servicer to assign such Home Equity Loan for the purpose of collection to the
Master Servicer (any such assignment shall unambiguously indicate that the
assignment is for the purpose of collection only) and, upon such assignment,
such assignee for collection will thereupon bring all required actions in its
own name and otherwise enforce the terms of the Home Equity Loan and deposit or
credit the Net Liquidation Proceeds, exclusive of Foreclosure Profits, received
with respect thereto in the Collection Account. In the event that all
delinquent payments due under any such Home Equity Loan are paid by the
Mortgagor and any other defaults are cured then the assignee for collection
shall promptly reassign such Home Equity Loan to the Trustee and return it to
the place where the related Mortgage File was being maintained.
Section 3.08. Servicing Compensation; Payment of Certain Expenses by
Master Servicer. Subject to Section 5.02, the Master Servicer shall be
entitled to retain the Servicing Fee in accordance with Section 3.02 as
compensation for its services in connection with servicing the Home Equity
Loans. Moreover, additional servicing compensation in the form of prepayment
penalties or late payment charges or other receipts not required to be
deposited in the Collection Account, including, without limitation, Foreclosure
Profits and, subject to Section 5.05, investment income on the Accounts shall
be retained by the Master Servicer. The Master Servicer will pay any fees due
the Sub-Servicers from the Servicing Fee. The Master Servicer shall be
required to pay or to cause to be paid by the applicable Sub-Servicer all
expenses incurred by it in connection with its activities hereunder (including
payment of all other fees and expenses not expressly stated hereunder to be for
the account of the Trust or the Certificateholders) and shall not be entitled
to reimbursement therefor except as specifically provided herein.
Section 3.09. Annual Statement as to Compliance. (a) The Master
Servicer will deliver to the Trustee, the Certificate Insurer, the
Representative and the Rating Agencies, on or before the last day of the fourth
month following the end of the Master Servicer's fiscal year (December 31),
beginning in 199_, an Officer's Certificate stating that (i) a review of the
activities of the Master Servicer during the preceding fiscal 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
Master Servicer has fulfilled all its material obligations under this Agreement
throughout such fiscal year, or, if there has been a default in the fulfillment
of any such obligation, specifying each such default known to such officer and
the nature and status thereof. The Master Servicer shall promptly notify the
Certificate Insurer, the Seller, the Trustee and the Rating Agencies upon any
change in the basis on which its fiscal year is determined.
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(b) The Master Servicer shall deliver to the Trustee, the
Certificate Insurer, the Seller, the Representative and each of the Rating
Agencies, promptly after having obtained knowledge thereof, but in no event
later than five Business Days thereafter, written notice by means of an
Officer's Certificate of any event which, with the giving of notice or the
lapse of time or both, would become an Event of Default.
Section 3.10. Annual Servicing. Not later than the last day of the
fourth month following the end of the Master Servicer's fiscal year (December
31), beginning in 199_, the Master Servicer, at its expense, shall cause a firm
of independent public accountants reasonably acceptable to the Trustee and the
Certificate Insurer to furnish a letter or letters to the Certificate Insurer,
the Trustee and the Rating Agencies to the effect that such firm has, with
respect to the Master Servicer's overall servicing operations, examined such
operations in accordance with the requirements of the Uniform Single
Attestation Program for Mortgage Bankers, and stating such firm's conclusions
relating thereto.
Section 3.11. Access to Certain Documentation and Information
Regarding the Home Equity Loans. The Master Servicer shall provide to the
Trustee, the Certificate Insurer, the Certificateholders which are federally
insured savings and loan associations, the Office of Thrift Supervision, the
FDIC and the supervisory agents and examiners of the Office of Thrift
Supervision access to the documentation regarding the Home Equity Loans
required by applicable regulations of the Office of Thrift Supervision and the
FDIC (acting as operator of the SAIF or the BIF), such access being afforded
without charge but only upon reasonable request and during normal business
hours at the offices designated by the Master Servicer. Nothing in this
Section 3.11 shall derogate from the obligation of the Master Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Master Servicer to provide access as provided
in this Section 3.11 as a result of such obligation shall not constitute a
breach of this Section 3.11.
Section 3.12. Reserved.
Section 3.13. Reports to the Securities and Exchange Commission. The
Trustee shall, on behalf of the Trust, cause to be filed with the Securities
and Exchange Commission any periodic reports required to be filed under the
provisions of the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Securities and Exchange Commission thereunder. Upon the
request of the Trustee, each of the Seller, the Master Servicer and the
Representative shall cooperate with the Trustee in the preparation of any such
report and shall provide to the Trustee in a timely manner all such information
or documentation as the Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section 3.13.
Section 3.14. Reports of Foreclosures and Abandonments of Mortgaged
Properties, Returns Relating to Mortgage Interest Received from Individuals and
Returns Relating to Cancellation of Indebtedness. The Master Servicer shall
make reports of foreclosures and
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abandonments of any Mortgaged Property for each year beginning in 199_. The
Master Servicer shall file reports relating to each instance occurring during
the previous calendar year in which the Master Servicer (i) on behalf of the
Trustee acquires an interest in any Mortgaged Property through foreclosure or
other comparable conversion in full or partial satisfaction of a Home Equity
Loan or (ii) knows or has reason to know that any Mortgaged Property has been
abandoned. The reports from the Master Servicer shall be in form and substance
sufficient to meet the reporting requirements imposed by Sections 6050J, 6050H
and 6050P of the Code.
Section 3.15. Advances. (a) Not later than 12:00 noon _____________
time on the Determination Date, the Master Servicer shall remit to the Trustee
for deposit in the Distribution Account an amount to be distributed on the
related Distribution Date pursuant to Section 5.01, equal to the interest
accrued on each Home Equity Loan through the related Due Date, but not received
as of the close of business on the last day of the related Due Period (net of
the Servicing Fee); such amount being defined herein as the "Monthly Advance."
The obligation to make Monthly Advances with respect to each Home Equity Loan
shall continue until such Home Equity Loan becomes a Liquidated Home Equity
Loan.
(b) Notwithstanding anything herein to the contrary, no
Servicing Advance or Monthly Advance shall be required to be made hereunder if
the Master Servicer determines that such Servicing Advance or Monthly Advance
would, if made, constitute a Nonrecoverable Advance.
Section 3.16. Optional Purchase of Defaulted Home Equity Loans. The
Master Servicer, in its sole discretion, shall have the right to elect (by
written notice sent to the Trustee and the Certificate Insurer) to purchase for
its own account from the Trust any Home Equity Loan which is 90 days or more
Delinquent in the manner and at the price specified in Section 2.02. The
Purchase Price for any Home Equity 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 Home Equity Loan the
related Mortgage File and shall execute and deliver such instruments of
transfer or assignment prepared by the purchaser of such Home Equity Loan, in
each case without recourse, as shall be necessary to vest in the purchaser of
such Home Equity Loan any Home Equity Loan released pursuant hereto and the
purchaser of such Home Equity Loan shall succeed to all the Trustee's right,
title and interest in and to such Home Equity Loan and all security and
documents related thereto. Such assignment shall be an assignment outright and
not for security. The purchaser of such Home Equity Loan shall thereupon own
such Home Equity Loan, and all security and documents, free of any further
obligation to the Trustee, the Certificate Insurer or the Certificateholders
with respect thereto.
Notwithstanding the foregoing, unless the Certificate Insurer
consents, the Master Servicer may only exercise its option pursuant to this
Section 3.16 with respect to the Home Equity Loan or Home Equity Loans that
have been delinquent for the longest period at the time of such repurchase.
Any request by the Master Servicer to the Certificate Insurer for consent to
repurchase Home
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Equity Loans that are not the most delinquent shall be accompanied by a
description of the Home Equity Loans that have been delinquent longer than the
Home Equity Loan or Home Equity Loans which the Master Servicer proposes to
repurchase. If the Certificate Insurer fails to respond to such request within
10 Business Days after receipt thereof, the Master Servicer may repurchase the
Home Equity Loan or Home Equity Loans proposed to be repurchased without the
consent of, or any further action by, the Certificate Insurer.
Section 3.17. Superior Liens. If required in order to receive
notice, the Master Servicer shall file (or cause to be filed) a request for
notice of any action by a superior lienholder under a First Lien for the
protection of the Trustee's interest, where permitted by local law and whenever
applicable state law does not require that a junior lienholder be named as a
party defendant in foreclosure proceedings in order to foreclose such junior
lienholder's equity of redemption.
If the Master Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations secured by the First Lien,
or has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the Mortgaged Property sold or foreclosed, the Master Servicer shall take,
on behalf of the Trust, actions in accordance with the Servicer's policies and
procedures to protect the interests of the Certificateholders and the
Certificate Insurer, and/or to preserve the security of the related Home Equity
Loan, subject to the application of the REMIC Provisions in accordance with the
terms of this Agreement. The Master Servicer shall immediately notify the
Trustee and the Certificate Insurer of any such action or circumstances. The
Master Servicer shall advance the necessary funds to cure the default or
reinstate the superior lien, if such advance is in the best interests of the
Certificate Insurer and the Certificateholders in accordance with the servicing
standards in Section 3.01. The Master Servicer shall not make such an advance
except to the extent that it determines in its reasonable good faith judgment
that the advance would be recoverable from Liquidation Proceeds on the related
Home Equity Loan and in no event in an amount that is greater than the
Principal Balance of the related Home Equity Loan, except with the consent of
the Certificate Insurer, which consent shall not be unreasonably withheld. The
Master Servicer shall thereafter take such action as is necessary to recover
the amount so advanced. Any expenses incurred by the Master Servicer pursuant
to this Section 3.17 shall constitute Servicing Advances.
Section 3.18. Assumption Agreements. When a Mortgaged Property has
been or is about to be conveyed by the Mortgagor, the Master Servicer shall, to
the extent it has knowledge of such conveyance or prospective conveyance,
exercise its right to accelerate the maturity of the related Home Equity Loan
under any "due-on-sale" clause contained in the related Mortgage or Mortgage
Note; provided, however, that the Master Servicer shall not exercise any such
right if the "due-on-sale" clause, in the reasonable belief of the Master
Servicer, is not enforceable under applicable law. In such event, the Master
Servicer shall enter into an assumption and modification agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person shall become liable under the Mortgage Note and, unless
prohibited by applicable law, the Mortgagor shall remain liable thereon. The
Master Servicer, in accordance with accepted Home
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Equity Loan servicing standards for Home Equity Loans similar to the Home
Equity Loans, is also authorized to enter into a substitution of liability
whereby such person is substituted as mortgagor and becomes liable under the
Mortgage Note. The Master Servicer shall notify the Trustee and the
Certificate Insurer that any such substitution or assumption agreement has been
completed by forwarding to the Trustee the original of such substitution or
assumption agreement and a duplicate thereof to the Certificate Insurer, which
original 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 assumption or substitution agreement entered into pursuant
to this Section 3.18, the Master Servicer shall not change the Loan Rate or the
Monthly Payment, defer or forgive the payment of principal or interest, reduce
the outstanding principal amount or extend the final maturity date on such Home
Equity Loan.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Home Equity Loan by operation of law or any assumption which the Master
Servicer may be restricted by law from preventing, for any reason whatsoever.
Section 3.19. Reserved.
ARTICLE IV
Certificate Insurance Policy
Section 4.01. Certificate Insurance Policy. As soon as possible, and
in no event later than _______, New York time, on the third Business Day
immediately preceding each Distribution Date, the Trustee shall determine the
amount of Available Funds for such Distribution Date minus the amount of any
Premium Amount and any Trustee Fee to be paid on such Distribution Date.
If for any Distribution Date a Deficiency Amount exists, the Trustee
shall complete a notice in the form set forth as Exhibit A to the Certificate
Insurance Policy (the "Notice") and shall submit such Notice to the Fiscal
Agent no later than _________, New York time, on the second Business Day
preceding such Distribution Date. The Notice shall constitute a claim for an
Insured Payment pursuant to the Certificate Insurance Policy for an amount
equal to such excess. Upon receipt of the Insured Payment, at or prior to the
latest time payments of the Insured Payment are to be made by the Certificate
Insurer pursuant to the Certificate Insurance Policy, on behalf of the Class A
Certificateholders, the Trustee shall deposit such Insured Payments in the
Distribution Account and shall distribute such Insured Payments only in
accordance with Sections 5.01(a)(i)(2) and (3).
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The Trustee shall receive, as attorney-in-fact of each Holder of a
Class A Certificate, any Insured Payment from the Certificate Insurer and
disburse the same to each Holder of a Class A Certificate in accordance with
the provisions of Article V. Insured Payments disbursed by the Trustee from
proceeds of the Certificate Insurance Policy shall not be considered payment by
the Trust nor shall such payments discharge the obligation of the Trust with
respect to such Class A Certificate, and the Certificate Insurer shall become
the owner of such unpaid amounts due from the Trust in respect of such Insured
Payments as the deemed assignee of such Holder and shall be entitled to receive
the Reimbursement Amount pursuant to Sections 5.01(a)(i)(4) and 5.01(a)(ii)(3).
The Trustee hereby agrees on behalf of each Holder of a Class A Certificate for
the benefit of the Certificate Insurer that it and they recognize that to the
extent the Certificate Insurer makes Insured Payments, either directly or
indirectly (as by paying through the Trustee), to the Class A
Certificateholders, the Certificate Insurer will be entitled to receive the
Reimbursement Amount pursuant to Sections 5.01(a)(i)(3) and 5.01(a)(ii)(3).
It is understood and agreed that the intention of the parties is that
the Certificate Insurer shall not be entitled to reimbursement on any
Distribution Date for amounts previously paid by it unless on such Distribution
Date the Class A Certificateholders shall also have received the full amount of
the Insured Payment for such Distribution Date.
Section 4.02. Claims Upon the Certificate Insurance Policy. (a) The
Trustee shall comply with the provisions of the Certificate Insurance Policy
with respect to claims upon the Certificate Insurance Policy.
(b) The Trustee shall keep a complete and accurate record
of the amount of interest and principal paid in respect of any Class A
Certificate from moneys received under the Certificate Insurance Policy. The
Certificate Insurer shall have the right to inspect such records at reasonable
times during normal business hours upon one Business Day's prior written notice
to the Trustee.
(c) 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 the Bankruptcy Code (a "Preference Claim") of
any distribution made with respect to the Class A Certificates. Each
Certificateholder of Class A Certificates, by its purchase of Class A
Certificates, the Master Servicer, the Seller, the Representative, the
Originators and the Trustee hereby 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, supersedes or performance bond pending any such
appeal.
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ARTICLE V
Payments and Statements to Certificateholders; Rights of
Certificateholders
Section 5.01. Distributions. (a) On each Distribution Date, the
Trustee shall withdraw from the Distribution Account the Available Funds and
make distributions thereof as described below:
(i) With respect to the Class A Certificates, the
Available Funds with respect to the Class A Certificates in the
following order of priority:
(1) to the Trustee, the Trustee Fee for such
Distribution Date and to the Certificate Insurer, the Premium
Amount for such Distribution Date;
(2) concurrently to the Holders of the Class A-1,
Class A-2, Class A-3 and Class A-4 Certificates, an amount
equal to the respective Class Interest Distribution for such
Distribution Date;
(3) the Class A Principal Distribution, in the
following order of priority:
(A) first, to the Holders of the Class
A-4 Certificates, the Class A-4 Lockout Distribution
Amount;
(B) second, sequentially, to the Holders
of the Class A-1, Class A-2 and Class A-3
Certificates, in that order, until the related Class
Principal Balance of each such Class is reduced to
zero; and
(C) third, to the Holders of the Class
A-4 Certificates until the related Class Principal
Balance is reduced to zero; and
(4) to the Certificate Insurer, the amount owing
to the Certificate Insurer under the Insurance Agreement for
reimbursement for draws made on the Policy.
(ii) After making the distributions referred to in clause
(i) above, the Trustee shall make distributions in the following order
of priority, to the extent of the balance of the Available Funds:
(1) to the Master Servicer, the amount of any
accrued and unpaid Servicing Fee;
(2) to the Master Servicer, the amount of
Nonrecoverable Advances not previously reimbursed and any
amounts reimbursable to the Master Servicer pursuant to
Section 7.03 hereof;
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(3) to the Certificate Insurer, any Reimbursement
Amount; and
(4) to the Class R Certificateholders, the
balance, if any.
On any Distribution Date as to which a Certificate Insurer Default has
occurred and is continuing the amount to be distributed on the Class A
Certificates pursuant to clause (a)(i) above shall be distributed pro rata on
each such Class of Class A Certificates based on the Class Principal Balance of
each such Class immediately prior to such Distribution Date.
(b) Distribution of Insured Payments. With respect to
any Distribution Date, in the event of an Insured Payment, the Trustee shall
make such payments from the amount drawn under the Certificate Insurance Policy
for such Distribution Date pursuant to Section 4.01. Any Insured Payment not
required to make distributions pursuant to clauses (i)(2) and (i)(3) of Section
5.01(a) shall be returned to the Certificate Insurer.
(c) Method of Distribution. The Trustee shall make
distributions in respect of a Distribution Date to each Certificateholder of
record on the related Record Date (other than as provided in Section 10.01
respecting the final distribution), in the case of Class A Certificateholders,
by check or money order mailed to such Certificateholder at the address
appearing in the Certificate Register, or, upon written request by a Class A
Certificateholder delivered to the Trustee at least five Business Days prior to
such Record Date, by wire transfer (but only if such Class A Certificateholder
is the Depository or such Class A Certificateholder owns of record one or more
Class A Certificates aggregating at least $1,000,000 Original Class Certificate
Principal Balance), and, in the case of Holders of Residual Certificates, by
wire transfer. Distributions among Certificateholders shall be made in
proportion to the Percentage Interests evidenced by the Certificates held by
such Certificateholders.
(d) Distributions on Book-Entry Certificates. Each
distribution with respect to a Book-Entry Certificate shall be paid to the
Depository, which shall credit the amount of such distribution to the accounts
of its Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution to
the Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing
funds to the Certificate Owners that it represents. All such credits and
disbursements with respect to a Book-Entry Certificate are to be made by the
Depository and the Depository Participants in accordance with the provisions of
the Certificates. None of the Trustee, the Paying Agent, the Certificate
Registrar, the Seller, the Master Servicer, the Representative or the
Originator shall have any responsibility therefor except as otherwise provided
by applicable law.
[Section 5.02. Compensating Interest. Not later than the
Determination Date, the Master Servicer shall remit to the Trustee for deposit
to the Collection Account an amount equal to the lesser of (A) the aggregate of
the Prepayment Interest Shortfalls for the related Distribution Date
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resulting from Principal Prepayments during the related Due Period and (B) its
aggregate Servicing Fees received in the related Due Period. The Master
Servicer shall not have the right to reimbursement for any amounts deposited to
the Collection Account pursuant to this Section 5.02.]
Section 5.03. Statements. (a) Not later than 12:00 noon, __________
time, on the fifth Business Day prior to each Distribution Date, the Master
Servicer shall deliver to the Trustee by electronic modem a computer file
containing the information called for by clauses (i) through (xxi) below as of
the end of the preceding Due Period and such other information as the Trustee
shall reasonably require. Not later than 12:00 noon, __________ time, on each
Determination Date, the Trustee shall deliver to the Master Servicer, the
Seller, the Representative and to the Certificate Insurer, by telecopy, with a
hard copy thereof to be delivered on the succeeding Distribution Date, a
confirmation of the items in clause (i) below. Not later than one Business Day
prior to each Distribution Date the Trustee shall deliver a statement (the
"Trustee's Remittance Report") containing the information set forth below with
respect to such Distribution Date, which information shall be based upon the
information furnished by the Master Servicer upon which the Trustee shall
conclusively rely without independent verification or calculation thereof:
(i) The Available Funds for the related Distribution
Date;
(ii) The Class Principal Balance of each Class of Class A
Certificates and the Aggregate Class A Principal Balance as reported
in the prior Trustee's Remittance Report pursuant to subclause (xi)
below, or, in the case of the first Determination Date, the Original
Class Principal Balance of each Class and the Cut-Off Date Pool
Principal Balance;
(iii) The number and Principal Balances of all Home Equity
Loans that were the subject of Principal Prepayments during the Due
Period;
(iv) The amount of all Curtailments that were received
during the Due Period;
(v) The principal portion of all Monthly Payments
received during the Due Period;
(vi) The interest portion of all Monthly Payments received
on the Home Equity Loans during the Due Period;
(vii) The amount of the Monthly Advances and the
Compensating Interest payment to be made on the Determination Date;
(viii) The Class A Principal Distribution, the portion
thereof to be distributed on each Class of Class A Certificates then
entitled to distributions of principal, and the Class Interest
Distribution to be distributed on each Class of Class A Certificates;
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(ix) The amount of the Insured Payments, if any, to be
made on the Distribution Date;
(x) The amount to be distributed to the Class R
Certificateholders for the Distribution Date;
(xi) The Class Principal Balance of each Class of Class A
Certificates and the Aggregate Class A Principal Balance after giving
effect to the distribution to be made on the Distribution Date;
(xii) The weighted average remaining term to maturity of
the Home Equity Loans and the weighted average Loan Rate;
(xiii) The Servicing Fee and the Premium Amount and
Reimbursement Amount to be paid to the Certificate Insurer pursuant to
Section 5.01;
(xiv) The amount of all payments or reimbursements to the
Master Servicer pursuant to Sections 3.03(ii) and (vi);
(xv) The O/C Amount and the Specified O/C Amount for such
Distribution Date;
(xvi) The amounts which are reimbursable to the Master
Servicer or the Seller, as appropriate, pursuant to Section
5.01(a)(ii)(2) and the amount paid to Class R Certificateholders
pursuant to Section 5.01(a)(ii)(4);
(xvii) The number of Home Equity Loans outstanding at the
beginning and at the end of the related Due Period;
(xviii) The amount of Liquidation Loan Losses experienced
during the preceding Due Period and the Loan Losses and the Cumulative
Net Losses as a percentage of the Cut-Off Date Pool Principal Balance;
and
(xix) As of the end of the preceding calendar month, the
number and Principal Balance of Home Equity Loans which are 30-59 days
delinquent; the number and Principal Balance of Home Equity Loans
which are 60-89 days delinquent; the number and Principal Balance of
Home Equity Loans which are more than 90 days delinquent; the number
and Principal Balance of Home Equity Loans which are in foreclosure;
and the number and Principal Balance of Home Equity Loans which are
REO Property.
The Trustee shall forward such report to the Master Servicer, the
Seller, the Certificate Insurer, the Representative, the Certificateholders,
the Rating Agencies, [Bloomberg (at 499 Park Avenue, New York, New York 10022,
Attention: ____________) and [Intex Solutions (at 35
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Highland Circle, Needham, Massachusetts 02144, Attention: ______________)] on
the Distribution Date; provided, however that the Trustee shall remove the
Premium Amount to be paid the Certificate Insurer from clause (xiii) of such
report prior to submission of the report to [Bloomberg and Intex Solutions].
The Trustee may fully rely upon and shall have no liability with respect to
information provided by the Master Servicer. The Master Servicer shall
calculate all items in clauses (i) - (xix) above.
To the extent that there are inconsistencies between the telecopy of
the Trustee's Remittance Report and the hard copy thereof, the Master Servicer
may rely upon the latter.
In the case of information furnished pursuant to subclauses (ii), (xi)
and (xvi) above, the amounts shall be expressed in a separate section of the
report as a dollar amount for each Class for each $1,000 original dollar amount
as of the related Cut-Off Date.
(b) Within a reasonable period of time after the end of
each calendar year, the Trustee shall furnish to each Person who at any time
during the calendar year was a Holder of a Class A Certificate, if requested in
writing by such Person, such information as is reasonably necessary to provide
to such Person a statement containing the information set forth in subclauses
(vii) and (xiii) above, aggregated for such calendar year or applicable portion
thereof during which such Person was a Certificateholder. Such obligation of
the Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be prepared and furnished by the
Trustee to Certificateholders pursuant to any requirements of the Code as are
in force from time to time.
(c) On each Distribution Date, the Trustee shall forward
to the Class R Certificateholders a copy of the reports forwarded to the
Holders of the Class A Certificates in respect of such Distribution Date and a
statement setting forth the amounts actually distributed to the Class R
Certificateholders on such Distribution Date together with such other
information as the Trustee deems necessary or appropriate.
(d) Within a reasonable period of time after the end of
each calendar year, the Trustee shall deliver to each Person who at any time
during the calendar year was a Class R Certificateholder, if requested in
writing by such Person, such information as is reasonably necessary to provide
to such Person a statement containing the information provided pursuant to the
previous paragraph aggregated for such calendar year or applicable portion
thereof during which such Person was a Class R Certificateholder. Such
obligation of the Trustee shall be deemed to have been satisfied to the extent
that substantially comparable information shall be prepared and furnished to
Certificateholders by the Trustee pursuant to any requirements of the Code as
from time to time in force.
(e) The Master Servicer and the Trustee shall furnish to
each Certificateholder and to the Certificate Insurer (if requested in
writing), during the term of this Agreement, such
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periodic, special or other reports or information, whether or not provided for
herein, as shall be necessary, reasonable or appropriate with respect to the
Certificateholder or the Certificate Insurer, as the case may be, or otherwise
with respect to the purposes of this Agreement, all such reports or information
to be provided by and in accordance with such applicable instructions and
directions (if requested in writing) as the Certificateholder or the
Certificate Insurer, as the case may be, may reasonably require; provided that
the Master Servicer and the Trustee shall be entitled to be reimbursed by such
Certificateholder or the Certificate Insurer, as the case may be, for their
respective fees and actual expenses associated with providing such reports, if
such reports are not generally produced in the ordinary course of their
respective businesses or readily obtainable.
(f) Reports and computer diskettes or files furnished by
the Master Servicer pursuant to this Agreement shall be deemed confidential and
of a proprietary nature, and shall not be copied or distributed except to the
extent required by law or for the internal use of the Certificate Insurer and
its counsel or to the Rating Agencies, the Seller, Representative or any
Originator, the Certificate Insurer's reinsurers, parent, regulators, liquidity
providers and auditors, provided that the Certificate Insurer shall attempt in
good faith to cause such additional Persons to acknowledge in writing the
foregoing restrictions, and in connection with the purposes and requirements of
this Agreement. No Person entitled to receive copies of such reports or
diskettes or files or lists of Certificateholders shall use the information
therein for the purpose of soliciting the customers of the Representative or
any Originator or for any other purpose except as set forth in this Agreement.
Section 5.04. Distribution Account. The Trustee shall establish with
_________________, a separate trust account (the "Distribution Account") titled
"[Name of Trustee], as Trustee, in trust for the registered holders of Avco
Financial Home Equity Loan Asset-Backed Certificates, Series 199_-_." The
Distribution Account shall be an Eligible Account. The Trustee shall deposit
any amounts representing payments on and any collections in respect of the Home
Equity Loans received by it immediately following receipt thereof, including,
without limitation, all amounts withdrawn by the Master Servicer from the
Collection Account pursuant to Section 3.03 for deposit to the Distribution
Account. Amounts on deposit in the Distribution Account may be invested in
Eligible Investments pursuant to Section 5.05.
Section 5.05. 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 held by the Trustee
shall be invested and reinvested by the Trustee, as directed in writing by the
Master Servicer, in one or more Eligible Investments bearing interest or sold
at a discount. If an Event of Default shall have occurred and be continuing or
if the Master Servicer does not provide investment directions, the Trustee
shall invest all Accounts in Eligible Investments described in paragraph (vi)
of the definition of Eligible Investments. No such investment in any Account
shall mature later than the Business Day immediately preceding the next
Distribution Date (except that (i) if such Eligible Investment is an obligation
of the Trustee, then such Eligible Investment shall mature not later than such
Distribution Date and (ii) any other date may be approved by the Rating
Agencies and the Certificate Insurer).
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(b) If any amounts are needed for disbursement from any
Account held by the Trustee and sufficient uninvested funds are not available
to make such disbursement, the Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Account. The
Trustee shall not be liable for any investment loss or other charge resulting
therefrom unless the Trustee's failure to perform in accordance with this
Section 5.05 is the cause of such loss or charge.
(c) Subject to Section 9.01, 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 Eligible 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 5.05).
(d) The Trustee shall invest and reinvest funds in the
Accounts held by the Trustee, to the fullest extent practicable, in such manner
as the Master Servicer shall from time to time direct as set forth in Section
5.05(a), but only in one or more Eligible Investments.
(e) 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 the Collection Account and the Distribution
Account shall be for the benefit of the Master Servicer as servicing
compensation (in addition to the Servicing Fee), and shall be subject to
withdrawal on or before the first Business Day of the month following the month
in which such income or gain is received. The Master Servicer shall deposit in
the Collection Account or the Distribution Account, as the case may be, the
amount of any loss incurred in respect of any Eligible Investment held therein
which is in excess of the income and gain thereon immediately upon realization
of such loss, without any right to reimbursement therefore from its own funds.
ARTICLE VI
The Certificates
Section 6.01. The Certificates. Each of the Class A Certificates and
the Class R Certificates shall be substantially in the forms set forth in
Exhibits A and B, respectively, and shall, on original issue, be executed,
authenticated and delivered by the Trustee to or upon the order of the Seller
concurrently with the sale and assignment to the Trustee of the Trust. Each
Class of Class A Certificates shall be initially evidenced by one or more
certificates representing a fraction of the Original Class A Certificate
Principal Balance and shall be held in minimum dollar denominations of $25,000
and integral multiples of $1,000 in excess thereof, except that one of each of
the Class A Certificate may be in a different denomination so that the sum of
the denominations of all outstanding Class A Certificates shall equal the
Original Class A Certificate Principal Balance.
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The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by a Responsible Officer. Certificates bearing the
manual or facsimile signatures of individuals who were, at the time when such
signatures were affixed, authorized to sign on behalf of the Trustee shall bind
the Trust, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the authentication and delivery of such Certificates
or did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless such Certificate shall have been manually authenticated by the
Trustee substantially in the form provided for herein, and such authentication
upon any Certificate shall be conclusive evidence, and the only evidence, that
such Certificate has been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication. Subject to
Section 6.02(c), the Class A Certificates shall be Book-Entry Certificates.
The Class R Certificates shall not be Book-Entry Certificates.
Section 6.02. Registration of Transfer and Exchange of Certificates.
(a) The Certificate Registrar shall cause to be kept at the Corporate Trust
Office a Certificate Register in which, subject to such reasonable regulations
as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Trustee shall initially serve as Certificate Registrar
for the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph, and, in the case of the Class R
Certificates, upon satisfaction of the conditions set forth below, the Trustee
on behalf of the Trust shall execute, authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Certificates of the
same aggregate Percentage Interest.
At the option of the Certificateholders, Certificates may be exchanged
for other Certificates in authorized denominations and the same aggregate
Percentage Interests, upon surrender of the Certificates to be exchanged at any
such office or agency. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute and authenticate and deliver the
Certificates which the Certificateholder making the exchange is entitled to
receive. Every Certificate presented or surrendered for registration of
transfer or exchange shall (if so required by the Trustee or the Certificate
Registrar) be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Trustee and the Certificate Registrar duly
executed by, the Holder thereof or his attorney duly authorized in writing.
(b) Except as provided in paragraph (c) below, the
Book-Entry Certificates shall at all times remain registered in the name of the
Depository or its nominee and at all times: (i) registration of such
Certificates may not be transferred by the Trustee except to another
Depository; (ii) the Depository shall maintain book-entry records with respect
to the Certificate Owners and with respect to ownership and transfers of such
Certificates; (iii) ownership and transfers of registration of such
Certificates on the books of the Depository shall be governed by applicable
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rules established by the Depository; (iv) the Depository may collect its usual
and customary fees, charges and expenses from its Depository Participants; (v)
the Trustee shall deal with the Depository as representative of the Certificate
Owners of the Certificates for purposes of exercising the rights of Holders
under this Agreement, and requests and directions for and votes of such
representative shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; and (vi) the Trustee may rely and
shall be fully protected in relying upon information furnished by the
Depository with respect to its Depository Participants and furnished by the
Depository Participants with respect to indirect participating firms and
Persons shown on the books of such indirect participating firms as direct or
indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates
shall be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owners. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners that it represents or of brokerage firms for which it acts
as agent in accordance with the Depository's normal procedures. The parties
hereto are hereby authorized to execute a Letter of Representations with the
Depository or take such other action as may be necessary or desirable to
register a Book-Entry Certificate to the Depository. In the event of any
conflict between the terms of any such Letter of Representation and this
Agreement the terms of this Agreement shall control.
(c) If (i)(x) the Depository or the Depositor advises the
Trustee in writing that the Depository is no longer willing or able to
discharge properly its responsibilities as Depository and (y) the Trustee or
the Seller is unable to locate a qualified successor, (i) the Seller, at its
sole option, with the consent of the Trustee, elects to terminate the
book-entry system through the Depository or (iii) after the occurrence of an
Event of Default, the Certificate Owners of each Class of Class A Certificates
representing Percentage Interests aggregating not less than 51% advises the
Trustee and Depository through the Financial Intermediaries and the Depository
Participants in writing that the continuation of a book-entry system through
the Depository to the exclusion of definitive, fully registered certificates
(the "Definitive Certificates") to Certificate Owners is no longer in the best
interests of the Certificate Owners. Upon surrender to the Certificate
Registrar of each Class of Class A Certificates by the Depository, accompanied
by registration instructions from the Depository for registration, the Trustee
shall, at the Seller's expense, execute and authenticate the Definitive
Certificates. Neither the Seller nor the Trustee shall be liable for any delay
in delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Certificates, the Trustee, the Certificate Registrar, the Master Servicer, any
Paying Agent and the Seller shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder.
(d) No transfer, sale, pledge or other disposition of a
Class R Certificate shall be made unless such disposition is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), and any applicable state securities laws or is made in accordance with
the 1933 Act and laws. In the event of any such transfer, other than the
transfer of
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the Tax Matters Person Residual Interest to the Trustee (i) unless such
transfer is made in reliance upon Rule 144A under the 1933 Act, the Trustee and
the Seller shall require a written Opinion of Counsel (which may be in-house
counsel) acceptable to and in form and substance reasonably satisfactory to the
Trustee and the Seller that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor, from the 1933 Act
or is being made pursuant to the 1933 Act, which Opinion of Counsel shall not
be an expense of the Trustee or the Seller or (ii) the Trustee shall require
the transferor to execute a transferor certificate (in substantially the form
attached hereto as Exhibit H) and the transferee to execute an investment
letter (in substantially the form of either Exhibit J, Exhibit K or Exhibit L
attached hereto) acceptable to and in form and substance reasonably
satisfactory to the Seller and the Trustee certifying to the Seller and the
Trustee the facts surrounding such transfer, which investment letter shall not
be an expense of the Trustee or the Seller. The Holder of a Class R
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and the Seller against any liability that may result if
the transfer is not so exempt or is not made in accordance with such federal
and state laws.
No transfer of a Class R Certificate shall be made unless the
Trustee shall have received either (i) a representation from the transferee of
such Certificate acceptable to and in form and substance satisfactory to the
Trustee, such requirement is satisfied only by the Trustee's receipt of a
representation letter from the transferee substantially in the form of Exhibit
J, Exhibit K or Exhibit L, as appropriate), to the effect that such transferee
is not an employee benefit plan or arrangement subject to Section 406 of ERISA
or a plan subject to Section 4975 of the Code, nor a person acting on behalf of
any such plan or arrangement nor using the assets of any such plan or
arrangement to effect such transfer or (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60") and that the purchase and
holding of such Certificates are covered under PTCE 95-60 or (iii) in the case
of any such Class R Certificate presented for registration in the name of an
employee benefit plan subject to ERISA or a plan or arrangement subject to
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee, which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust, addressed to the
Trustee, to the effect that the purchase or holding of such Class R Certificate
will not result in the assets of the Trust being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee to any obligation in addition to those expressly
undertaken in this Agreement or to any liability. Notwithstanding anything
else to the contrary herein, any purported transfer of a Class R Certificate to
or on behalf of an employee benefit plan subject to ERISA or to the Code
without the delivery to the Trustee of an Opinion of Counsel satisfactory to
the Trustee as described above shall be void and of no effect.
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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 Seller or its designee as its
attorney-in-fact to negotiate the terms of any mandatory sale under clause (iv)
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:
(i) 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.
(ii) In connection with any proposed transfer of any
Ownership Interest in a Class R Certificate, the Trustee shall as a
condition to registration of the transfer, require delivery to it, in
form and substance satisfactory to it, of each of the following:
(A) an affidavit in the form of Exhibit G from
the proposed transferee to the effect that such transferee is
a Permitted Transferee and 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 who is not a Permitted Transferee; and
(B) a covenant of the proposed transferee to the
effect that the proposed transferee agrees to be bound by and
to abide by the transfer restrictions applicable to the Class
R Certificates.
(iii) Any attempted or purported transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section 6.02 shall be absolutely null and void and shall vest no
rights in the purported transferee. If any purported transferee
shall, in violation of the provisions of this Section 6.02, become a
Holder of a Class R Certificate, then the prior Holder of such Class R
Certificate that is a Permitted Transferee shall, upon discovery that
the registration of transfer of such Class R Certificate was not in
fact permitted by this Section 6.02, be restored to all rights as
Holder thereof retroactive to the date of registration of transfer of
such Class R Certificate. The Trustee shall be under no liability to
any Person for any registration of transfer of a Class R Certificate
that is in fact not permitted by this Section 6.02 or for making any
distributions due on such Class R Certificate to the Holder thereof or
taking any other action with respect to such Holder under the
provisions of the Agreement so long as the Trustee received the
documents specified in clause (ii). The Trustee shall be entitled to
recover from any Holder of a Class R Certificate that was in fact not
a Permitted Transferee at the time such distributions were made all
distributions made on such Class R Certificate. Any such
distributions so
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recovered by the Trustee shall be distributed and delivered by the
Trustee to the prior Holder of such Class R Certificate that is a
Permitted Transferee.
(iv) If any Person other than a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation
of the restrictions in this Section 6.02, then the Trustee shall have
the right but not the obligation, without notice to the Holder of such
Class R Certificate or any other Person having an Ownership Interest
therein, to notify the Seller to arrange for the sale of such Class R
Certificate. The proceeds of such sale, net of commissions (which may
include commissions payable to the Seller or its affiliates in
connection with such sale), expenses and taxes due, if any, will be
remitted by the Trustee to the previous Holder of such Class R
Certificate that is a Permitted Transferee, except that in the event
that the Trustee determines that the Holder of such Class R
Certificate may be liable for any amount due under this Section 6.02
or any other provisions of this Agreement, the Trustee may withhold a
corresponding amount from such remittance as security for such claim.
The terms and conditions of any sale under this clause (iv) shall be
determined in the sole discretion of the Trustee, and it shall not be
liable to any Person having an Ownership Interest in a Class R
Certificate as a result of its exercise of such discretion.
(v) If any Person other than a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation
of the restrictions in this Section 6.02, then the Trustee, based on
information provided to the Trustee by the Seller will provide to the
Internal Revenue Service, and to the persons specified in Sections
860E(e)(3) and (6) of the Code, information needed to compute the tax
imposed under Section 860E(e)(5) of the Code on transfers of residual
interests to disqualified organizations.
The foregoing provisions of this Section 6.02(d) shall cease to apply (and the
applicable portions of the legend on a Class R Certificate may be deleted) to
transfers occurring on or after the date on which there shall have been
delivered to the Trustee, in form and substance satisfactory to the Trustee,
(i) written notification from each Rating Agency that the removal of the
restrictions on Transfer set forth in this Section 6.02 will not cause such
Rating Agency to downgrade its rating of the Certificates and (ii) an Opinion
of Counsel to the effect that such removal will not cause the REMIC created
hereunder to fail to qualify as a REMIC.
(e) No service charge shall be made for any registration
of transfer or exchange of Certificates of any Class, but the Certificate
Registrar 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 registration of transfer or exchange
shall be canceled by the Certificate Registrar and disposed of pursuant to its
standard procedures.
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Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates. If
(i) any mutilated Certificate is surrendered to the Certificate Registrar or
the Certificate Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (ii) there is delivered to
the Trustee, the Seller and the Certificate Registrar such security or
indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Trustee or the Certificate Registrar 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. Upon the issuance of any new Certificate under
this Section 6.03, the Trustee or the Certificate Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee and the Certificate Registrar) in connection
therewith. Any duplicate Certificate issued pursuant to this Section 6.03,
shall constitute complete and indefeasible evidence of ownership in the Trust,
as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
Section 6.04. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Master Servicer, the Seller, the
Trustee, the Certificate Registrar, the Certificate Insurer, any Paying Agent
and any agent of the Master Servicer, the Seller, the Trustee, the Certificate
Insurer, any Paying Agent or the Certificate Registrar may treat the Person,
including a Depository, in whose name any Certificate is registered as the
owner of such Certificate for the purpose of receiving distributions pursuant
to Section 5.01 and for all other purposes whatsoever, and none of the Master
Servicer, the Trustee, the Certificate Registrar nor any agent of any of them
shall be affected by notice to the contrary; provided, however, that to the
extent the Certificate Insurer makes an Insured Payment with respect to a
Certificate it shall be deemed to be the owner of such Certificate to the
extent provided in Section 4.01.
Section 6.05. Appointment of Paying Agent. (a) The Paying Agent
shall make distributions to Certificateholders from the Distribution Account
pursuant to Section 5.01 and shall report the amounts of such distributions to
the Trustee. The duties of the Paying Agent may include the obligation (i) to
withdraw funds from the Collection Account pursuant to Section 3.03 and for the
purpose of making the distributions referred to above and (ii) to distribute
statements and provide information to Certificateholders as required hereunder.
The Paying Agent hereunder shall at all times be a corporation duly
incorporated and validly existing under the laws of the United States of
America or any state thereof, authorized under such laws to exercise corporate
trust powers and subject to supervision or examination by federal or state
authorities. The Paying Agent shall initially be the Trustee. The Trustee may
appoint a successor to act as Paying Agent, which appointment shall be
reasonably satisfactory to the Seller.
(b) The Trustee shall cause the Paying Agent (if other
than the Trustee) to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee that such Paying Agent shall
hold all sums, if any, held by it for payment to the Certificateholders in
trust for the benefit of the Certificateholders entitled thereto until such
sums
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shall be paid to such Certificateholders and shall agree that it shall comply
with all requirements of the Code regarding the withholding of payments in
respect of Federal income taxes due from Certificate Owners and otherwise
comply with the provisions of this Agreement applicable to it.
ARTICLE VII
The Seller, the Master Servicer and the Representative
Section 7.01. Liability of the Seller, the Master Servicer and the
Representative. The Seller, the Master Servicer and the Representative shall
be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Seller, the Master Servicer or
the Representative, as the case may be, herein.
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Seller, the Master Servicer or the Representative. Any
corporation into which the Seller, the Master Servicer or the Representative
may be merged or consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Seller, the Master Servicer or the
Representative shall be a party, or any corporation succeeding to the business
of the Seller, the Master Servicer or the Representative, shall be the
successor of the Seller, the Master Servicer or the Representative, as the case
may be, hereunder, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor Master Servicer shall
satisfy all the requirements of Section 8.02 with respect to the qualifications
of a successor Master Servicer.
Section 7.03. Limitation on Liability of the Master Servicer and
Others. Neither the Master Servicer nor any of the directors or officers or
employees or agents of the Master Servicer shall be under any liability to the
Trust or the Certificateholders for any action taken or for refraining from the
taking of any action by the Master Servicer in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Master Servicer or any such Person against any liability
which would otherwise be imposed by reason of its willful misfeasance, bad
faith or negligence in the performance of duties of the Master Servicer or by
reason of its reckless disregard of its obligations and duties of the Master
Servicer hereunder; provided, further, that this provision shall not be
construed to entitle the Master Servicer to indemnity in the event that amounts
advanced by the Master Servicer to retire any senior lien exceed Net
Liquidation Proceeds realized with respect to the related Home Equity Loan.
The preceding sentence shall not limit the obligations of the Master Servicer
pursuant to Section 9.05. The Master Servicer and any director or officer or
employee or agent of the Master 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 Master Servicer and any director
or officer or employee or agent of the Master Servicer shall be indemnified by
the Trust and held harmless against any loss, liability or expense incurred in
connection with any legal action relating to this
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Agreement or the Certificates, other than any loss, liability or expense
related to any specific Home Equity Loan or Home Equity Loans (except as any
such loss, liability or expense shall be otherwise reimbursable pursuant to
this Agreement) and any loss, liability or expense incurred by reason of its
willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of its reckless disregard of obligations and duties
hereunder and such amounts shall be payable only pursuant to Section
5.01(a)(ii)(2). The Master Servicer may with the consent of the Certificate
Insurer undertake any such action which it may deem necessary or desirable in
respect of this Agreement, and the rights and duties of the parties hereto and
the interests of the Certificateholders hereunder. In such event, the
reasonable legal expenses and costs of such action and any liability resulting
therefrom shall be expenses, costs and liabilities of the Trust and the Master
Servicer shall be entitled to be reimbursed therefor only pursuant to Section
5.01(a)(ii)(2). The Master Servicer's right to indemnity or reimbursement
pursuant to this Section 7.03 shall survive any resignation or termination of
the Master Servicer pursuant to Section 7.04 or 8.01 with respect to any
losses, expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination). This paragraph shall apply to the Master Servicer solely in its
capacity as Master Servicer hereunder and in no other capacities.
Section 7.04. Master Servicer Not to Resign. Subject to the
provisions of Section 7.02, the Master Servicer shall not resign from the
obligations and duties hereby imposed on it except (i) upon determination that
the performance of its obligations or duties hereunder are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it or its subsidiaries
or Affiliates, the other activities of the Master Servicer so causing such a
conflict being of a type and nature carried on by the Master Servicer or its
subsidiaries or Affiliates at the date of this Agreement or (ii) upon
satisfaction of each of the following conditions: (a) the Master Servicer has
proposed a successor master servicer to the Trustee in writing and such
proposed successor master servicer is reasonably acceptable to the Trustee; (b)
each Rating Agency shall have delivered a letter to the Trustee prior to the
appointment of the successor master servicer stating that the proposed
appointment of such successor master servicer as Master Servicer hereunder will
not result in the reduction or withdrawal of the then current rating of the
Class A Certificates without regard to the Certificate Insurance Policy; and
(c) such proposed successor master servicer is reasonably acceptable to the
Certificate Insurer and consented to by the Certificate Insurer, as evidenced
by a letter to the Trustee; provided, however, that no such resignation by the
Master Servicer shall become effective until such successor master servicer or,
in the case of (i) above, the Trustee shall have assumed the Master Servicer's
responsibilities and obligations hereunder or the Trustee shall have designated
a successor master servicer in accordance with Section 8.02. Any such
resignation shall not relieve the Master Servicer of responsibility for any of
the obligations specified in Sections 8.01 and 8.02 as obligations that survive
the resignation or termination of the Master Servicer. Any such determination
permitting the resignation of the Master Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Trustee and the Certificate Insurer.
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Section 7.05. Delegation of Duties. In the ordinary course of
business, the Master Servicer at any time may delegate any of its duties
hereunder to any Person, including any of its Affiliates, who agrees to conduct
such duties in accordance with standards comparable to those set forth in
Section 3.01. Such delegation shall not relieve the Master Servicer of its
liabilities and responsibilities with respect to such duties and shall not
constitute a resignation within the meaning of Section 7.04. The Master
Servicer shall provide the Certificate Insurer and the Trustee with written
notice prior to the delegation of any of its duties to any Person other than
any of the Master Servicer's Affiliates or their respective successors and
assigns.
Section 7.06. Indemnification of the Trust. (a) The Master Servicer
shall indemnify and hold harmless the Trust and the Trustee from and against
any loss, liability, expense, damage or injury suffered or sustained by reason
of the Master Servicer's willful misfeasance, bad faith or negligence in the
performance of its activities in servicing or administering the Home Equity
Loans pursuant to this Agreement, including, but not limited to, any judgment,
award, settlement, reasonable attorneys' fees and other costs or expenses
incurred in connection with the defense of any actual or threatened action,
proceeding or claim related to the Master Servicer's misfeasance, bad faith or
negligence. Any such indemnification shall not be payable from the assets of
the Trust. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof.
(b) The Representative shall indemnify and hold harmless
the Trust and the Trustee from and against any loss, liability, expense, damage
or injury suffered or sustained by reason of the Representative's willful
misfeasance, bad faith or negligence in the performance of its activities
pursuant to this Agreement, including, but not limited to, any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim related to the Representative's misfeasance, bad faith or negligence.
Any such indemnification shall not be payable from the assets of the Trust.
The provisions of this indemnity shall run directly to and be enforceable by an
injured party subject to the limitations hereof.
The provisions of this Section 7.06 shall survive the termination of
this Agreement.
Section 7.07. Inspection. The Master Servicer shall (and shall
require any Sub-Servicer in the related Sub-Servicing Agreement to) afford the
Certificate Insurer, upon reasonable notice, during normal business hours,
access to all records maintained by the Master Servicer in respect of its
rights and obligations hereunder and access to officers of the Master Servicer
and each Sub-Servicer responsible for such obligations. Upon request, the
Master Servicer shall furnish to the Certificate Insurer the Master Servicer's
most recent publicly available financial statements and each Sub-Servicer's
most recent financial statements (annual or quarterly statements, as the case
may be) and such other information relating to their capacity to perform their
obligations under this Agreement as the Master Servicer or such Sub-Servicer
possesses.
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ARTICLE VIII
Default
Section 8.01. Events of Default (a) If any one of the following
events ("Events of Default") shall occur and be continuing:
(i) (A) The failure by the Master Servicer to make any
Monthly Advance; or (B) any other failure by the Master Servicer to
deposit in the Collection Account or the Distribution Account any
deposit required to be made under the terms of this Agreement which
continues unremedied for a period of three Business Days after the
date upon which payment was required to have been made; or
(ii) The failure by the Master Servicer to make any
required Servicing Advance which failure continues unremedied for a
period of 30 days, or the failure by the Master Servicer duly to
observe or perform, in any material respect, any other covenants,
obligations or agreements of the Master Servicer as set forth in this
Agreement, 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 Master Servicer by
the Trustee or to the Master Servicer and the Trustee by any Holder
with Certificates evidencing Voting Interests of at least 25% or the
Certificate Insurer; or
(iii) The entry against the Master Servicer of a decree or
order by a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a trustee,
conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding up
or liquidation of its affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 30 consecutive days;
or
(iv) The Master Servicer shall voluntarily go into
liquidation, consent to the appointment of a conservator or receiver
or liquidator or similar person in any insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings of
or relating to the Master Servicer or of or relating to all or
substantially all of its property, or a decree or order of a court or
agency or supervisory authority having jurisdiction in the premises
for the appointment of a conservator, receiver, liquidator or similar
person in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Master
Servicer and such decree or order shall have remained in force
undischarged, unbonded or unstayed for a period of 30 days; or the
Master Servicer shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
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applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors or voluntarily suspend payment of its
obligations; or
(v) Any failure by the Master Servicer to pay when due
any amount payable by it under the Insurance Agreement which results
in a drawing under the Certificate Insurance Policy.
(b) then, and in each and every such case, so long as an
Event of Default shall not have been remedied, (x) with respect solely to
clause (i)(A) above, if such Monthly Advance is not made by 12:00 noon, New
York time, on the second Business Day preceding the applicable Distribution
Date, the Trustee, upon receipt of written notice or discovery by a Responsible
Officer of such failure, shall give immediate telephonic notice of such failure
to a Servicing Officer of the Master Servicer and to the Certificate Insurer
and the Trustee shall terminate all of the rights and obligations of the Master
Servicer under this Agreement and the Trustee, or a successor master servicer
appointed in accordance with Section 8.02, shall immediately make such Monthly
Advance and assume, pursuant to Section 8.02, the duties of a successor Master
Servicer and (y) in the case of (i)(B), (ii), (iii), (iv), [(v)] and (vi)
above, the Trustee shall, at the direction of the Certificate Insurer or the
Holders of each Class of Class A Certificates evidencing Voting Rights
aggregating not less than 51% (with the consent of the Certificate Insurer so
long as no Certificate Insurer Default shall have occurred and be continuing,
by notice then given in writing to the Master Servicer (and to the Trustee if
given by Holders of Certificates), terminate all of the rights and obligations
of the Master Servicer as master servicer under this Agreement. Any such
notice to the Master Servicer shall also be given to each Rating Agency, the
Seller and the Certificate Insurer. On or after the receipt by the Master
Servicer of such written notice, all authority and power of the Master Servicer
under this Agreement, whether with respect to the Certificates or the Home
Equity Loans or otherwise, shall pass to and be vested in the Trustee pursuant
to and under this Section 8.01; and, without limitation, the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Master
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of each Home Equity Loan and related
documents, or otherwise. The Master Servicer agrees to cooperate with the
Trustee in effecting the termination of the responsibilities and rights of the
Master Servicer hereunder, including, without limitation, the transfer to the
Trustee for the administration by it of all cash amounts that shall at the time
be held by the Master Servicer and to be deposited by it in the Collection
Account, or that have been deposited by the Master Servicer in the Collection
Account or thereafter received by the Master Servicer with respect to the Home
Equity Loans. All reasonable out-of-pocket costs and expenses (including
attorneys' fees) incurred in connection with transferring the Mortgage Files to
the successor Master Servicer and amending this Agreement to reflect such
succession as Master Servicer pursuant to this Section 8.01 shall be paid by
the predecessor Master Servicer (or if the predecessor Master Servicer is the
Trustee, the initial Master Servicer) upon presentation of reasonable
documentation of such costs and expenses.
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Section 8.02. Trustee to Act; Appointment of Successor (a) On and
after the time the Master Servicer receives a notice of termination pursuant to
Section 8.01 or 7.04, the Trustee shall be the successor in all respects to the
Master Servicer in its capacity as master 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 Master
Servicer by the terms and provisions hereof arising on and after its
succession. As compensation therefor, the Trustee shall be entitled to such
compensation as the Master Servicer would have been entitled to hereunder if no
such notice of termination had been given. Notwithstanding the above, (i) if
the Trustee is unwilling to act as successor Master Servicer or (ii) if the
Trustee is legally unable so to act, the Trustee shall appoint or petition a
court of competent jurisdiction to appoint, any established housing and home
finance institution, bank or other Home Equity Loan or home equity loan
servicer having a net worth of not less than [$25,000,000] as the successor to
the Master Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Master Servicer hereunder;
provided that any such successor Master Servicer shall be acceptable to the
Certificate Insurer, as evidenced by the Certificate Insurer's prior written
consent which consent shall not be unreasonably withheld and provided, further,
that the appointment of any such successor Master Servicer will not result in
the qualification, reduction or withdrawal of the ratings assigned to the Class
A Certificates by the Rating Agencies. Pending appointment of a successor to
the Master Servicer hereunder, unless the Trustee is prohibited by law from so
acting, the Trustee shall act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the successor shall be
entitled to receive compensation out of payments on the Home Equity Loans in an
amount equal to the compensation which the Master Servicer would otherwise have
received pursuant to Section 3.08 (or such lesser compensation as the Trustee
and such successor shall agree). The appointment of a successor Master
Servicer shall not affect any liability of the predecessor Master Servicer
which may have arisen under this Agreement prior to its termination as Master
Servicer to pay any deductible under an insurance policy pursuant to Section
3.05 or to indemnify the Trustee pursuant to Section 7.06), nor shall any
successor Master Servicer be liable for any acts or omissions of the
predecessor Master Servicer or for any breach by such Master Servicer of any of
its representations or warranties contained herein or in any related document
or agreement. The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession.
(b) Any successor, including the Trustee, to the Master
Servicer as master servicer shall during the term of its service as master
servicer (i) continue to service and administer the Home Equity Loans for the
benefit of Certificateholders and the Certificate Insurer, (ii) maintain in
force a policy or policies of insurance covering errors and omissions in the
performance of its obligations as Master Servicer hereunder and a fidelity bond
in respect of its officers, employees and agents to the same extent as the
Master Servicer is so required pursuant to Section 3.12.
If an Event of Default of the type described in Section 8.01(a)(i)
(for purposes of this Section 8.02(b), such default shall be termed the failure
to make a "Remittance") occurs because the
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Master Servicer is the subject of a proceeding under the Bankruptcy Code and
the making of such Remittance is prohibited by Section 362 of the Bankruptcy
Code, the Trustee shall upon notice of such prohibition, regardless of whether
it has received or given a notice of termination under Section 8.01, advance,
the amount of such Remittance by depositing such amount in the Distribution
Account on the related Distribution Date. The Trustee shall be obligated to
make such advance only if (i) such advance, in the good faith judgment of the
Trustee, can reasonably be expected to be ultimately recoverable from funds
which are in the custody of the Master Servicer, a trustee in bankruptcy or a
federal bankruptcy court and should have been the subject of such Remittance
absent such prohibition (the "Stayed Funds") and (ii) the Trustee is not
prohibited by law from making such advance or obligating itself to do so. Upon
remittance of the Stayed Funds to the Trustee or the deposit thereof in the
Distribution Account by the Master Servicer, a trustee in bankruptcy or a
federal bankruptcy court, the Trustee may recover the amount so advanced,
without interest, by withdrawing such amount from the Distribution Account;
however, nothing in this Agreement shall be deemed to affect the Trustee's
rights to recover from the Master Servicer's own funds interest on any such
Stayed Funds. If the Trustee at any time makes an advance under this
Subsection which it later determines in its good faith judgment will not be
ultimately recoverable from the Stayed Funds with respect to which such advance
was made, the Trustee shall, upon certification of such nonrecoverability to
the Certificate Insurer, be entitled to reimburse itself (or direct the
successor Master Servicer to reimburse it) for such advance, without interest,
by withdrawing an amount equal to such advance from the Distribution Account.
Section 8.03. Waiver of Defaults. The Certificate Insurer or the
Majority Certificateholders with the consent of the Certificate Insurer may, on
behalf of all Certificateholders, waive any events permitting removal of the
Master Servicer as master servicer pursuant to this Article VIII, 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 8.04. Rights of the Certificate Insurer to Exercise Rights of
Class A Certificateholders. By accepting its Certificate, each Class A
Certificateholder agrees that unless a Certificate Insurer Default exists, the
Certificate Insurer shall be deemed to be the Certificateholders for all
purposes (other than with respect to payment on the Certificates) and shall
have the right to exercise all rights of the Class A Certificateholders under
this Agreement and under each Class of Class A Certificates without any further
consent of the Class A Certificateholders, including, without limitation:
(a) the right to require the Representative or the
applicable Originator to repurchase Home Equity Loans pursuant to Section 2.02
or 2.05;
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(b) the right to give notices of breach or to terminate
the rights and obligations of the Master Servicer as master servicer pursuant
to Section 8.01 and to consent to or direct waivers of Master Servicer defaults
pursuant to Section 8.03;
(c) the right to direct the actions of the Trustee during
the continuance of a Master Servicer default pursuant to Sections 8.01 and
8.02;
(d) the right to institute proceedings against the Master
Servicer pursuant to Section 8.01;
(e) the right to direct the Trustee to investigate
certain matters pursuant to Section 9.02;
(f) the right to remove the Trustee pursuant to Section
9.07;
(g) the right to direct foreclosures upon the failure of
the Master Servicer to do so in accordance with this Agreement; and
(h) any rights or remedies expressly given the Majority
Certificateholders.
In addition, each Certificateholder agrees that unless a Certificate Insurer
Default exists, the rights specifically enumerated in this Agreement may be
exercised by the Certificateholders only with the prior written consent of the
Certificate Insurer.
Section 8.05. Trustee to Act Solely with Consent of the Certificate
Insurer. Unless a Certificate Insurer Default exists, the Trustee shall not,
without the Certificate Insurer's consent or unless directed by the Certificate
Insurer:
(a) terminate the rights and obligations of the Master
Servicer as Master Servicer pursuant to Section 8.01;
(b) agree to any amendment pursuant to Article XI,
provided, however, that such consent shall not be unreasonably withheld; or
(c) undertake any litigation.
The Certificate Insurer may, in writing and in its sole discretion
renounce all or any of its rights under Section 8.04, 8.05 or 8.06 or any
requirement for the Certificate Insurer's consent for any period of time.
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Section 8.06. Home Equity Loans, Trust and Accounts Held for Benefit
of the Certificate Insurer. The Trustee shall hold the Trust and the Mortgage
Files for the benefit of the Certificateholders and the Certificate Insurer and
all references in this Agreement and in the Certificates "on behalf of" or 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.
The Master Servicer hereby acknowledges and agrees that it shall
service the Home Equity 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.
Section 8.07. Certificate Insurer Default. Notwithstanding anything
elsewhere in this Agreement or in the Certificates to the contrary, if a
Certificate Insurer Default exists, or if and to the extent the Certificate
Insurer has delivered its written renunciation of its rights, the provisions of
this Article VIII and all other provisions of this Agreement which (a) permit
the Certificate Insurer to exercise rights of the Certificateholders, (b)
restrict the ability of the Certificateholders, the Master Servicer, the
Representative or the Trustee to act without the consent or approval of the
Certificate Insurer, (c) provide that a particular act or thing must be
acceptable to the Certificate Insurer, (d) permit the Certificate Insurer to
direct (or otherwise to require) the actions of the Trustee, the Master
Servicer, the Representative or the Certificateholders, (e) provide that any
action or omission taken with the consent, approval or authorization of the
Certificate Insurer shall be authorized hereunder or shall not subject the
party taking or omitting to take such action to any liability hereunder or (f)
which have a similar effect, shall be of no further force and effect and the
Trustee shall administer the Trust and perform its obligations hereunder solely
for the benefit of the Holders of the Certificates; provided, however, that the
Certificate Insurer's rights shall be immediately reinstated following the cure
of such Certificate Insurer Default. Nothing in the foregoing sentence, nor
any action taken pursuant thereto or in compliance therewith, shall be deemed
to have released the Certificate Insurer from any obligation or liability it
may have to any party or to the Certificateholders hereunder, under any other
agreement, instrument or document (including, without limitation, the
Certificate Insurance Policy) or under applicable law.
Section 8.08. Notification to Certificateholders. Upon any
termination or appointment of a successor to the Master Servicer pursuant to
this Article VIII or Section 7.04, the Trustee shall give prompt written notice
thereof to the Certificateholders at their respective addresses appearing in
the Certificate Register, the Certificate Insurer and each Rating Agency.
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ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee. (a) 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 has
occurred (which has not been cured) of which a Responsible Officer has
knowledge, the Trustee shall exercise such of the rights and powers vested in
it by this Agreement, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
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 to the requirements of this Agreement. If any such instrument is found
not to be in the form specified in this Agreement, on its face, the Trustee
shall take action as it deems appropriate to have the instrument corrected, and
if the instrument is not corrected to the Trustee's satisfaction, the Trustee
will, at the expense of the Master Servicer, provide notice thereof to the
Certificate Insurer and will, at the expense of the Master Servicer, which
expense shall be reasonable given the scope and nature of the required action,
take such further action as directed by the Certificate Insurer.
The Trustee may, in accordance with its duties hereunder, do all
things necessary and proper as may be required in connection with any secondary
mortgage licensing laws and similar requirements, including, but not limited
to, consenting to jurisdiction, and the appointment of agents for service of
process, in jurisdictions in which the Mortgaged Properties are located.
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 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
occurred, 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;
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(ii) the Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining or investigating the facts related thereto;
(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 consent or direction of the
Certificate Insurer or in accordance with the direction of the Holders
of Class A Certificates evidencing Percentage Interests aggregating
not less than 51% (subject to the Certificate Insurer's prior written
consent) relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising or
omitting to exercise any trust or power conferred upon the Trustee,
under this Agreement; and
(iv) the Trustee shall not be charged with knowledge of
any failure by the Master Servicer to comply with the obligations of
the Master Servicer referred to in clauses (i) and (ii) of Section
8.01 unless a Responsible Officer of the Trustee at the Corporate
Trust Office obtains actual knowledge of such failure or the Trustee
receives written notice of such failure from the Master Servicer, the
Certificate Insurer or the Holders of Class A Certificates evidencing
Percentage Interests aggregating not less than 51%. This paragraph
shall not be construed to limit the effect of the first paragraph of
this Section 9.01.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Master Servicer under this Agreement, except during
such time, if any, as the Trustee shall be the successor to, and be vested with
the rights, duties, powers and privileges of, the Master Servicer in accordance
with the terms of this Agreement.
Section 9.02. Certain Matters Affecting the Trustee. (a) Except as
otherwise provided in Section 9.01:
(i) the Trustee may request and rely upon, and shall be
protected in acting or refraining from acting upon, any resolution,
Officer's Certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(ii) the Trustee may consult with counsel and any written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect
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of any action taken or suffered or omitted by it hereunder in good
faith and in accordance with such advice or Opinion of Counsel;
(iii) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation 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 shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; 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
any such act; nothing contained herein shall, however, relieve the
Trustee of the obligations, upon the occurrence of an Event of Default
(which has not been cured) of which a Responsible Officer has
knowledge, 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 their
exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(iv) 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;
(v) prior to the occurrence of an Event of Default 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 documents, unless requested in writing to do so by the
Certificate Insurer or by Holders of Certificates evidencing
Percentage Interests aggregating not less than 51% (subject to the
Certificate Insurer's prior written consent); provided, however, that
if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of
this Agreement, the Trustee may require reasonable indemnity against
such cost, expense or liability as a condition to such proceeding.
The reasonable expense of every such examination shall be paid by the
Master Servicer or, if paid by the Trustee, shall be reimbursed by the
Master Servicer upon demand. Nothing in this clause (v) shall
derogate from the obligation of the Master Servicer to observe any
applicable law prohibiting disclosure of information regarding the
Mortgagors;
(vi) the Trustee shall not be accountable, shall have no
liability and makes no representation as to any acts or omissions
hereunder of the Master Servicer until such time as the Trustee may be
required to act as Master Servicer pursuant to Section 8.02;
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(vii) 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 or a custodian; and
(viii) 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.
(b) It is intended that the REMIC formed hereunder shall
constitute, and that the affairs of the REMIC shall be conducted so as to
qualify it as, a REMIC as defined in and in accordance with the REMIC
Provisions. In furtherance of such intention, the Trustee covenants and agrees
that it shall act as agent (and the Trustee is hereby appointed to act as
agent) and as Tax Matters Person on behalf of the REMIC formed hereunder, and
that in such capacities, it shall:
(i) prepare, sign and file, or cause to be prepared and
filed, in a timely manner, a U.S. Real Estate Mortgage Investment
Conduit Income Tax Return (Form 1066) and any other Tax Return
required to be filed by the REMIC created hereunder, using a calendar
year as the taxable year for such REMIC;
(ii) make, or cause to be made, an election, on behalf of
the REMIC created hereunder, to be treated as a REMIC on the federal
tax return of such REMIC for its first taxable year;
(iii) prepare and forward, or cause to be prepared and
forwarded, to the Master Servicer, the Seller, the Certificateholders
and to the Internal Revenue Service and any other relevant
governmental taxing authority all information returns or reports as
and when required to be provided to them in accordance with the REMIC
Provisions;
(iv) to the extent that the affairs of the REMIC created
hereunder are within its control, conduct such affairs of such REMIC
at all times that any Certificates are outstanding so as to maintain
the status of such REMIC as a REMIC under the REMIC Provisions and any
other applicable federal, state and local laws, including, without
limitation, information reports relating to "original issue discount,"
as defined in the Code, based upon ______% of the Prepayment
Assumption and calculated by using the issue price of the
Certificates;
(v) not knowingly or intentionally take any action or
omit to take any action that would cause the termination of the REMIC
status of the REMIC created hereunder;
(vi) pay the amount of any and all federal, state and
local taxes, including, without limitation, any minimum tax imposed by
Sections 23151(a) and 23153(a) of the California Revenue and Taxation
Code upon the Trustee or the Certificateholders in
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connection with the Trust or the Home Equity Loans, prohibited
transaction taxes as defined in Section 860F of the Code, other than
any amount due as a result of a transfer or attempted or purported
transfer in violation of Section 6.02, imposed on the Trust when and
as the same shall be due and payable (but such obligation shall not
prevent the Trustee or any other appropriate Person from contesting
any such tax in appropriate proceedings and shall not prevent the
Trustee from withholding payment of such tax, if permitted by law,
pending the outcome of such proceedings). The Trustee shall be
entitled to reimbursement in accordance with Section 2.14;
(vii) ensure that any such returns or reports filed on
behalf of the Trust by the Trustee are properly executed by the
appropriate person;
(viii) represent the Trust in any administrative or judicial
proceedings relating to an examination or audit by any governmental
taxing authority, request an administrative adjustment as to any
taxable year of the Trust, enter into settlement agreements with any
government taxing agency, extend any statute of limitations relating
to any item of the Trust and otherwise act on behalf of the Trust in
relation to any tax matter involving the Trust;
(ix) as provided in Section 2.12, make available
information necessary for the computation of any tax imposed (1) on
transferors of residual interests to transferees that are not
Permitted Transferees or (2) on pass-through entities, any interest in
which is held by an entity which is not a Permitted Transferee. The
Trustee covenants and agrees that it will cooperate with the Master
Servicer in the foregoing matters and that it will sign, as Trustee,
any and all Tax Returns required to be filed by the Trust.
Notwithstanding the foregoing, at such time as the Trustee becomes the
successor Master Servicer, the holder of the largest percentage of the
Class R Certificates shall serve as Tax Matters Person until such time
as an entity is appointed to succeed the Trustee as Master Servicer;
(x) 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
not a Permitted Transferee, including the information described in
Treasury regulations sections 1.860D-1(b)(5) and 1.860E- 2(a)(5) with
respect to the "excess inclusions" of such Residual Certificate and
(B) as a result of any regulated investment company, real estate
investment trust, common trust fund, 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 that is not a Permitted Transferee.
Reasonable compensation for providing such information may be accepted
by the Trustee; and
(xi) pay out of its own funds, without any right of
reimbursement, any and all tax-related expenses of the Trust
(including, but not limited to, tax return preparation and
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filing expenses and any professional fees or expenses related to
audits or any administrative or judicial proceedings with respect to
the Trust that involve the Internal Revenue Service or state tax
authorities), other than (A) the expense of obtaining any Opinion of
Counsel required pursuant to Sections [2.07, 2.14, 6.02, 7.04, 8.06,
9.02, 11.01 or 11.02], (B) any expenses for which the Trustee is
otherwise indemnified pursuant to Section 9.05 and (C) taxes except as
specified herein.
(xii) Upon filing with the Internal Revenue Service, the
Trustee shall furnish to the Holders of the Residual Certificates the
Form 1066 and each Form 1066Q for the REMIC created hereunder and
shall respond promptly to written requests made not more frequently
than quarterly by any Holder of Residual Certificates with respect to
the following matters:
(1) The original projected principal and interest
cash flows on the Closing Date on each class of regular and
residual interests created hereunder and on the Home Equity
Loans, based on the applicable Prepayment Assumption;
(2) The projected remaining principal and
interest cash flows as of the end of any calendar quarter with
respect to each class of regular and residual interests
created hereunder and the Home Equity Loans, based on the
applicable Prepayment Assumption;
(3) The Prepayment Assumption and any interest
rate assumptions used in determining the projected principal
and interest cash flows described above;
(4) The original issue discount (or, in the case
of the Home Equity Loans, market discount) or premium accrued
or amortized through the end of such calendar quarter with
respect to each class of regular or residual interests created
hereunder and with respect to the Home Equity Loans, together
with each constant yield to maturity used in computing the
same;
(5) The treatment of losses realized with respect
to the Home Equity Loans or the regular interests created
hereunder, including the timing and amount of any cancellation
of indebtedness income of the REMIC created hereunder with
respect to such regular interests or bad debt deductions
claims with respect to the Home Equity Loans;
(6) The amount and timing of any non-interest
expenses of the REMIC hereunder; and
(7) Any taxes (including penalties and interest)
imposed on the REMIC created hereunder, including, without
limitation, taxes on "prohibited transactions,"
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"contribution" or "net income from foreclosure property" or
state or local income or franchise taxes.
(xiii) Following the Closing Date, and except as otherwise
provided in this Agreement, the Trustee shall not knowingly accept any
contribution of assets to the Trust unless it shall have been provided
with an Opinion of Counsel at the expense of the party delivering such
assets acceptable to it and the Certificate Insurer to the effect that
the inclusion of such assets in the REMIC created hereunder will not
cause the REMIC to fail to qualify as a REMIC at any time that any
Certificates are outstanding or subject the Trust to any tax under the
REMIC Provisions or other applicable provisions of federal, state and
local law or ordinances.
(xiv) The Trustee agrees to indemnify the Trust, the
Certificate Insurer and the Master Servicer for any taxes and costs,
including, without limitation, any reasonable attorneys' fees imposed
on or incurred by the Trust, the Certificate Insurer or the Master
Servicer, as a result of a breach of the Trustee's covenants set forth
in Section 9.02(b).
Section 9.03. Trustee Not Liable for Certificates or Home Equity
Loans. The recitals contained herein and in the Certificates (other than the
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Seller, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this Agreement or of the Certificates (other than
the signature and authentication of the Trustee on the Certificates) or of any
Home Equity Loan or related document. The Trustee shall not be accountable for
the use or application by the Master Servicer or for the use or application of
any funds paid to the Master Servicer in respect of the Home Equity Loans or
deposited in or withdrawn from the Collection Account by the Master Servicer.
The Trustee shall at no time have any responsibility or liability for or with
respect to the legality, validity and enforceability of any Mortgage or any
Home Equity Loan, or the perfection and priority of any Mortgage or the
maintenance of any such perfection and priority, or for or with respect to the
sufficiency of the Trust or its ability to generate the payments to be
distributed to Certificateholders under this Agreement, including, without
limitation: the existence, condition and ownership of any Mortgaged Property;
the existence and enforceability of any hazard insurance thereon (other than if
the Trustee shall assume the duties of the Master Servicer pursuant to Section
8.02); the validity of the assignment of any Home Equity Loan to the Trustee or
of any intervening assignment; the completeness of any Home Equity Loan; the
performance or enforcement of any Home Equity Loan (other than if the Trustee
shall assume the duties of the Master Servicer pursuant to Section 8.02); the
compliance by the Seller, the Master Servicer, the Representative or any
Originator with any warranty or representation made under this Agreement or in
any related document or the accuracy of any such warranty or representation
prior to the Trustee's receipt of notice or other discovery of any
non-compliance therewith or any breach thereof; any investment of monies by or
at the direction of the Master Servicer or any loss resulting therefrom, it
being understood that the Trustee shall remain responsible for any Trust
property that it may hold in its individual capacity;
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the acts or omissions of any of the Master Servicer (other than if the Trustee
shall assume the duties of the Master Servicer pursuant to Section 8.02), any
Sub-Servicer, the Representative, an Originator or any Mortgagor; any action of
the Master Servicer (other than if the Trustee shall assume the duties of the
Master Servicer pursuant to Section 8.02) or any Sub-Servicer taken in the name
of the Trustee; the failure of the Master Servicer or any Sub-Servicer to act
or perform any duties required of it as agent of the Trustee hereunder; or any
action by the Trustee taken at the instruction of the Master Servicer (other
than if the Trustee shall assume the duties of the Master Servicer pursuant to
Section 8.02); provided, however, that the foregoing shall not relieve the
Trustee of its obligation to perform its duties under this Agreement,
including, without limitation, the Trustee's duty to review the Mortgage Files
pursuant to Section 2.02. Until such time as the Trustee shall have become the
successor Master Servicer, the Trustee shall have no responsibility to perfect
or maintain the perfection of any security interest or lien granted to it
hereunder.
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 as it would have if it were not Trustee and
may transact any banking and trust business with the Seller, the Master
Servicer or the Representative.
Section 9.05. Master Servicer to Pay Trustee Fees and Expenses.
The Master Servicer will pay or reimburse, except as provided in Section
2.14(g), the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement or the Insurance Agreement (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith or which
is the responsibility of Certificateholders hereunder. In addition, except as
provided in Section 2.14(g), the Master Servicer covenants and agrees to
indemnify the Trustee and its officers, directors, employees and agents from,
and hold it harmless against, any and all losses, liabilities, damages, claims
or expenses (i) incurred in connection with or relating to this Agreement, the
Insurance Agreement or the Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence of
the Trustee in the performance of its duties hereunder or by reason of the
Trustee's reckless disregard of obligations and duties hereunder or (ii)
resulting from any error in any tax or information return prepared by the
Master Servicer. This Section 9.05 shall survive termination of this Agreement
or the resignation or removal of any Trustee hereunder.
Section 9.06. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation duly incorporated and validly
existing under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 and a minimum long-term
debt rating of "Baa3", and subject to supervision or examination by federal or
state authority, and is reasonably acceptable to the Certificate Insurer. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining
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authority, then for the purposes of this Section 9.06, 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. The
principal office of the Trustee (other than the initial Trustee) shall be in a
state with respect to which an Opinion of Counsel has been delivered to such
Trustee at the time such Trustee is appointed Trustee to the effect that the
Trust will not be a taxable entity under the laws of such state. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 9.06, the Trustee shall resign immediately in the
manner and with the effect specified in Section 9.07.
Section 9.07. Resignation or Removal of Trustee. The Trustee may
at any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Seller, the Master Servicer, the Certificate
Insurer and each Rating Agency. Upon receiving such notice of resignation, the
Seller shall promptly appoint a successor Trustee (approved in writing by the
Certificate Insurer and the Master Servicer, so long as such approval shall not
unreasonably be withheld) by written instrument, in duplicate, copies of which
instrument shall be delivered to the resigning Trustee, the Certificate Insurer
and the successor Trustee; provided, however, that any such successor Trustee
shall be subject to the prior written approval of the Master Servicer. If no
successor Trustee shall have been so appointed and having 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 in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Seller or the Certificate Insurer, or if at any time
the Trustee shall be legally unable to act, 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 the Seller, the Master Servicer or the Certificate Insurer
may remove the Trustee. If the Seller, the Master Servicer or the Certificate
Insurer removes the Trustee under the authority of the immediately preceding
sentence, the Depositor shall promptly appoint a successor Trustee (approved in
writing by the Certificate Insurer, so long as such approval is not
unreasonably withheld) by written instrument, in duplicate, copies of which
instrument shall be delivered to the Trustee so removed, the Certificate
Insurer and to the successor Trustee.
The Holders of Certificates evidencing Voting Rights aggregating over
50% of all Voting Rights may, with the prior written consent of the Certificate
Insurer, at any time remove the Trustee by written instrument or instruments
delivered to the Master Servicer, the Seller and the Trustee; shall thereupon
use its best efforts to appoint a successor trustee in accordance with this
Section 9.07.
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Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 9.07 shall
not become effective until acceptance of appointment by the successor Trustee
as provided in Section 9.08.
Notwithstanding anything to the contrary contained herein, so long as
no Certificate Insurer Default exists, the Trustee may not be removed by the
Seller or the Certificateholders without the prior written consent of the
Certificate Insurer, which consent shall not be unreasonably withheld.
Section 9.08. Successor Trustee. Any successor Trustee appointed
as provided in Section 9.07 shall execute, acknowledge and deliver to the
Seller, the Master Servicer and to its predecessor Trustee and the Certificate
Insurer 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 like effect as if originally named as Trustee. The
Seller, the Master Servicer and the predecessor Trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for fully and certainly vesting and confirming in the successor Trustee all
such rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.08 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 9.08, the Master Servicer shall mail notice of the succession of
such Trustee hereunder to all Holders of Certificates at their addresses as
shown in the Certificate Register and to each Rating Agency. If the Master
Servicer fails to mail such notice within 30 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be mailed at the expense of the Master 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, which consent shall not be
unreasonably withheld.
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 that 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
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other than the prior written consent of the Certificate Insurer, which consent
shall not be unreasonably withheld.
Section 9.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property may at the time be located, the Seller
and the Trustee acting jointly and with the consent of the Certificate Insurer
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Trustee and the Certificate Insurer 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, and to vest in such Person
or Persons, in such capacity and for the benefit of the Certificateholders and
the Certificate Insurer, such title to the Trust, or any part thereof, and,
subject to the other provisions of this Section 9.10, such powers, duties,
obligations, rights and trusts as the Master Servicer and the Trustee may
consider necessary or desirable. Any such co-trustee or separate trustee shall
be subject to the written approval of the Master Servicer. If the Master
Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request so to do, or, in the case an Event of Default shall
have occurred and be continuing, the Trustee alone and with the consent of the
Certificate Insurer shall have the power to make such appointment. Subject to
the Certificate Insurer's written approval, no co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 9.06 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 9.08.
Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(i) 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 (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the 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 or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(ii) no trustee hereunder shall be held personally liable
by reason of any act or omission of any other trustee hereunder; and
(iii) the Master Servicer and the Trustee acting jointly
and with the consent of the Certificate Insurer may at any time accept
the resignation of or remove any separate trustee or co-trustee except
that following the occurrence of an Event of Default, the Trustee
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acting with the consent of the Certificate Insurer may accept the
resignation or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the 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 and a copy thereof given to the Seller, the Certificate Insurer and the
Master Servicer.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Trustee, to the extent permitted by law, without the appointment of a
new or successor Trustee.
Section 9.11. Limitation of Liability. The Certificates are
executed by the Trustee, not in its individual capacity but solely as Trustee
of the Trust, in the exercise of the powers and authority conferred and vested
in it by this Agreement. Each of the undertakings and agreements made on the
part of the Trustee in the Certificates is made and intended not as a personal
undertaking or agreement by the Trustee but is made and intended for the
purpose of binding only the Trust.
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates; Inspection. (a) All rights of action and claims under this
Agreement or the Certificates may be prosecuted and enforced by the Trustee or
the Certificate Insurer without the possession of any of the Certificates or
the production thereof in any proceeding relating thereto, and such proceeding
instituted by the Trustee shall be brought in its own name or in its capacity
as Trustee. Any recovery of judgment shall, after provision for the payment of
the reasonable compensation, expenses, disbursement and advances of the
Trustee, its agents and counsel, be for the ratable benefit of the
Certificateholders or the Certificate Insurer in respect of which such judgment
has been recovered.
(b) The Trustee shall afford the Seller, the Master Servicer, the
Certificate Insurer, the Representative and each Certificateholder upon
reasonable notice during normal business hours, access to all records
maintained by the Trustee in respect of its duties hereunder and access to
officers of the Trustee responsible for performing such duties. Upon request,
the Trustee shall furnish the Seller, the Master Servicer, the Certificate
Insurer, the Representative and any requesting Certificateholder with its most
recent financial statements. The Trustee shall cooperate
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fully with the Seller, the Master Servicer, the Certificate Insurer, the
Representative and such Certificateholder and shall make available to the
Seller, the Master Servicer, the Certificate Insurer, the Representative and
such Certificateholder for review and copying such books, documents or records
as may be requested with respect to the Trustee's duties hereunder. The
Seller, the Master Servicer, the Certificate Insurer, the Representative and
the Certificateholders shall not have any responsibility or liability for any
action or failure to act by the Trustee and are not obligated to supervise the
performance of the Trustee under this Agreement or otherwise.
Section 9.13 Suits for Enforcement. In case an Event of Default
or other default by the Master Servicer, the Seller, the Representative or any
Originator hereunder shall occur and be continuing, the Trustee may, with the
consent of the Certificate Insurer and shall at the direction of the
Certificate Insurer, proceed to protect and enforce its rights and the rights
of the Certificateholders or the Certificate Insurer under this Agreement by a
suit, action or proceeding in equity or at law or otherwise, whether for the
specific performance of any covenant or agreement contained in this Agreement
or in aid of the execution of any power granted in this Agreement or for the
enforcement of any other legal, equitable or other remedy, as the Certificate
Insurer, or if a Certificate Insurer Default shall have occurred and be
continuing, the Trustee, being advised by counsel, shall deem most effectual to
protect and enforce any of the rights of the Trustee or the Certificate Insurer
and the Certificateholders and the Certificate Insurer.
ARTICLE X
Termination
Section 10.01. Termination. (a) The respective obligations and
responsibilities of the Seller, the Master Servicer, the Trustee, the
Representative and the Originators created hereby (other than the obligation of
the Trustee to make certain payments to Certificateholders after the final
Distribution Date and the obligation of the Master Servicer to send certain
notices as hereinafter set forth) shall terminate upon notice to the Trustee of
the later of (x) the distribution to Certificateholders of the final payment or
collection with respect to the last Home Equity Loan (or Monthly Advances of
same by the Master Servicer), (y) the disposition of all funds with respect to
the last Home Equity Loan and the remittance of all funds due under the
Agreement and the payment of all amounts due and payable to the Certificate
Insurer and the Trustee and (z) the Distribution Date in ______________.
Notwithstanding the foregoing, in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the last survivor
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
The Master Servicer may, at its option, terminate this Agreement on
any Distribution Date on or after the Optional Termination Date, by purchasing,
on the such Distribution Date, all of the outstanding Home Equity Loans and REO
Properties at a price equal to the sum of (x) 100% of the
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aggregate Principal Balance of the Home Equity Loans and REO Properties, plus
(y) the greater of (i) the aggregate amount of accrued and unpaid interest on
the Home Equity Loans through the related Due Period and (ii) 30 days' accrued
interest thereon at a rate equal to the Loan Rate, in each case net of the
Servicing Fee plus (z) any Reimbursement Amounts due to the Certificate Insurer
and any other amounts due to the Certificate Insurer under the Insurance
Agreement (the "Termination Price").
In connection with any such purchase pursuant to the preceding
paragraph, the Master Servicer shall deposit in the Distribution Account all
amounts then on deposit in the Collection Account (less amounts permitted to be
withdrawn by the Master Servicer pursuant to Section 3.03), which deposit shall
be deemed to have occurred immediately preceding such purchase.
Any such purchase shall be accomplished by deposit into the
Distribution Account on the Determination Date before such Distribution Date of
the Termination Price.
(b) Notice of any termination, specifying the
Distribution Date (which shall be a date that would otherwise be a Distribution
Date) upon which the Certificateholders may surrender their Certificates to the
Trustee for payment of the final distribution and cancellation, shall be given
promptly by the Trustee to the Certificate Insurer by letter to
Certificateholders mailed not earlier than the 15th day and not later than the
25th day of the month next preceding the month of such final distribution
specifying (iii) the Distribution Date upon which final distribution of the
Certificates will be made upon presentation and surrender of Certificates at
the office or agency of the Trustee therein designated, (iv) the amount of any
such final distribution and (v) that the Record Date otherwise applicable to
such Distribution Date is not applicable, distributions being made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee therein specified.
(c) Upon presentation and surrender of the Certificates,
the Trustee shall cause to be distributed to the holders of Certificates on the
Distribution Date for such final distribution, in proportion to the Percentage
Interests of their respective Certificates and to the extent that funds are
available for such purpose, an amount equal to the amount required to be
distributed to Certificateholders pursuant to Section 5.01 for such
Distribution Date. On the final Distribution Date, the Trustee will withdraw
from the Distribution Account and remit to the Certificate Insurer the lesser
of (x) the amount available for distribution on such final Distribution Date,
net of any portion thereof necessary to pay the Class A Certificateholders
pursuant to Sections 5.01(a)(i)(2) and (3) and (y) the unpaid amounts due and
owing to the Certificate Insurer pursuant to Section 5.01(a).
(d) In the event that all of the Class A
Certificateholders shall not surrender their Certificates for final payment and
cancellation on or before such final Distribution Date, the Trustee shall
promptly following such date cause all funds in the Distribution Account not
distributed in final distribution to Class A Certificateholders to be withdrawn
therefrom and credited to the
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remaining Class A Certificateholders by depositing such funds in a separate
escrow account for the benefit of such Class A Certificateholders and the
Master Servicer (if the Master Servicer has exercised its right to purchase the
Home Equity Loans) or the Trustee (in any other case) shall give a second
written notice to the remaining Class A Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Class A
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 Class A Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds on deposit in
such escrow account.
Section 10.02. Additional Termination Requirements. (a) In the
event that the Master Servicer exercises its purchase option as provided in
Section 10.01, the Trust shall be terminated in accordance with the following
additional requirements, unless the Trustee and the Certificate Insurer have
been furnished with an Opinion of Counsel to the effect that the failure of the
Trust to comply with the requirements of this Section 10.02 will not (i) result
in the imposition of taxes on "prohibited transactions" of the Trust as defined
in Section 860F of the Code or (ii) cause the REMIC hereunder to fail to
qualify as a REMIC at any time that any Regular Certificates are outstanding:
(i) Within 90 days prior to the final Distribution Date,
the Master Servicer shall adopt and the Trustee shall sign a plan of
complete liquidation for the REMIC hereunder meeting the requirements
of a "Qualified Liquidation" under Section 860F of the Code and any
regulations thereunder; and
(ii) At or after the time of adoption of such a plan of
complete liquidation and at or prior to the final Distribution Date,
the Trustee shall sell all of the assets of the Trust to the Master
Servicer for cash.
(b) By their acceptance of the Certificates, the Holders thereof
hereby agree to appoint the Trustee as their attorney in fact to: (i) adopt
such a plan of complete liquidation (and the Certificateholders hereby appoint
the Trustee as their attorney in fact to sign such plan) as appropriate or upon
the written request of the Certificate Insurer and (ii) to take such other
action in connection therewith as may be reasonably required to carry out such
plan of complete liquidation all in accordance with the terms hereof.
ARTICLE XI
Miscellaneous Provisions
Section 11.01. Amendment. This Agreement may be amended from time
to time by the Seller, the Master Servicer, the Trustee, the Representative and
the Originators in each case without
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the consent of any of the Certificateholders, but only with the consent of the
Certificate Insurer (which consent shall not be unreasonably withheld), (i) to
cure any ambiguity, (ii) to correct any defective provisions or to correct or
supplement any provisions herein that may be inconsistent with any other
provisions herein, (iii) to add to the duties of the Master Servicer, the
Representative or the Originators, (iv) to add any other provisions with
respect to matters or questions arising under this Agreement or the Certificate
Insurance Policy, as the case may be, which shall not be inconsistent with the
provisions of this Agreement, (v) to add or amend any provisions of this
Agreement as required by any Rating Agency or any other nationally recognized
statistical rating agency in order to maintain or improve any rating of each
Class of Class A Certificates, without regard to the Certificate Insurance
Policy (it being understood that, after obtaining the ratings in effect on the
Closing Date, neither the Trustee, the Certificate Insurer, the Seller, the
Master Servicer, the Representative or the Originators is obligated to obtain,
maintain or improve any such rating) or (vi) to add or amend any provisions of
this Agreement to such extent as shall be necessary to maintain the
qualification of the REMIC hereunder as a REMIC; provided, however, that (x) as
evidenced by an Opinion of Counsel (at the expense of the requesting party) in
each case such action shall not adversely affect in any material respect the
interest of any Certificateholder, (y) in each case, such action is necessary
or desirable to maintain the qualification of the REMIC hereunder as a REMIC or
shall not adversely affect such qualification and (z) if the opinion called for
in clause (x) cannot be delivered with regard to an amendment pursuant to
clause (vi) above, such amendment is necessary to maintain the qualification of
the REMIC hereunder as a REMIC; and provided, further, that the amendment shall
not be deemed to adversely affect in any material respect the interests of the
Certificateholders and no Opinion of Counsel to that effect shall be required
if the Person requesting the amendment obtains a letter from the Rating Agency
stating that the amendment would not result in the downgrading or withdrawal of
the respective ratings then assigned to the Class A Certificates without regard
to the Certificate Insurance Policy.
This Agreement also may be amended from time to time by the Seller,
the Master Servicer, the Trustee, the Representative and the Originators and
the Master Servicer and the Certificate Insurer, may from time to time consent
to the amendment of the Certificate Insurance Policy with the consent of the
Holders of each Class of Class A Certificates which is affected by such
amendment, evidencing Voting Rights aggregating not less than 51%, and in the
case of an amendment to this Agreement, with the consent of the Certificate
Insurer, 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 Certificateholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
payments on the Certificates or distributions or payments under the Certificate
Insurance Policy which are required to be made on any Certificate without the
consent of the Holder of such Certificate or (ii) reduce the aforesaid
percentage required to consent to any such amendment, without the consent of
the Holders of all Certificates then outstanding.
Prior to the solicitation of consent of Certificateholders in
connection with any such amendment, the party seeking such amendment shall
furnish the Trustee and the Certificate Insurer
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with an Opinion of Counsel stating whether such amendment would adversely
affect the qualification of the REMIC hereunder as a REMIC and notice of the
conclusion expressed in such Opinion of Counsel shall be included with any such
solicitation. An amendment made with the consent of all Certificateholders and
the Certificate Insurer and executed in accordance with this Section 11.01
shall be permitted or authorized by this Agreement notwithstanding that such
Opinion of Counsel may conclude that such amendment would adversely affect the
qualification of the REMIC created hereunder as a REMIC.
Prior to the execution of any such amendment, the Trustee shall
furnish written notification of the substance of such amendment to each Rating
Agency. In addition, promptly after the execution of any such amendment made
with the consent of the Certificateholders, the Trustee shall furnish written
notification of the substance of such amendment to each Certificateholder and
fully executed original counterparts of the instruments effecting such
amendment to the Certificate Insurer.
It shall not be necessary for the consent of Certificateholders under
this Section 11.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable requirements as the Trustee may prescribe.
Section 11.02. Recordation of Agreement. This Agreement is subject
to recordation in all appropriate public offices for real property records in
all the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Trustee, but only upon direction of Certificateholders or the Certificate
Insurer accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of
Certificateholders or the Certificate Insurer, as applicable. The
Certificateholders or the Certificate Insurer, as the case may be, requesting
such recordation shall bear all costs and expenses of such recordation. The
Trustee shall have no obligation to ascertain whether such recordation so
affects the interests of the Certificateholders or the Certificate Insurer.
Section 11.03. Limitation on Rights of Certificateholders. The
death or incapacity of any Certificateholder shall not operate to terminate
this Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Trust, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
in Sections 8.01, 9.01, 9.02 and 11.01) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties
hereto, nor shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners
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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.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Class A Certificates evidencing Voting Rights aggregating
not less than 51% shall have made written request upon the Trustee to institute
such action, suit or proceeding in its own name as Trustee hereunder and shall
have offered to the Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit
or proceeding; it being understood and intended, and being expressly covenanted
by each Certificateholder with every other Certificateholder and the Trustee,
that no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of
this Agreement to affect, disturb or prejudice the rights of the Holders of any
other of the Certificates, or to obtain or seek to obtain priority over or
preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Certificateholders. For the protection and enforcement
of the provisions of this Section 11.03, each and every Certificateholder and
the Trustee shall be entitled to such relief as can be given either at law or
in equity.
Section 11.04. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 11.05 Notices. (a) All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Seller, 1727-B Charleston, Las Vegas, Nevada 09104,
Attention: _________________, (b) in the case of the Master Servicer, 600 Anton
Boulevard, Costa Mesa, California 92626, Attention: _______________, (c) in
the case of the Trustee, at the Corporate Trust Office, (d) in the case of the
Certificate Insurer, ________________ Attention: ______________ (in each case
in which notice or other communication to the Certificate Insurer refers to an
Event of Default, a claim on the Certificate Insurance Policy or with respect
to which failure on the part of the Certificate Insurer to respond shall be
deemed to constitute consent or acceptance, then a copy of such notice or other
communication shall be marked to indicate "URGENT MATERIAL ENCLOSED"), (e) in
the case of the Representative and each Originator, 600 Anton Boulevard, Costa
Mesa, California 92626, Attention: ____________________, (f) in the case of
[Rating Agency], _____________________,
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Attention: ________________________, or (g) as to each party, at such other
address as shall be designated by such party in a written notice to each other
party. Any notice required or permitted to be mailed to a Certificateholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice. Any
notice or other document required to be delivered or mailed by the Trustee to
any Rating Agency shall be given on a best efforts basis and only as a matter of
courtesy and accommodation and the Trustee shall have no liability for failure
to delivery such notice or document to any Rating Agency.
(b) Notice to the Rating Agencies. The Trustee and the
Master Servicer shall each be obligated to use its best efforts promptly to
provide notice, at the expense of the Master Servicer, to the Rating Agencies
with respect to each of the following of which a Responsible Officer of the
Trustee or Master Servicer, as the case may be, has actual knowledge:
(i) Any material change or amendment to this Agreement;
(ii) The occurrence of any Event of Default that has not
been cured or waived;
(iii) The resignation or termination of the Master Servicer
or the Trustee;
(iv) The final payment to Holders of the Certificates of
any Class;
(v) Any change in the location of any Account; and
(vi) Any event that would result in the inability of the
Trustee to make advances regarding Delinquent Home Equity Loans.
(c) In addition, (i) the Trustee shall promptly furnish
to each Rating Agency copies of the following:
(A) Each annual report to Certificateholders
described in Section 5.03; and
(B) Each Statement to Certificateholders
described in Section 5.03; and
(vii) The Master Servicer shall promptly furnish to each
Rating Agency copies of the following:
(A) Each annual statement as to compliance
described in Section 3.09;
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(B) Each annual independent public accountants'
servicing report described in Section 3.10; and
(C) Each notice delivered pursuant to Section
8.01(b) which relates to the fact that the Master Servicer has
not made a Delinquency Advance.
Any such notice pursuant to this Section 11.05 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 to the
addresses specified above for each such Rating Agency.
Section 11.06. Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 11.07. Successors and Assigns. All covenants and agreements
in this Agreement by any party hereto shall bind its successors and assigns,
whether so expressed or not.
Section 11.08. Certificates Nonassessable and Fully Paid. The
parties agree that the Certificateholders shall not be personally liable for
obligations of the Trust, that the beneficial ownership interests represented
by the Certificates shall be nonassessable for any losses or expenses of the
Trust or for any reason whatsoever, and that the Certificates upon execution,
authentication and delivery thereof by the Trustee pursuant to Section 6.02 are
and shall be deemed fully paid.
Section 11.09. Third-Party Beneficiaries. This Agreement will inure
to the benefit of and be binding upon the parties hereto, the
Certificateholders, the Certificate Owners, the Certificate Insurer and their
respective successors and permitted assigns. The Certificate Insurer shall be
a third-party beneficiary of this Agreement, entitled to enforce the provisions
hereof as if a party hereto. Except as otherwise provided in this Agreement,
no other person will have any right or obligation hereunder.
Section 11.10. Counterparts. This Agreement 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 11.11. 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.
-109-
<PAGE> 115
Section 11.12. Insurance Agreement. The Trustee is authorized and
directed to execute and deliver the Insurance Agreement and to perform the
obligations of the Trustee thereunder.
Section 11.13. Claims Upon the Certificate Insurance Policy. (a)
The Trustee shall comply with the provisions of the Certificate Insurance
Policy with respect to claims upon the Certificate Insurance Policy.
(b) The Trustee shall keep a complete and accurate record
of the amount of interest and principal paid in respect of any Class A
Certificate from moneys received under the Certificate Insurance Policy. The
Certificate Insurer shall have the right to inspect such records at reasonable
times during normal business hours upon one Business Day's prior written notice
to the Trustee.
(c) 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 the Bankruptcy Code (a "Preference Claim") of
any distribution made with respect to the Class A Certificates. Each
Certificateholder of Class A Certificates, by its purchase of Class A
Certificates, the Master Servicer, the Seller, the Trustee, the Representative
and each Originator hereby 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, supersedes or performance bond pending any such appeal.
Section 11.14. 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 Class A Certificates from the Trust and
shall not result in the payment of or the provision for the payment of the
principal of or interest on the Class A Certificates within the meaning of
Section 5.01. The Seller, the Master Servicer, the Trustee, the Representative
and each Originator acknowledge, and each Holder by its acceptance of a Class A
Certificate agrees, that without the need for any further action on the part of
the Certificate Insurer, the Seller, the Master Servicer, the Trustee, the
Representative, any Originator or the Certificate Registrar, 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, (i) the Certificate Insurer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Trust
and (ii) the Certificate Insurer shall be paid such principal and interest but
only from the sources and in the manner provided herein for the payment of such
principal and interest.
The Trustee, Seller the Master Servicer, the Representative and each
Originator shall cooperate in all respects with any reasonable request by the
Certificate Insurer for action to preserve
-110-
<PAGE> 116
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 11.15. Notices to the Certificate Insurer. All notices,
statements, reports, certificates or opinions required by this Agreement to be
sent to any other party hereto or to the Certificateholders shall also be sent
to the Certificate Insurer.
-111-
<PAGE> 117
IN WITNESS WHEREOF, the Seller, the Master Servicer, the
Representative, the Trustee and each Originator have caused this Agreement to
be duly executed by their respective officers all as of the day and year first
above written.
AVCO ABS RECEIVABLES CORP.,
as Seller
By:______________________________________
Name:
Title:
AVCO FINANCIAL SERVICES MANAGEMENT
COMPANY, as Master Servicer
By:______________________________________
Name:
Title:
AVCO FINANCIAL SERVICES, INC.,
as Representative
By:______________________________________
Name:
Title:
THE ORIGINATORS:
By:______________________________________
Name:
Title:
-112-
<PAGE> 118
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 who, being by me duly sworn, did depose and say
that he is the _____________________ of Avco ABS Receivables Corp., a Nevada
corporation, one of the parties that executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation; and that he signed his name thereto by like order.
______________________________
Notary Public
[Notarial Seal]
<PAGE> 119
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 who, being by me duly sworn, did depose and say
that he is the _____________________ of Avco Financial Services Management
Company, a Delaware corporation, one of the parties that executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation; and that he signed his name thereto
by like order.
______________________________
Notary Public
[Notarial Seal]
<PAGE> 120
State of ____________________ )
) ss.:
County of ____________________ )
On the ____ day of _____________, 199_ before me, a notary
public in and for the State of Delaware, personally appeared _________________,
known to me who, being by me duly sworn, did depose and say that he is the
_____________________ of Avco Financial Services, Inc., a Delaware corporation,
one of the parties that executed the foregoing instrument; and that he signed
his name thereto by order of the Board of Directors of said association.
______________________________
Notary Public
[Notarial Seal]
<PAGE> 121
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 who, being by me duly sworn, did depose and say
that he is the _____________________ of [Name of Trustee], a
_______________________, one of the parties that executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation; and that he signed his name thereto
by like order.
______________________________
Notary Public
[Notarial Seal]
<PAGE> 122
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 who, being by me duly sworn, did depose and say
that he is the _____________________ of each Originator listed on Exhibit D to
the within Instrument, each a party that executed the foregoing instrument; and
that he signed his name thereto by like order of the Board of Directors of each
said corporation.
______________________________
Notary Public
[Notarial Seal]
<PAGE> 123
EXHIBIT A
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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, AS AMENDED (THE "CODE").
Certificate No. : A-
Cut-Off Date :
First Distribution Date :
Initial Certificate Principal
Balance of this Certificate
("Denomination") : $
Initial Class Principal
Balance : $
Pass-Through Rate : __%
CUSIP :
Class : A-
A-1
<PAGE> 124
AVCO FINANCIAL HOME EQUITY LOAN TRUST 199_-__
Home Equity Loan Asset-Backed Certificates, Series 199_-__
Class A-
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust
consisting of closed-end fixed rate home equity loans (the "Home
Equity Loans")
AVCO ABS RECEIVABLES CORP., as Seller
Principal in respect of this Certificate is distributable monthly as
set forth herein. Accordingly, the Certificate Principal Balance of this Class
A- Certificate at any time may be less than the Initial Certificate Principal
Balance set forth on the face hereof, as described herein. This Class A-
Certificate does not evidence an obligation of, or an interest in, and is not
guaranteed by the Seller, the Master Servicer, the Representative or the
Trustee referred to below or any of their respective affiliates. Neither this
Class A- Certificate nor the Home Equity Loans are guaranteed or insured by any
governmental agency or instrumentality.
This certifies that CEDE & CO. is the registered owner of the
Percentage Interest evidenced by this Class A- Certificate (obtained by
dividing the Denomination of this Class A- Certificate by the Class Principal
Balance) in certain monthly distributions with respect to a Trust consisting
primarily of the Home Equity Loans sold by Avco ABS Receivables Corp. (the
"Seller"). The Trust was created pursuant to a Pooling and Servicing Agreement
dated as of the Cut-Off Date specified above (the "Agreement") among the
Seller, Avco Financial Services Management Company, as master servicer (the
"Master Servicer"), Avco Financial Services, Inc., as representative (the
"Representative"), the Originators listed on Exhibit D thereto (collectively,
the "Originators") and [Name of Trustee], as trustee (the "Trustee"). To the
extent not defined herein, the capitalized terms used herein have the meanings
assigned in the Agreement. This Class A- Certificate is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Class A- Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
Reference is hereby made to the further provisions of this Class A-
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
This Class A- Certificate shall not be entitled to any benefit under
the Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
A-2
<PAGE> 125
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: ____________ __, 199_
[NAME OF TRUSTEE],
as Trustee
By ___________________________
This is one of the Class A- Certificates
referenced in the within-mentioned Agreement
By ________________________________
Authorized Signatory of
[Name of Trustee]
A-3
<PAGE> 126
[Reverse of Class A- Certificate]
AVCO FINANCIAL HOME EQUITY LOAN TRUST 199_-__
Home Equity Loan Asset-Backed Certificates,
Series 199_-__
This Certificate is one of a duly authorized issue of Certificates
designated as Avco Financial Home Equity Loan Trust 199_-__, Home Equity Loan
Asset-Backed Certificates, Series 199_-__(herein collectively called the
"Certificates"), and representing a beneficial ownership interest in the Trust
created by the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Distribution Account
for payment hereunder and that the Trustee is not liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate will have the benefit of an irrevocable and
unconditional certificate guaranty insurance policy issued by [Name of
Certificate Insurer] (the "Certificate Insurer").
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced thereby, and the rights,
duties and immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on
the ____day of each month or, if such ____ day is not a Business Day then the
first Business Day following such Distribution Date (the "Distribution Date"),
commencing on the first Distribution Date specified on the face hereof, to the
Person in whose name this Certificate is registered at the close of business on
the applicable Record Date in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be
distributed to Holders of Certificates of the Class to which this Certificate
belongs on such Distribution Date pursuant to the Agreement. The Record Date
applicable to each Distribution Date is [the last day of the month preceding
the month of such Distribution Date] [the day immediately preceding such
Distribution Date].
Distributions on this Certificate shall be made by check or money
order mailed to the address of the person entitled thereto as it appears on the
Certificate Register or, upon the request of a Certificateholder owning Class A
Certificates having denominations aggregating at least $1,000,000, by wire
transfer or otherwise, as set forth in the Agreement. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the office or agency of the Trustee specified
in the notice to Certificateholders of such final distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the
A-4
<PAGE> 127
Certificateholders under the Agreement at any time by the Seller, the Master
Servicer, the Representative, each Originator and the Trustee with the consent
of the Certificate Insurer and of Holders of the requisite percentage of the
Voting Rights of each Class of Certificates affected by such amendment, as
specified in the Agreement. 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 therefor or in lieu hereof whether or not notation of such consent is
made upon this Certificate. The Agreement also permits the amendment thereof,
in certain limited circumstances, without the consent of the Holders of any of
the 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 of the Trustee upon surrender of this Certificate for
registration of transfer at the office or agency maintained by the Trustee in
___________________, accompanied by a 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 the same Class in authorized
denominations and evidencing the same aggregate Percentage Interest in the
Trust will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons 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 the same Class in authorized
denominations and evidencing the same 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 Seller and the Trustee and any agent of the Seller or the Trustee
may treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Seller, the Trustee nor any such agent
shall be affected by any notice to the contrary.
On any Distribution Date following the Period at the end of which the
Pool Principal Balance is less than 10% of the Cut-Off Date Pool Principal
Balances, the Master Servicer will have the option to repurchase, in whole,
from the Trust the Home Equity Loans at a purchase price determined as provided
in the Agreement. In the event that no such optional termination occurs, the
obligations and responsibilities created by the Agreement will terminate upon
the later of (A) payment in full of all amounts owing to the Certificate
Insurer unless the Certificate Insurer shall otherwise consent and (B) the
earliest of (i) the day following the Distribution Date on which the Aggregate
Class A Principal Balance has been reduced to zero, (ii) the final payment or
other liquidation of the last Home Equity Loan in the Trust and (iii) the
Distribution Date in __________, ____. In no event, however, will the trust
created by the Agreement continue beyond the expiration
A-5
<PAGE> 128
of 21 years from the death of the last survivor of the descendants living at
the date of the Agreement of a certain person named in the Agreement.
Capitalized terms used herein that are defined in the Agreement shall
have the meanings ascribed to them in the Agreement, and nothing herein shall
be deemed inconsistent with that meaning.
A-6
<PAGE> 129
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _____________________________________________ (Please print or
typewrite name and address including postal zip code of assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such
Certificate to the following address: ______________
_________________________________________________.
Dated: _____________
________________________________________
Signature by or on behalf of assignor
A-7
<PAGE> 130
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.
A-8
<PAGE> 131
EXHIBIT B
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, AS AMENDED (THE "CODE").
[THIS CERTIFICATE REPRESENTS THE "TAX MATTERS PERSON RESIDUAL INTEREST" ISSUED
UNDER THE AGREEMENT REFERRED TO BELOW AND MAY NOT BE TRANSFERRED TO ANY PERSON
EXCEPT IN CONNECTION WITH THE ASSUMPTION BY THE TRANSFEREE OF CERTAIN DUTIES
SPECIFIED IN THE AGREEMENT.]
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY ONLY BE MADE IN A TRANSACTION EXEMPTED
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
THIS CLASS R-__ CERTIFICATE HAS NO PRINCIPAL BALANCE, DOES NOT BEAR INTEREST
AND WILL NOT RECEIVE ANY DISTRIBUTIONS EXCEPT AS PROVIDED HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
PROPOSED TRANSFEREE DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN ACCORDANCE
WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE EFFECT
THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR A PLAN SUBJECT TO
SECTION 4975 OF THE CODE, OR AN OPINION OF COUNSEL IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN. NOTWITHSTANDING ANYTHING ELSE
TO THE CONTRARY HEREIN, ANY PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON
BEHALF OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE
OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID
AND OF NO EFFECT.
B-1
<PAGE> 132
Certificate No. : R-
Percentage Interest
evidenced by this
Certificate : [0.000001%][99.999999%]
AVCO FINANCIAL HOME EQUITY LOAN TRUST 199_-_
Home Equity Loan Asset-Backed Certificates, Series 199_-_
Class R-__
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust
consisting primarily of pool of closed-end fixed rate home equity
loans (the "Home Equity Loans")
AVCO ABS RECEIVABLES CORP., as Seller
This Certificate does not evidence an obligation of, or an interest
in, and is not guaranteed by the Seller, the Master Servicer, the
Representative or the Trustee referred to below or any of their respective
affiliates. Neither this Certificate nor the Home Equity Loans are guaranteed
or insured by any governmental agency or instrumentality.
This certifies that ________________________________________ is the
registered owner of the Percentage Interest evidenced by this Certificate
specified above in the interest represented by all Certificates of the Class to
which this Certificate belongs in a Trust consisting primarily of the Home
Equity Loans sold by Avco ABS Receivables Corp. (the "Seller"). The Trust was
created pursuant to a Pooling and Servicing Agreement dated as of the Cut-Off
Date specified above (the "Agreement") among the Seller, Avco Financial
Services Management Company, as master servicer (the "Master Servicer"), Avco
Financial Services, Inc., as representative (the "Representative), the
Originators listed on Exhibit D thereto (collectively, the "Originators") and
[Name of Trustee], as trustee (the "Trustee"). 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.
No distributions are expected to be made on this Certificate. This
Certificate does not have a principal balance or pass-through rate and will be
entitled to distributions only to the extent set forth in the Agreement. In
addition, any distribution of the proceeds of any remaining assets of the Trust
will be made only upon presentment and surrender of this Certificate at the
Corporate Trust Office or the office or agency maintained by the Trustee in
___________.
B-2
<PAGE> 133
No transfer of a Certificate of this Class shall be made unless such
transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such laws. In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act
and such laws, in order to assure compliance with the Securities Act and such
laws, the Certificateholder desiring to effect such transfer and such
Certificateholder's prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer. In the event that such a transfer
is to be made within three years from the date of the initial issuance of
Certificates pursuant to the Agreement, there shall also be delivered (except
in the case of a transfer pursuant to Rule 144A of the Securities Act) to the
Trustee of an Opinion of Counsel that such transfer may be made pursuant to an
exemption from the Securities Act, which Opinion of Counsel shall not be
obtained at the expense of the Trustee or the Seller. The Holder hereof
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee and the Seller against any liability that may result if the transfer is
not so exempt or is not made in accordance with such federal and state laws.
No transfer of a Certificate of this Class shall be made unless the
Trustee shall have received either (i) a representation letter from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or Section 4975 of the
Code, nor a person acting on behalf of any such plan, which representation
letter shall not be an expense of the Trustee, or (ii) if the purchaser is an
insurance company, a representation that the purchaser is an insurance company
which is purchasing such Certificates with funds contained in an "insurance
company general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and
holding of such Certificates are covered under PTCE 95-60 or (iii) in the case
of any such Class R Certificate presented for registration in the name of an
employee benefit plan subject to ERISA, or Section 4975 of the Code (or
comparable provisions of any subsequent enactments), or a trustee of any such
plan or any other person acting on behalf of any such plan, an Opinion of
Counsel satisfactory to the Trustee to the effect that the purchase or holding
of such Certificate will not result in the assets of the Trust being deemed to
be "plan assets" and subject to the prohibited transaction provisions of ERISA
and the Code and will not subject the Trustee to any obligation in addition to
those undertaken in this Agreement, which Opinion of Counsel shall not be an
expense of the Trustee or the Trust. Notwithstanding anything else to the
contrary herein, any purported transfer of a Certificate of this Class to or on
behalf of an employee benefit plan subject to ERISA or to the Code without the
opinion of counsel satisfactory to the Trustee as described above shall be void
and of no effect.
Each Holder of this Certificate will be deemed to have agreed to be
bound by the restrictions of the Agreement, including but not limited to the
restrictions that (i) each person holding or acquiring any Ownership Interest
in this Certificate must be a Permitted Transferee, (ii) no Ownership Interest
in this Certificate may be transferred without delivery to the Trustee of (a) a
transfer affidavit of the proposed transferee and (b) a transfer certificate of
the transferor, each of such documents to be in the form described in the
Agreement, (iii) each person holding or acquiring
B-3
<PAGE> 134
any Ownership Interest in this Certificate must agree to require a transfer
affidavit and to deliver a transfer certificate to the Trustee as required
pursuant to the Agreement, (iv) each person holding or acquiring an Ownership
Interest in this Certificate must agree not to transfer an Ownership Interest
in this Certificate if it has actual knowledge that the proposed transferee is
not a Permitted Transferee and (v) 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.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized officer of the Trustee.
* * *
B-4
<PAGE> 135
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: ____________ __, 199_
[NAME OF TRUSTEE]
as Trustee
By ___________________________
This is one of the Class R-__ Certificates
referenced in the within-mentioned Agreement
By ________________________________
Authorized Signatory of
[NAME OF TRUSTEE]
B-5
<PAGE> 136
[Reverse of Class R-__ Certificate]
AVCO FINANCIAL HOME EQUITY LOAN TRUST 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_
This Certificate is one of a duly authorized issue of Certificates
designated as Avco Financial Home Equity Loan Trust 199_-_, Home Equity Loan
Asset-Backed Certificates, Series 199_-_ (herein collectively called the
"Certificates"), and representing a beneficial ownership interest in the Trust
created by the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Distribution Account
for payment hereunder and that the Trustee is not liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced thereby, and the rights,
duties and immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on
the ____ day of each month or, if such ____ day is not a Business Day, then the
first Business Day following such Distribution Date (the "Distribution Date"),
commencing on the first Distribution Date specified on the face hereof, to the
Person in whose name this Certificate is registered at the close of business on
the applicable Record Date in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be
distributed to Holders of Certificates of the Class to which this Certificate
belongs on such Distribution Date pursuant to the Agreement. The Record Date
applicable to each Distribution Date is [the last Business Day of the month
preceding the month of such Distribution Date] [the day immediately preceding
such Distribution Date].
Distributions on this Certificate shall be made by wire transfer of
immediately available funds to the account of the Holder hereof at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder shall satisfy the
conditions to receive such form of payment set forth in the Agreement, or, if
not, by check mailed by first class mail to the address of such
Certificateholder appearing in the Certificate Register. The final
distribution on each Certificate will be made in like manner, but only upon
presentment and surrender of such Certificate at the office or agency of the
Trustee specified in the notice to Certificateholders of such final
distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any
time by the Seller, the Master Servicer, the
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Representative, each Originator and the Trustee with the consent of the
Certificate Insurer and of Holders of the requisite percentage of the
Percentage Interests of each Class of Certificates affected by such amendment,
as specified in the Agreement. 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 therefor or in lieu hereof whether or not notation of
such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of any of the Certificates.
The Certificates are issuable only as registered Certificates without
coupons 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 the same Class in authorized
denominations and evidencing the same 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 Seller and the Trustee and any agent of the Seller or the Trustee
may treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Seller, the Trustee nor any such agent
shall be affected by any notice to the contrary.
On any Distribution Date following the Period at the end of which the
Pool Principal Balance is less than 10% of the Cut-Off Date Pool Principal
Balances, the Master Servicer will have the option to repurchase, in whole,
from the Trust the Home Equity Loans at a purchase price determined as provided
in the Agreement. In the event that no such optional termination occurs, the
obligations and responsibilities created by the Agreement will terminate upon
the later of (A) payment in full of all amounts owing to the Certificate
Insurer unless the Certificate Insurer shall otherwise consent and (B) the
earliest of (i) the day following the Distribution Date on which the Aggregate
Class A Principal Balance has been reduced to zero, (ii) the final payment or
other liquidation of the last Home Equity Loan in the Trust and (iii) the
Distribution Date in __________, ____. In no event, however, will the trust
created by the Agreement continue beyond the expiration of 21 years from the
death of the last survivor of the descendants living at the date of the
Agreement of a certain person named in the Agreement.
Capitalized terms used herein that are defined in the Agreement shall
have the meanings ascribed to them in the Agreement, and nothing herein shall
be deemed inconsistent with that meaning.
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _____________________________________________ (Please print or
typewrite name and address including postal zip code of assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such
Certificate to the following address:
_________________________________________________________.
Dated: _____________
________________________________________
Signature by or on behalf of assignor
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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.
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EXHIBIT C
HOME EQUITY LOAN SCHEDULE
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EXHIBIT D
LIST OF ORIGINATORS
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<PAGE> 142
EXHIBIT E
FORM OF MORTGAGE NOTE
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EXHIBIT F
FORM OF MORTGAGE
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<PAGE> 144
EXHIBIT G
AFFIDAVIT OF TRANSFER OF RESIDUAL CERTIFICATES
PURSUANT TO SECTION 6.02(d)
AVCO FINANCIAL HOME EQUITY LOAN TRUST 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_
STATE OF )
) ss.:
COUNTY OF )
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned is an officer of __________, the proposed
Transferee of an Ownership Interest in a Residual Certificate (the
"Certificate") issued pursuant to the Pooling Agreement, (the "Agreement"),
relating to the above-referenced Series, by and among Avco ABS Receivables
Corp., as Seller (the "Seller"), Avco Financial Services Management Company, as
master servicer (the "Master Servicer"), Avco Financial Services, Inc., as
representative (the "Representative"), each Originator listed on Exhibit D
thereto and [NAME OF TRUSTEE], as trustee (the "Trustee"). Capitalized terms
used, but not defined herein or in Exhibit 1 hereto, shall have the meanings
ascribed to such terms in the Agreement. The Transferee has authorized the
undersigned to make this affidavit on behalf of the Transferee.
2. The Transferee is, as of the date hereof, and will be, as of
the date of the Transfer, a Permitted Transferee. The Transferee is acquiring
its Ownership Interest in the Certificate either (i) for its own account or
(ii) as nominee, trustee or agent for another Person and has attached hereto an
affidavit from such Person in substantially the same form as this affidavit.
The Transferee has no knowledge that any such affidavit is false.
3. The Transferee has been advised of, and understands that (i) a
tax will be imposed on Transfers of the Certificate to Persons that are not
Permitted Transferees; (ii) such tax will be imposed on the transferor, or, if
such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(iii) the Person otherwise liable for the tax shall be relieved of liability
for the tax if the subsequent Transferee furnished to such Person an affidavit
that such subsequent Transferee is a Permitted Transferee and, at the time of
Transfer, such Person does not have actual knowledge that the affidavit is
false.
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4. The Transferee has been advised of, and understands that a tax
will be imposed on a "pass-through entity" holding the Certificate if at any
time during the taxable year of the pass-through entity a Person that is not a
Permitted Transferee is the record holder of an interest in such entity. The
Transferee understands that such tax will not be imposed for any period with
respect to which the record holder furnishes to the pass-through entity an
affidavit that such record holder is a Permitted Transferee and the
pass-through entity does not have actual knowledge that such affidavit is
false. (For this purpose, a "pass-through entity" includes a regulated
investment company, a real estate investment trust or common trust fund, a
partnership, trust or estate, and certain cooperatives and, except as may be
provided in Treasury Regulations, persons holding interests in pass-through
entities as a nominee for another Person.)
5. The Transferee has reviewed the provisions of Section 6.02(d)
of the Agreement (attached hereto as Exhibit 2 and incorporated herein by
reference) and understands the legal consequences of the acquisition of an
Ownership Interest in the Certificate including, without limitation, the
restrictions on subsequent Transfers and the provisions regarding voiding the
Transfer and mandatory sales. The Transferee expressly agrees to be bound by
and to abide by the provisions of Section 6.02(d) of the Agreement and the
restrictions noted on the face of the Certificate. The Transferee understands
and agrees that any breach of any of the representations included herein shall
render the Transfer to the Transferee contemplated hereby null and void.
6. The Transferee agrees to require a Transfer Affidavit from any
Person to whom the Transferee attempts to Transfer its Ownership Interest in
the Certificate, and in connection with any Transfer by a Person for whom the
Transferee is acting as nominee, trustee or agent, and the Transferee will not
Transfer its Ownership Interest or cause any Ownership Interest to be
Transferred to any Person that the Transferee knows is not a Permitted
Transferee. In connection with any such Transfer by the Transferee, the
Transferee agrees to deliver to the Trustee a certificate substantially in the
form set forth as Exhibit H to the Agreement (a "Transferor Certificate") to
the effect that such Transferee has no actual knowledge that the Person to
which the Transfer is to be made is not a Permitted Transferee.
7. The Transferee does not have the intention to impede the
assessment or collection of any tax legally required to be paid with respect to
the Certificate.
8. The Transferee's taxpayer identification number is
_________________.
9. The Transferee is a U.S. Person as defined in Code Section
7701(a)(30).
10. The Transferee is aware that the Certificate may be a
"noneconomic residual interest" within the meaning of proposed 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.
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11. The Transferee is not an employee benefit plan that is subject
to ERISA or a plan that is subject to Section 4975 of the Code, nor are we
acting on behalf of such a plan.
* * *
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IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
duly authorized officer and its corporate seal to be hereunto affixed, duly
attested, this __ day of ________________, 19_.
[NAME OF TRANSFEREE]
By:________________________________
Name:
Title:
[Corporate Seal]
ATTEST:
______________
[Assistant] Secretary
Personally appeared before me the above-named ______, known or proved
to me to be the same person who executed the foregoing instrument and to be the
__________of the Transferee, and acknowledged that he executed the same as his
free act and deed and the free act and deed of the Transferee.
Subscribed and sworn before me this __ day of ____, 19_.
__________________________________
NOTARY PUBLIC
My Commission expires the ___day
of ______________, 19__.
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EXHIBIT 1 to EXHIBIT G
Certain Definitions
"Ownership Interest": As to any Certificate, any ownership interest in
such Certificate, including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial.
"Permitted Transferee": Any Person other than (i) the United States,
any State or political subdivision thereof, or any agency or instrumentality of
any of the foregoing, (ii) a foreign government, International Organization or
any agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in Code section 521) which is
exempt from tax imposed by Chapter 1 of the Code (including the tax imposed by
Code section 511 on unrelated business taxable income) on any excess inclusions
(as defined in section 860E(c)(1) of the Code) with respect to any Class R
Certificate, (iv) rural electric and telephone cooperatives described in Code
section 1381(a)(2)(c), (v) a Person that is not a citizen or resident of the
United States, a corporation, partnership, or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States unless such Person has furnished the transferor and the Trustee
with a duly completed Internal Revenue Service Form 4224, and (vi) any other
Person so designated by the Trustee based upon an Opinion of Counsel that the
Transfer of an Ownership Interest in a Residual Certificate to such Person may
cause the Trust to fail to qualify as a REMIC at any time that certain
Certificates are outstanding. The terms "United States," "State" and
"International Organization" shall have the meanings set forth in Code Section
7701 or successor provisions. A corporation will not be treated as an
instrumentality of the United States or of any State or political subdivision
thereof if all of its activities are subject to tax, and, with the exception of
the FHLMC, a majority of its board of directors is not selected by such
governmental unit.
"Person": Any individual, corporation, partnership, joint venture,
bank, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political
subdivision thereof.
"Transfer": Any direct or indirect transfer or sale of any Ownership
Interest in a Certificate, including the acquisition of a Certificate by the
Seller.
"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
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EXHIBIT 2 to EXHIBIT G
Section 6.02(d) of the Agreement
(d) No transfer, sale, pledge or other disposition of a
Class R Certificate shall be made unless such disposition is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), and any applicable state securities laws or is made in accordance with
the 1933 Act and laws. In the event of any such transfer, other than the
transfer of the Tax Matters Person Residual Interest to the Trustee (i) unless
such transfer is made in reliance upon Rule 144A under the 1933 Act, the
Trustee and the Seller shall require a written Opinion of Counsel (which may be
in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Trustee and the Seller that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from the 1933 Act or is being made pursuant to the 1933 Act, which
Opinion of Counsel shall not be an expense of the Trustee or the Seller or (ii)
the Trustee shall require the transferor to execute a transferor certificate
(in substantially the form attached hereto as Exhibit H) and the transferee to
execute an investment letter (in substantially the form of either Exhibit J,
Exhibit K or Exhibit L attached hereto) acceptable to and in form and substance
reasonably satisfactory to the Seller and the Trustee certifying to the Seller
and the Trustee the facts surrounding such transfer, which investment letter
shall not be an expense of the Trustee or the Seller. The Holder of a Class R
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and the Seller against any liability that may result if
the transfer is not so exempt or is not made in accordance with such federal
and state laws.
No transfer of a Class R Certificate shall be made unless the Trustee
shall have received either (i) a representation from the transferee of such
Certificate acceptable to and in form and substance satisfactory to the
Trustee, such requirement is satisfied only by the Trustee's receipt of a
representation letter from the transferee substantially in the form of Exhibit
J, Exhibit K or Exhibit L, as appropriate), to the effect that such transferee
is not an employee benefit plan or arrangement subject to Section 406 of ERISA
or a plan subject to Section 4975 of the Code, nor a person acting on behalf of
any such plan or arrangement nor using the assets of any such plan or
arrangement to effect such transfer or (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60") and that the purchase and
holding of such Certificates are covered under PTCE 95-60 or (iii) in the case
of any such Class R Certificate presented for registration in the name of an
employee benefit plan subject to ERISA or a plan or arrangement subject to
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee, which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust, addressed to the
Trustee, to the effect that the purchase or holding of such Class R Certificate
will
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not result in the assets of the Trust being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee to any obligation in addition to those expressly
undertaken in this Agreement or to any liability. Notwithstanding anything
else to the contrary herein, any purported transfer of a Class R Certificate to
or on behalf of an employee benefit plan subject to ERISA or to the Code
without the delivery to the Trustee of an Opinion of Counsel satisfactory to
the Trustee as described above shall be void and of no effect.
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 Seller or its designee as its
attorney-in-fact to negotiate the terms of any mandatory sale under clause (iv)
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:
(i) 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.
(ii) In connection with any proposed transfer of any
Ownership Interest in a Class R Certificate, the Trustee shall as a
condition to registration of the transfer, require delivery to it, in
form and substance satisfactory to it, of each of the following:
(A) an affidavit in the form of Exhibit G from
the proposed transferee to the effect that such transferee is
a Permitted Transferee and 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 who is not a Permitted Transferee; and
(B) a covenant of the proposed transferee to the
effect that the proposed transferee agrees to be bound by and
to abide by the transfer restrictions applicable to the Class
R Certificates.
(iii) Any attempted or purported transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section 6.02 shall be absolutely null and void and shall vest no
rights in the purported transferee. If any purported transferee
shall, in violation of the provisions of this Section 6.02, become a
Holder of a Class R Certificate, then the prior Holder of such Class R
Certificate that is a Permitted Transferee shall, upon discovery that
the registration of transfer of such Class R Certificate was not in
fact permitted by this Section 6.02, be restored to all rights as
Holder thereof retroactive to the date of registration of transfer of
such Class R Certificate. The Trustee shall be under no liability to
any Person for any registration of transfer of a Class R Certificate
that is in fact not permitted by this Section 6.02 or for making any
distributions due on such Class R
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Certificate to the Holder thereof or taking any other action with
respect to such Holder under the provisions of the Agreement so long
as the Trustee received the documents specified in clause (ii). The
Trustee shall be entitled to recover from any Holder of a Class R
Certificate that was in fact not a Permitted Transferee at the time
such distributions were made all distributions made on such Class R
Certificate. Any such distributions so recovered by the Trustee shall
be distributed and delivered by the Trustee to the prior Holder of
such Class R Certificate that is a Permitted Transferee.
(iv) If any Person other than a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation
of the restrictions in this Section 6.02, then the Trustee shall have
the right but not the obligation, without notice to the Holder of such
Class R Certificate or any other Person having an Ownership Interest
therein, to notify the Seller to arrange for the sale of such Class R
Certificate. The proceeds of such sale, net of commissions (which may
include commissions payable to the Seller or its affiliates in
connection with such sale), expenses and taxes due, if any, will be
remitted by the Trustee to the previous Holder of such Class R
Certificate that is a Permitted Transferee, except that in the event
that the Trustee determines that the Holder of such Class R
Certificate may be liable for any amount due under this Section 6.02
or any other provisions of this Agreement, the Trustee may withhold a
corresponding amount from such remittance as security for such claim.
The terms and conditions of any sale under this clause (iv) shall be
determined in the sole discretion of the Trustee, and it shall not be
liable to any Person having an Ownership Interest in a Class R
Certificate as a result of its exercise of such discretion.
(v) If any Person other than a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation
of the restrictions in this Section 6.02, then the Trustee, based on
information provided to the Trustee by the Seller will provide to the
Internal Revenue Service, and to the persons specified in Sections
860E(e)(3) and (6) of the Code, information needed to compute the tax
imposed under Section 860E(e)(5) of the Code on transfers of residual
interests to disqualified organizations.
The foregoing provisions of this Section 6.02(d) shall cease to apply (and the
applicable portions of the legend on a Class R Certificate may be deleted) to
transfers occurring on or after the date on which there shall have been
delivered to the Trustee, in form and substance satisfactory to the Trustee,
(i) written notification from each Rating Agency that the removal of the
restrictions on Transfer set forth in this Section 6.02 will not cause such
Rating Agency to downgrade its rating of the Certificates and (ii) an Opinion
of Counsel to the effect that such removal will not cause the REMIC created
hereunder to fail to qualify as a REMIC.
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EXHIBIT H
FORM OF TRANSFEROR CERTIFICATE
[DATE]
Avco ABS Receivables Corp.
1727-B Charleston
Las Vegas, Nevada 89104
Attention:
[Trustee]
[Trustee Address]
Re:: Avco Financial Home Equity Loan Trust 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_, Class [ ]
Ladies and Gentlemen:
In connection without disposition of the above certificates we
certify that (a) we understand that the Certificates have not been registered
under the Securities Act of 1933, as amended (the "Act"), and are being
disposed by us in a transaction that is exempt from the registration
requirements of the Act, (b) we have not offered or sold any Certificates to,
or solicited offers to buy any Certificates from, any person, or otherwise
approached or negotiated with any person with respect thereto, in a manner that
would be deemed, or taken any other action which would result in, a violation
of Section 5 of the Act and (c) to the extent we are disposing of a Class R
Certificate, we have knowledge the Transferee is not a Permitted Transferee.
Very truly yours,
___________________________
Print Name of Transferor
By: ______________________
Authorized Officer
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EXHIBIT I
FORM OF REQUEST FOR RELEASE
[DATE]
[Trustee]
[Trustee Address]
Re: Avco Financial Home Equity Loan Trust 199_-_
Home Equity Loan Asset-Backed Certificates, Series 199_-_
Ladies and Gentlemen:
In connection with the administration of the Home Equity Loans held by
you as Trustee under the Pooling and Servicing Agreement dated as of
______________ ___, 199_, among Avco ABS Receivables Corp., as Seller, Avco
Financial Services Management Company, as Master Servicer, Avco Financial
Services, Inc., as Representative, each of the Originators listed on Exhibit D
thereto and you, as Trustee (the "Agreement"), we hereby request a release of
the Mortgage File held by you as Trustee with respect to the following
described Home Equity Loan for the reason indicated below.
Loan No.:_
Reason for requesting file:
____ 1. Home Equity Loan paid in full. (The Master Servicer hereby
certifies that all amounts received in connection with the
payment in full of the Home Equity Loan which are required to
be deposited in the Collection Account pursuant to Section
3.02 of the Agreement have been so deposited).
____ 2. Retransfer of Home Equity Loan. (The Master Servicer hereby
certifies that the Purchase Price has been deposited in the
Collection Account pursuant to the Agreement.)
____ 3. The Home Equity Loan is being foreclosed.
____ 4. The Home Equity Loan is being re-financed by another
depository institution. (The Master Servicer hereby certifies
that all amounts received in connection with the
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payment in full of the Home Equity Loan which are required to
be deposited in the Collection Account pursuant to Section
3.02 of the Agreement have been so deposited).
____ 5. Other (Describe).
The undersigned acknowledges that the above Mortgage File will be held
by the undersigned in accordance with the provisions of the Agreement and will
promptly be returned to the Trustee when the need therefor by the Master
Servicer no longer exists unless the Home Equity Loan has been liquidated.
Capitalized terms used herein shall have the meanings ascribed to them
in the Agreement.
AVCO FINANCIAL SERVICES
MANAGEMENT COMPANY
By: ______________________________
Name:
Title: Servicing Officer
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<PAGE> 155
EXHIBIT J
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
Avco ABS Receivables Corp.
1727-B Charleston
Las Vegas, Nevada 89104
[Trustee]
[Trustee Address]
Re: Avco Financial Home Equity Loan Trust 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_, Class [ ]
--------------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned
Certificates, we certify that (a) we understand that the Certificates are not
being registered under the Securities Act of 1933, as amended (the "Act"), or
any state securities laws and are being transferred to us in a transaction that
is exempt from the registration requirements of the Act and any such laws, (b)
we are an "accredited investor," as defined in Regulation D under the Act, and
have such knowledge and experience in financial and business matters that we
are capable of evaluating the merits and risks of investments in the
Certificates, (c) we have had the opportunity to ask questions of and receive
answers from the Seller concerning the purchase of the Certificates and all
matters relating thereto or any additional information deemed necessary to our
decision to purchase the Certificates, (d) we are not an employee benefit plan
that is subject to the Employee Retirement Income Security Act of 1974, as
amended, or a plan that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan, (e) we are
acquiring the Certificates for investment for our own account and not with a
view to any distribution of such Certificates (but without prejudice to our
right at all times to sell or otherwise dispose of the Certificates in
accordance with clause (g) below), (f) we have not offered or sold any
Certificates to, or solicited offers to buy any Certificates from, any person,
or otherwise approached or negotiated with any person with respect thereto, or
taken any other action which would result in a violation of Section 5 of the
Act, and (g) we will not sell, transfer or otherwise dispose of any
Certificates unless (1) such sale, transfer or other disposition is made
pursuant to an effective registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense
provide an opinion of counsel satisfactory to the addressees of
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<PAGE> 156
this Certificate that such sale, transfer or other disposition may be made
pursuant to an exemption from the Act, (2) the purchaser or transferee of such
Certificate has executed and delivered to you a certificate to substantially
the same effect as this certificate, and (3) the purchaser or transferee has
otherwise complied with any conditions for transfer set forth in the Pooling
Agreement.
Very truly yours,
[NAME OF TRANSFEREE]
By: ______________________________
Authorized Officer
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<PAGE> 157
EXHIBIT K
FORM OF RULE 144A LETTER
[DATE]
Avco ABS Receivables Corp.
1727-B Charleston
Las Vegas, Nevada 89104
[Trustee]
[Trustee Address]
Re: Avco Financial Home Equity Loan Trust 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_, Class [ ]
--------------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates
we certify that (a) we understand that the Certificates are not being
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and are being transferred to us in a transaction that is
exempt from the registration requirements of the Act and any such laws, (b) we
have had the opportunity to ask questions of and receive answers from the
Seller concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (c) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or
a plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (d) we have not, nor has
anyone acting on our behalf offered, transferred, pledged, sold or otherwise
disposed of the Certificates, any interest in the Certificates or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Certificates, any interest in the Certificates or
any other similar security from, or otherwise approached or negotiated with
respect to the Certificates, any interest in the Certificates 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 Certificates
under the Securities Act or that would render the disposition of the
Certificates a violation of Section 5 of the Securities Act or require
registration pursuant thereto, nor will act, nor has authorized or will
authorize any person to act, in such manner with respect to the Certificates,
(e) we are a "qualified institutional buyer" as that term is defined in Rule
144A under the Securities
K-1
<PAGE> 158
Act and have completed either of the forms of certification to that effect
attached hereto as Annex 1 or Annex 2. We are aware that the sale to us is
being made in reliance on Rule 144A. We are acquiring the Certificates for our
own account or for resale pursuant to Rule 144A and further, understand that
such Certificates 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, pledge or transfer is being made in reliance
on Rule 144A, or (ii) pursuant to another exemption from registration under the
Securities Act.
K-2
<PAGE> 159
ANNEX 1 TO EXHIBIT K
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees Other Than Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to
the parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:
(a) As indicated below, the undersigned is the President,
Chief Financial Officer, Senior Vice President or other executive officer of
the Buyer.
(b) In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because (i) the Buyer owned
and/or invested on a discretionary basis $______(1) in securities (except for
the excluded securities referred to below) as of the end of the Buyer's most
recent fiscal year (such amount being calculated in accordance with Rule 144A
and (ii) the Buyer satisfies the criteria in the category marked below.
___ Corporation, etc. The Buyer is a corporation (other
than a bank, savings and loan association or similar
institution), Massachusetts or similar business
trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended.
___ Bank. The Buyer (a) is a national bank or banking
institution organized under the laws of any State,
territory or the District of Columbia, the business
of which is substantially confined to banking and is
supervised by the State or territorial banking
commission or similar official or is a foreign bank
or equivalent institution, and (b) has an audited net
worth of at least $25,000,000 as demonstrated in its
latest annual financial statements, a copy of which
is attached hereto.
___ Savings and Loan. The Buyer (a) is a savings and
loan association, building and loan association,
cooperative bank, homestead association or similar
institution, which is supervised and examined by a
State or Federal authority
- ---------------------------------
(1) Buyer must own and/or invest on a discretionary basis at least
$100,000,000 in securities unless Buyer is a dealer, and, in that case, Buyer
must own and/or invest on a discretionary basis at least $10,000,000 in
securities.
1-K-1
<PAGE> 160
having supervision over any such institutions or is a
foreign savings and loan association or equivalent
institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest
annual financial statements, a copy of which is
attached hereto.
___ Broker-dealer. The Buyer is a dealer registered
pursuant to Section 15 of the Securities Exchange
Act of 1934.
___ Insurance Company. The Buyer is an insurance company
whose primary and predominant business activity is
the writing of insurance or the reinsuring of risks
underwritten by insurance companies and which is
subject to supervision by the insurance commissioner
or a similar official or agency of a State, territory
or the District of Columbia.
___ State or Local Plan. The Buyer is a plan established
and maintained by a State, its political
subdivisions, or any agency or instrumentality of the
State or its political subdivisions, for the benefit
of its employees.
___ ERISA Plan. The Buyer is an employee benefit plan
within the meaning of Title I of the Employee
Retirement Income Security Act of 1974.
___ Investment Advisor. The Buyer is an investment
advisor registered under the Investment Advisors
Act of 1940.
___ Small Business Investment Company. Buyer is a small
business investment company licensed by the U.S.
Small Business Administration under Section 301(c) or
(d) of the Small Business Investment Act of 1958.
___ Business Development Company. Buyer is a business
development company as defined in Section 202(a)(22)
of the Investment Advisors Act of 1940.
(c) The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer
is a dealer, (iii) securities issued or guaranteed by the U.S. or any
instrumentality thereof, (iv) bank deposit notes and certificates of deposit,
(v) loan participations, (vi) repurchase agreements, (vii) securities owned but
subject to a repurchase agreement and (viii) currency, interest rate and
commodity swaps.
(d) For purposes of determining the aggregate amount of
securities owned and/or invested on a discretionary basis by the Buyer, the
Buyer used the cost of such securities to the Buyer and did not include any of
the securities referred to in the preceding paragraph, except (i) where the
Buyer reports its securities holdings in its financial statements on the basis
of their
1-K-2
<PAGE> 161
market value, and (ii) no current information with respect to the cost of those
securities has been published. If clause (ii) in the preceding sentence
applies, the securities may be valued at market. Further, in determining such
aggregate amount, the Buyer may have included securities owned by subsidiaries
of the Buyer, but only if such subsidiaries are consolidated with the Buyer in
its financial statements prepared in accordance with generally accepted
accounting principles and if the investments of such subsidiaries are managed
under the Buyer's direction. However, such securities were not included if the
Buyer is a majority-owned, consolidated subsidiary of another enterprise and
the Buyer is not itself a reporting company under the Securities Exchange Act
of 1934, as amended.
(e) The Buyer acknowledges that it is familiar with Rule 144A
and understands that the seller to it and other parties related to the
Certificates are relying and will continue to rely on the statements made
herein because one or more sales to the Buyer may be in reliance on Rule 144A.
(f) Until the date of purchase of the Rule 144A Securities,
the Buyer will notify each of the parties to which this certification is made
of any changes in the information and conclusions herein. Until such notice is
given, the Buyer's purchase of the Certificates will constitute a reaffirmation
of this certification as of the date of such purchase. In addition, if the
Buyer is a bank or savings and loan is provided above, the Buyer agrees that it
will furnish to such parties updated annual financial statements promptly after
they become available.
Print Name of Buyer
By:___________________________
Name:
Title:
Date:
1-K-3
<PAGE> 162
ANNEX 2 TO EXHIBIT K
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees That are Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to
the parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:
(g) As indicated below, the undersigned is the President,
Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer
is a "qualified institutional buyer" as that term is defined in Rule 144A under
the Securities Act of 1933, as amended ("Rule 144A") because Buyer is part of a
Family of Investment Companies (as defined below), is such an officer of the
Adviser.
1. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, as amended and (ii) as marked below, the Buyer alone, or the Buyer's
Family of Investment Companies, owned at least $100,000,000 in securities
(other than the excluded securities referred to below) as of the end of the
Buyer's most recent fiscal year. For purposes of determining the amount of
securities owned by the Buyer or the Buyer's Family of Investment Companies,
the cost of such securities was used, except (i) where the Buyer or the Buyer's
Family of Investment Companies reports its securities holdings in its financial
statements on the basis of their market value, and (ii) no current information
with respect to the cost of those securities has been published. If clause
(ii) in the preceding sentence applies, the securities may be valued at market.
___ The Buyer owned $______ in securities (other than the
excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).
___ The Buyer is part of a Family of Investment Companies
which owned in the aggregate $_____in securities
(other than the excluded securities referred to
below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in
accordance with Rule 144A).
2. The term "Family of Investment Companies" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
2-K-1
<PAGE> 163
3. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) securities issued or guaranteed by
the U.S. or any instrumentality thereof, (iii) bank deposit notes and
certificates of deposit, (iv) loan participations, (v) repurchase agreements,
(vi) securities owned but subject to a repurchase agreement and (vii) currency,
interest rate and commodity swaps.
4. The Buyer is familiar with Rule 144A and under-stands that
the parties listed in the Rule 144A Transferee Certificate to which this
certification relates are relying and will continue to rely on the statements
made herein because one or more sales to the Buyer will be in reliance on Rule
144A. In addition, the Buyer will only purchase for the Buyer's own account.
5. Until the date of purchase of the Certificates, the
undersigned will notify the parties listed in the Rule 144A Transferee
Certificate to which this certification relates of any changes in the
information and conclusions herein. Until such notice is given, the Buyer's
purchase of the Certificates will constitute a reaffirmation of this
certification by the undersigned as of the date of such purchase.
Print Name of Buyer or Adviser
By:___________________________
Name:
Title:
IF AN ADVISER:
______________________________
Print Name of Buyer
Date:
2-K-2
<PAGE> 164
EXHIBIT L
FORM OF INSURANCE COMPANY LETTER
[DATE]
Avco ABS Receivables Corp.
1727-B Charleston
Las Vegas, Nevada 89104
[Trustee]
[Trustee Address]
Re: Avco Financial Home Equity Loan Trust 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_, Class [ ]
--------------------------------------------
Ladies and Gentlemen:
In connection with our acquisition o the above-captioned Certificates,
[Name of Officer] certifies that:
a. That he [she] is [Title of Officer] of [Name of Transferee]
(the "Transferee"), an insurance company duly authorized and existing under the
laws of the State of _________, on behalf of which he [she] makes this
representation (the "Representation").
b. The Transferee is an insurance company investing assets of its
"insurance company general account" and the exemption provided by Section
III(a) of Department of Labor Prohibited Transaction Class Exemption 95-60, 60
Fed. Reg. 35925 (July 12, 1995) applies to the Transferee's acquisition and
holding of such Certificate.
c. The Transferee hereby acknowledges that under the terms of the
Agreement, no transfer of any ERISA-restricted Certificate shall be permitted
unless the Trustee has received either (i) a representation from the transferee
of such Certificate acceptable to and in form and substance satisfactory to the
Trustee, that such transferee is not an employee benefit plan or arrangement (a
"Plan") subject to section 406 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") or subject to section 4975 of the internal
Revenue Code of 1986, as amended (the "Code"), nor a person acting on behalf of
any such Plan, nor using the assets of such
L-1
<PAGE> 165
Plan to effect such transfer, (ii) if the purchaser is an insurance company
purchasing such Certificate with funds in its general account, a representation
in effect similar to this Representation, or (iii) an Opinion of Counsel
satisfactory to the Trustee, to the effect that the purchase or holding of such
Certificate will not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code.
d. All terms used and not otherwise defined in this
Representation shall have the same meanings assigned to them in the Agreement.
[e. The Certificates shall be registered in the name of
______________, as nominee for the Transferee.]
IN WITNESS HEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer], this day of _______, 199_.
______________________________
[Name of Transferee]
By: __________________________
Name:
Title:
The undersigned hereby acknowledges that
it is holding and will hold the Certifi-
cate at the exclusive direction of and as
nominee of the Transferee named above.
______________________________
[Name of Transferee]
By: __________________________
Name:
Title:
L-2
<PAGE> 166
EXHIBIT M
FORM OF TRUSTEE INITIAL CERTIFICATION
__________, 199__
[Certificate Insurer]
[Certificate Insurer Address]
Avco ABS Receivables Corp.
1727-B Charleston
Las Vegas, Nevada 89104
Avco Financial Services Management Company
600 Anton Boulevard
Costa Mesa, California 92629
Avco Financial Services, Inc.
600 Anton Boulevard
Costa Mesa, California 92629
Re: Pooling and Servicing Agreement, dated as of ________
__, 199_relating to Avco Financial Home Equity Loan
Trust 199_-_
-----------------------------------------------------
Ladies and Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement, the undersigned, as Trustee, hereby certifies that, except
as noted on the attachment hereto, if any (the "Loan Exception Report"), it or
the Custodian on its behalf has received an Assignment of Mortgage, or a
certified copy thereof, and a Mortgage Note with respect to each Home Equity
Loan listed in the Home Equity Loan Schedule and the documents contained
therein appear to bear original signatures.
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 Home Equity Loans identified on the Home
M-1
<PAGE> 167
Equity Loan Schedule, or (ii) the collectibility, insurability, effectiveness
or suitability of any such Home Equity Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
[NAME OF TRUSTEE]
as Trustee
By: __________________________
Name: __________________________
Title: __________________________
M-2
<PAGE> 168
EXHIBIT N
FORM OF TRUSTEE FINAL CERTIFICATION
__________, 199__
[Certificate Insurer]
[Certificate Insurer Address]
Avco ABS Receivables Corp.
1727-B Charleston
Las Vegas, Nevada 89104
Avco Financial Services Management Company
600 Anton Boulevard
Costa Mesa, California 92629
Avco Financial Services, Inc.
600 Anton Boulevard
Costa Mesa, California 92629
Re: Pooling and Servicing Agreement, dated as of ________
__, 199_relating to Avco Financial Home Equity Loan
Trust 199_-_
-----------------------------------------------------
Ladies and Gentlemen:
In accordance with Section 2.02 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 Home Equity Loan listed in the
Home Equity Loan Schedule (other than any Home Equity Loan paid in full or
listed on the attachment hereto) it or the Custodian on its behalf has reviewed
the documents delivered to it or to the Custodian on its behalf pursuant to
Section 2.01 (other than items listed in Section 2.01(a)(vii) and (viii)) of
the Pooling and Servicing Agreement and has determined that (i) all such
documents are in its possession or in the possession of the Custodian on its
behalf, (ii) such documents have been reviewed by it and have not been
mutilated, damaged, torn or otherwise physically altered and relate to such
Home Equity Loan, (iii) based on its examination, and only as to the foregoing
documents, the information set forth in the Home Equity Loan Schedule
respecting such Home Equity Loan is correct and (iv) each Mortgage Note has
been
N-1
<PAGE> 169
endorsed as provided in Section 2.01 of the Pooling and Servicing Agreement.
Further, each Mortgaged Property is a Residential dwelling of the type set
forth in the appraisal obtained in connection with the origination of the
related Home Equity Loan.
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 Home Equity Loans identified on the Home Equity
Loan Schedule, or (ii) the collectibility, insurability, effectiveness or
suitability of any such Home Equity Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
[NAME OF TRUSTEE],
as Trustee
By: __________________________
Name: __________________________
Title: __________________________
N-2
<PAGE> 1
EXHIBIT 4.3
AVCO HOME EQUITY
LOAN TRUST 199_-_
-----------------------------
LIST CLASS(ES) OF NOTES
FORM OF INDENTURE
Dated as of _____________, 199
----------------------------
------------------
Trustee
<PAGE> 2
CROSS REFERENCE TABLE 1
<TABLE>
<CAPTION>
TIA Indenture
Section Section
<S> <C> <C>
310 (a)(1)...................................................................... 6.11
(a)(2)...................................................................... 6.11
(a)(3)...................................................................... 6.10
(a)(4)...................................................................... N A.2
(a)(5)...................................................................... 6.11
(b)......................................................................... 6.8; 6.11
(c)......................................................................... N A
311 (a)......................................................................... 6.12
(b)......................................................................... 6.12
(c)......................................................................... N A
312 (a)......................................................................... 7.1
(b)......................................................................... 7.2
(c)......................................................................... 7.2
(d)......................................................................... 7.4
313 (a) ........................................................................ 7.4
(b)(1)...................................................................... 7.4
(b)(2)...................................................................... 11.5
(c)......................................................................... 7.4
(d)......................................................................... 7.3
314 (a)......................................................................... 11.15
(b)......................................................................... 11.1
(c)(1)...................................................................... 11.1
(c)(2)...................................................................... 11.1
(c)(3)...................................................................... 11.1
(d)......................................................................... 11.1
(e)......................................................................... 11.1
(f)......................................................................... 11.1
315 (a)......................................................................... 6.1
(b)......................................................................... 6.5; 11.5
(c)......................................................................... 6.1
(d)......................................................................... 6.1
(e)......................................................................... 5.13
316 (a)(last sentence).......................................................... 2.7
(a)(1)(A)................................................................... 5.11
(a)(1)(B)................................................................... 5.12
(a)(2.)..................................................................... N A
(b)......................................................................... 5.7
(c)......................................................................... N A
317 (a)(1)...................................................................... 5.3
(a)(2)...................................................................... 5.3
(b)......................................................................... 3.3
318 (a)......................................................................... 11.7
</TABLE>
(1) Note: This Cross Reference Table shall not, for any purpose, be deemed
to be part of this Indenture.
(2) N.A. means Not Applicable.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions...........................................................1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.....................8
SECTION 1.3 Rules of Construction.................................................8
ARTICLE II
THE NOTES
SECTION 2.1 Form..................................................................9
SECTION 2.2 Execution, Authentication and Delivery................................9
SECTION 2.3 Temporary Notes......................................................10
SECTION 2.4 Registration; Registration of Transfer and Exchange..................10
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes...........................11
SECTION 2.6 Persons Deemed Owner.................................................12
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest................12
SECTION 2.8 Cancellation.........................................................13
SECTION 2.9. Release of Collateral................................................14
SECTION 2.10. Book-Entry Notes.....................................................14
SECTION 2.11. Notices to Clearing Agency...........................................15
SECTION 2.12. Definitive Notes.....................................................15
ARTICLE III
COVENANTS
SECTION 3.1. Payment of Principal and Interest....................................15
SECTION 3.2 Maintenance of Office or Agency......................................16
SECTION 3.3 Money for Payments To Be Held in Trust...............................16
SECTION 3.4 Existence............................................................17
SECTION 3.5 Protection of Trust Estate...........................................18
SECTION 3.6 Opinions as to Trust Estate..........................................18
SECTION 3.7 Performance of Obligations; Servicing of Loans.......................19
SECTION 3.8 Negative Covenants...................................................21
SECTION 3.9 Annual Statement as to Compliance....................................21
SECTION 3.10 Issuer May Consolidate, Etc. Only on Certain Terms...................22
SECTION 3.11 Successor or Transferee..............................................23
SECTION 3.12 No Other Business....................................................24
SECTION 3.13 No Borrowing.........................................................24
SECTION 3.14 Master Servicer's Obligations........................................24
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities....................24
SECTION 3.16 Capital Expenditures.................................................24
SECTION 3.17 Reserved.............................................................24
SECTION 3.18 Restricted Payments..................................................24
SECTION 3.19 Notice of Events of Default..........................................25
SECTION 3.20 Further Instruments and Acts.........................................25
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture..............................25
SECTION 4.2 Application of Trust Money...........................................26
SECTION 4.3 Repayment of Moneys Held by Paying Agent.............................26
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default....................................................26
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment...................27
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee..............................................................28
SECTION 5.4 Remedies; Priorities.................................................30
SECTION 5.5 Optional Preservation of the Loans...................................31
SECTION 5.6 Limitation of Suits..................................................32
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal
and Interest.........................................................32
SECTION 5.8 Restoration of Rights and Remedies...................................33
SECTION 5.9 Rights and Remedies Cumulative.......................................33
SECTION 5.10 Delay or Omission Not a Waiver.......................................33
SECTION 5.11 Control by Noteholders...............................................33
SECTION 5.12 Waiver of Past Defaults..............................................34
SECTION 5.13 Undertaking for Costs................................................34
SECTION 5.14 Waiver of Stay or Extension Laws.....................................35
SECTION 5.15 Action on Notes......................................................35
SECTION 5.16 Performance and Enforcement of Certain Obligations...................35
ARTICLE VI
THE TRUSTEE
SECTION 6.1 Duties of Trustee....................................................36
SECTION 6.2 Rights of Trustee....................................................37
SECTION 6.3 Individual Rights of Trustee.........................................37
SECTION 6.4 Trustee's Disclaimer.................................................37
SECTION 6.5 Notice of Defaults...................................................38
SECTION 6.6 Reports by Trustee to Holders........................................38
SECTION 6.7 Compensation and Indemnity...........................................38
</TABLE>
(ii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.8 Replacement of Trustee...............................................38
SECTION 6.9 Successor Trustee by Merger..........................................39
SECTION 6.10 Appointment of Co-Trustee or Separate Trustee........................40
SECTION 6.11 Eligibility; Disqualification........................................41
SECTION 6.12 Preferential Collection of Claims Against Issuer.....................41
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Trustee Names and Addresses of
Noteholders..........................................................41
SECTION 7.2 Preservation of Information; Communications to Noteholders...........42
SECTION 7.3 Reports by Issuer....................................................42
SECTION 7.4 Reports by Trustee...................................................43
ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money..................................................43
SECTION 8.2 Trust Accounts.......................................................43
SECTION 8.3 General Provisions Regarding Accounts................................44
SECTION 8.4 Release of Trust Estate..............................................45
SECTION 8.5 Opinion of Counsel...................................................45
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders...............45
SECTION 9.2 Supplemental Indentures with Consent of Noteholders..................47
SECTION 9.3 Execution of Supplemental Indentures.................................49
SECTION 9.4 Effect of Supplemental Indenture.....................................49
SECTION 9.5 Conformity With Trust Indenture Act..................................49
SECTION 9.6 Reference in Notes to Supplemental Indentures........................49
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption...........................................................49
SECTION 10.2 Form of Redemption Notice............................................50
SECTION 10.3 Notes Payable on Redemption Date.....................................51
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc............................51
SECTION 11.2 Form of Documents Delivered to Trustee...............................53
</TABLE>
(iii)
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11.3 Acts of Noteholders..................................................54
SECTION 11.4 Notices, etc., to Trustee, Issuer and Rating Agencies................54
SECTION 11.5 Notices to Noteholders; Waiver.......................................55
SECTION 11.6 Alternate Payment and Notice Provisions..............................55
SECTION 11.7 Conflict with Trust Indenture Act....................................55
SECTION 11.8 Effect of Headings and Table of Contents.............................56
SECTION 11.9 Successors and Assigns...............................................56
SECTION 11.10 Separability.........................................................56
SECTION 11.11 Benefits of Indenture................................................56
SECTION 11.12 Legal Holidays.......................................................56
SECTION 11.13 GOVERNING LAW........................................................56
SECTION 11.14 Counterparts.........................................................56
SECTION 11.15 Recording of Indenture...............................................57
SECTION 11.16 Trust Obligation.....................................................57
SECTION 11.17 No Petition..........................................................57
SECTION 11.18 Inspection...........................................................57
Exhibit A Schedule of Loans
Exhibit B Form of Sale and Servicing Agreement
Exhibit C Form of Note Depository Agreement
Exhibit D Form of Note
</TABLE>
(iv)
<PAGE> 7
INDENTURE dated as of , 199 , between Avco Home Equity Loan Trust
199_-_, a Delaware business trust (the "Issuer"), and ____________, a
___________, as trustee and not in its individual capacity (the "Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Issuer's List Class(es) of
Notes :
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee at the Closing Date, as Trustee
for the benefit of the Holders of the Notes, all of the Issuer's right, title
and interest in and to (a) the Home Equity Loans, and all moneys due or received
thereon, on or after the Cut-Off Date; (b) the security interests in the
Mortgaged Properties granted by Obligors pursuant to the Home Equity Loans and
any other interest of the Issuer in the Mortgaged Properties; (c) any proceeds
with respect to the Home Equity Loans from claims on any insurance policies
covering Mortgaged Properties or Obligors; (d) all funds on deposit from time to
time in the Trust Accounts , including the Reserve Account Initial Deposit , and
in all investments and proceeds thereof (including all income thereon); (e) the
Sale and Servicing Agreement; and (f) all present and future claims, demands,
causes and choses in action in respect of any or all of the foregoing and all
payments on or under and all proceeds of every kind and nature whatsoever in
respect of any or all of the foregoing, including all proceeds of the
conversion, voluntary or involuntary, into cash or other liquid property, all
cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, insurance proceeds, condemnation
awards, rights to payment of any and every kind and other forms of obligations
and receivables, instruments and other property which at any time constitute all
or part of or are included in the proceeds of any of the foregoing
(collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction except as set
forth herein, and to secure compliance with the provisions of this Indenture,
all as provided in this Indenture.
The Trustee, as Trustee on behalf of the Holders of the Notes,
acknowledges such Grant, accepts the trusts under this Indenture in accordance
with the provisions of this Indenture and agrees to perform its duties required
in this Indenture to the best of its ability to the end that the interests of
the Holders of the Notes may be adequately and effectively protected.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1 Definitions. Except as otherwise specified herein, the
following terms have the respective meanings set forth below for all purposes of
this Indenture.
"Act" has the meaning specified in Section 11.3(a).
<PAGE> 8
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. A Person shall not be
deemed to be an Affiliate of any person solely because such other Person has the
contractual right or obligation to manage such Person unless such other Person
controls such Person through equity ownership or otherwise.
"Authorized Officer" means, with respect to the Issuer and the Master
Servicer, any officer of the Owner Trustee or the Master Servicer, as
applicable, who is authorized to act for the Owner Trustee or the Master
Servicer, as applicable, in matters relating to the Issuer and who is identified
on the list of Authorized Officers delivered by each of the Owner Trustee and
the Master Servicer to the Trustee on the Closing Date (as such list may be
modified or supplemented from time to time thereafter).
"Basic Documents" means the Certificate of Trust, the Trust Agreement,
the Sale and Servicing Agreement, the Depository Agreements and other documents
and certificates delivered in connection therewith.
"Book Entry Notes" means a beneficial interest in the Notes, ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.10.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in The City of New York or , are
authorized or obligated by law, regulation or executive order to remain closed.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
List Class(es) of Notes and their Respective Interest Rates .
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Indenture.
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"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at date of the execution of this Agreement is located at
_________________________, Attention: or at such other address as the Trustee
may designate from time to time by notice to the Noteholders, the Master
Servicer and the Issuer, or the principal corporate trust office of any
successor Trustee (the address of which the successor Trustee will notify the
Noteholders and the Issuer).
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.10.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
"Indenture" means this Indenture as amended and supplemented from time
to time.
"Independent" means, when used with respect to any specified Person,
that the person (a) is in fact independent of the Issuer, any other obligor upon
the Notes, the Seller and any Affiliate of any of the foregoing persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Seller or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Issuer, any such
other obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or Person
performing similar functions.
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<PAGE> 10
"Independent Certificate" means a certificate or opinion to be delivered
to the Trustee under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1, made by an Independent
appraiser or other expert 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 the definition of "Independent" in this
Indenture and that the signer is Independent within the meaning thereof.
"Interest Rate" means, with respect to the Define the Interest Rate for
each class of Notes.
"Issuer" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Trustee.
List Class(es) of Notes.
"Note Depository Agreement" means the agreement among the Issuer, the
Trustee, the Master Servicer and The Depository Trust Company, as the initial
Clearing Agency, dated , 199 , substantially in the form of Exhibit C.
"Note Owner" means, with respect to a Book-Entry Note, the person who is
the owner of such Book-Entry Note, as reflected on the books of the Clearing
Agency, or on the books of a Person maintaining an account with such Clearing
Agency (directly as a Clearing Agency Participant or as an indirect participant,
in each case in accordance with the rules of such Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.4.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1 and TIA Section 314,
and delivered to the Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Issuer and who shall be satisfactory to the Trustee, and which
opinion or opinions shall be addressed to the Trustee as Trustee, shall comply
with any applicable requirements of Section 11.1, and shall be in form and
substance satisfactory to the Trustee.
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"Outstanding" means, as of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent in trust for the Holders
of such Notes (provided, however, that if such Notes are
to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor,
satisfactory to the Trustee); and
(iii) Notes in exchange for or in lieu of other Notes which have
been authenticated and delivered pursuant to this
Indenture unless proof satisfactory to the Trustee is
presented that any such Notes are held by a bona fide
purchaser; provided that in determining whether the
Holders of the requisite Outstanding Amount of the Notes
have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Basic
Document, Notes owned by the Issuer, any other obligor
upon the Notes, the Seller or any Affiliate of any of the
foregoing Persons 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 that a Responsible Officer of the
Trustee either actually knows to be so owned or has
received written notice thereof shall be so disregarded.
Notes so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the
satisfaction of the 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, the Seller or
any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount
of all Notes, or class of Notes, as applicable,
Outstanding at the date of determination.
"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 6.11 and is
authorized by the Issuer to make the payments to and distributions from the
Collection Account and the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Issuer.
"Payment Date" means a Distribution Date.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.5 in lieu of a
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mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Record Date" means, with respect to a Distribution Date or Redemption
Date, the close of business on the fourteenth day of the calendar month in which
such Distribution Date or Redemption Date occurs.
"Redemption Date" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a) or a payment to Noteholders pursuant to Section
10.1(b), the Distribution Date specified by the Master Servicer or the Issuer
pursuant to Section 10.1(a) or (b) as applicable.
"Redemption Price" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a), an amount equal to the unpaid principal amount of
the then outstanding Class A-Notes plus accrued and unpaid interest thereon to
but excluding the Redemption Date, or (b) in the case of a payment made to
Noteholders pursuant to Section 10.1(b), the amount on deposit in the Note
Distribution Account, but not in excess of the amount specified in clause (a)
above.
"Responsible Officer" means, with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary, 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 matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of _______ __, 199_, among the Issuer, the Seller, the Representative
and the Master Servicer, substantially in the form of Exhibit B as the same may
be amended or supplemented from time to time.
"Schedule of Home Equity Loans" means the listing of the Home Equity
Loans set forth in Exhibit A (which Exhibit may be in the form of microfiche).
"State" means any one of the 50 states of the United States of America
or the District of Columbia.
"Successor Master Servicer" has the meaning specified in Section 3.7(e).
"Trust Estate" means all money, instruments, rights and other property
that are subject or intended to be subject to the lien and security interest of
this Indenture for the benefit of the Noteholders (including all property and
interests Granted to the Trustee), including all proceeds thereof.
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"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as
in force on the date hereof, unless otherwise specifically provided.
"Trustee" means , a , not in its individual capacity but as trustee
under this Indenture, or any successor trustee under this Indenture.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(a) Except as otherwise specified herein, the following terms
have the respective meanings set forth in the Sale and Servicing Agreement as in
effect on the Closing Date for all purposes of this Indenture, and the
definitions of such terms are equally applicable both to the singular and plural
forms of such terms:
SECTION OF SALE AND TERM SERVICING AGREEMENT
<TABLE>
<S> <C>
Annual Percentage Rate or APR...................................Section 1.1
Certificateholders .............................................Section 1.1
Closing Date....................................................Section 1.1
Collection Account..............................................Section 1.1
Collection Period ..............................................Section 1.1
Contract .......................................................Section 1.1
Depository Agreements ..........................................Section 1.1
Distribution Date ..............................................Section 1.1
Eligible Deposit Account .......................................Section 1.1
Eligible Investments............................................Section 1.1
Final Scheduled Distribution Date...............................Section 1.1
Final Scheduled Maturity Date...................................Section 1.1
Home Equity Loans...............................................Section 1.1
Mortgaged Property..............................................Section 1.1
Note Distribution Account.......................................Section 1.1
Noteholders' Distributable Amount...............................Section 1.1
Noteholders' Percentage.........................................Section 1.1
Obligor.........................................................Section 1.1
Original Pool Balance...........................................Section 1.1
Owner Trustee...................................................Section 1.1
Person..........................................................Section 1.1
Pool Balance....................................................Section 1.1
Purchased Home Equity Loans.....................................Section 1.1
Rating Agency...................................................Section 1.1
Rating Agency Condition.........................................Section 1.1
Reserve Account.................................................Section 1.1
Seller..........................................................Section 1.1
Master Servicer.................................................Section 1.1
Master Servicer Default.........................................Section 1.1
</TABLE>
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<TABLE>
<S> <C>
Specified Reserve Account Balance...............................Section 1.1
Total Distribution Amount.......................................Section 1.1
Trust Accounts..................................................Section 1.1
Trust Agreement.................................................Section 1.1
</TABLE>
(b) Capitalized terms used herein and not otherwise defined
herein or in the Sale and Servicing Agreement have the meanings assigned to them
in the Trust Agreement.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"Indenture securities" means the Notes.
"Indenture security holder" means a Noteholder.
"Indenture to be qualified" means this Indenture.
"Indenture trustee" or "institutional trustee" means the Trustee.
"Obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
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ARTICLE II
The Notes
SECTION 2.1 Form. List Class(es) of Notes in each case together with the
Trustee's certificate of authentication, shall be in substantially the form set
forth in Exhibit D, with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibit D is part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Trustee shall upon Issuer Order authenticate and deliver Class A-_
Notes for original issue in an aggregate principal amount of $_________, Class
A-_ Notes for original issue in the aggregate principal amount of $_________ ,
Class A--Notes for original issue in the aggregate principal amount of
$________, Class A-_ Notes for original issue in the aggregate principal amount
of $________, and Class A-_ Notes for original issue in the aggregate principal
amount of $______. The aggregate principal amount of List Class(es) of Notes
outstanding at any time may not exceed such amounts except as provided in
Section 2.5.
Each Note shall be dated the date of its authentication. The Notes shall
be issuable as registered Notes in the minimum denomination of $25,000 and in
integral multiples of $1,000 in excess thereof (except for one Note of each
class which may be issued in a denomination other than an integral multiple of
$1,000).
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
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form provided for herein executed by the Trustee by the manual signature of one
of its authorized 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 2.3 Temporary Notes. Pending the preparation of Definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the Trustee
shall authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, of the tenor of the Definitive
Notes in lieu of which they are issued and with such variations not inconsistent
with the terms of this Indenture 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 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute and the Trustee shall authenticate and deliver in 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 2.4 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 shall be "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. Upon any resignation of any Note
Registrar, the Issuer shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Note Registrar.
If a Person other than the Trustee is appointed by the Issuer as Note
Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of such Note Registrar and of the location, and any change in the
location, of the Note Register, and the Trustee shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive Officer thereof as to the names and addresses
of the Holders of the Notes and the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.2, if the
requirements of Section 8-401(1) of the UCC are met the Issuer shall execute and
upon its request the Trustee shall authenticate and the Noteholder shall obtain
from the Trustee, in the name of the designated transferee or transferees, one
or more new Notes, in any authorized denominations, of the same class and a like
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations, of the same class and a like aggregate principal
amount, upon surrender of the
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Notes to be exchanged at such office or agency. Whenever any Notes are so
surrendered for exchange, if the requirements of Section 8-401(1) of the UCC are
met the Issuer shall execute and upon its request the Trustee shall authenticate
and the Noteholder shall obtain from the Trustee, 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 (i) duly endorsed by, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar which requirements include membership or
participation in Securities Transfer Agents Medallion Program ("Stamp") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, Stamp, all in accordance with the
Exchange Act, and (ii) accompanied by such other documents as the Trustee may
require.
No service charge shall be made to a Holder 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 that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
The preceding provisions of this section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to the Note.
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes. If (i) 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 (ii)
there is delivered to the Trustee such security or indemnity as may be required
by it to hold the Issuer and the Trustee harmless, then, in the absence of
notice to the Issuer, the Note Registrar or the Trustee that such Note has been
acquired by a bona fide purchaser, and provided that the requirements of Section
8-405 of the UCC are met, the Issuer shall execute and upon its request the
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the
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<PAGE> 18
Trustee shall be entitled to recover such replacement Note (or such payment)
from the Person to whom it was delivered or any Person taking such replacement
Note from such Person to whom such replacement Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section, the Issuer
may require the payment by the Holder of such Note of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other reasonable expenses (including the fees and expenses of the Trustee)
connected therewith.
Every replacement Note issued pursuant to this Section in replacement of
any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee and any agent of
the Issuer or the Trustee may treat the Person in whose name any Note is
registered (as of the day of determination) as the owner of such Note for the
purpose of receiving payments of principal of and interest, if any, on such Note
and for all other purposes whatsoever, whether or not such Note be overdue, and
neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall
be affected by notice to the contrary.
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest. (a)
The Notes shall accrue interest as provided in the forms of the List Class(es)
of Notes, set forth in Exhibit D, and such interest shall be payable on each
Distribution Date as specified therein. Any installment of interest or
principal, if any, payable on any Note which is punctually paid or duly provided
for by the Issuer on the applicable Distribution Date shall be paid to the
Person in whose name such Note (or one or more Predecessor Notes) is registered
on the Record Date, by check mailed first-class, postage prepaid, to such
Person's address as it appears on the Note Register on such Record Date, except
that, unless Definitive Notes have been issued pursuant to Section 2.12, with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payment will be made
by wire transfer in immediately available funds to the account designated by
such nominee and except for the final installment of principal payable with
respect to such Note on a Distribution Date or on the Final Scheduled
Distribution Date (and except for the Redemption Price for any Note called for
redemption pursuant to Section 10.1(a)) which shall be payable as provided
below. The
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<PAGE> 19
funds represented by any such checks returned undelivered shall be held in
accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments
on each Distribution Date as provided in the forms of the List Class(es) of
Notes , set forth in Exhibit D. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the date on which an Event of Default shall have occurred and be continuing,
if the Trustee or the Holders of the Notes representing not less than a majority
of the Outstanding Amount of the Notes have declared the Notes to be immediately
due and payable in the manner provided in Section 5.2. All principal payments on
each class of Notes shall be made pro rata to the Noteholders of such class
entitled thereto. The Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the
Distribution Date on which the Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
or transmitted by facsimile prior to such final Distribution Date and shall
specify that such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in connection
with redemptions of Notes shall be mailed to Noteholders as provided in Section
10.2.
(c) If the Issuer defaults in a payment of interest on the Notes,
the Issuer shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) at the applicable Interest Rate in any lawful
manner. The Issuer may pay such defaulted interest to the Persons who are
Noteholders on a subsequent special record date, which date shall be at least
five Business Days prior to the payment date. The Issuer shall fix or cause to
be fixed any such special record date and payment date, and, at least 15 days
before any such special record date, the Issuer shall mail to each Noteholder
and the Trustee a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.8 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 shall be promptly
canceled by the Trustee. The Issuer may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Issuer may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section, except as expressly permitted by this Indenture. All canceled
Notes may be held or disposed of by the Trustee in accordance with its standard
retention or disposal policy as in effect at the time unless the Issuer shall
direct by an Issuer Order that they be destroyed or returned to it; provided
that such Issuer Order is timely and the Notes have not been previously disposed
of by the Trustee.
SECTION 2.9 Release of Collateral. Subject to Section 11.1, the Trustee
shall release property from the lien of this Indenture only upon receipt of an
Issuer Request accompanied by an Officer's Certificate, an Opinion of Counsel
and Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
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SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to as agent for The Depository Trust Company, the initial Clearing
Agency, by, or on behalf of, the Issuer. Such Notes shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner will receive a Definitive Note
representing such Note Owner's interest in such Note, except as provided in
Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Note Owners pursuant to Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Trustee shall be entitled to
deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and
interest on the Notes and the giving of instructions or
directions hereunder) as the sole Holder of the Notes, and
shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the
provisions of this Section shall control;
(iv) the rights of Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those
established by law and agreements between such Note Owners
and the Clearing Agency and/or the Clearing Agency
Participants. Pursuant to the Note Depository Agreement,
unless and until Definitive Notes are issued pursuant to
Section 2.12, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of
principal of and interest on the Notes to such Clearing
Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of
Notes evidencing a specified percentage of the Outstanding
Amount of the Notes, the Clearing Agency shall be deemed
to represent such percentage only to the extent that it
has received instructions to such effect from Note Owners
and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of
the beneficial interest in the Notes and has delivered
such instructions to the Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
2.12, the Trustee shall give all such notices and communications specified
herein to be given to Holders of the Notes to the Clearing Agency, and shall
have no obligation to the Note Owners.
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SECTION 2.12 Definitive Notes. If (i) the Master Servicer advises the
Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Notes, and the
Master Servicer is unable to locate a qualified successor, (ii) the Master
Servicer at its option advises the Trustee in writing that it elects to
terminate the book-entry system through the Clearing Agency or (iii) after the
occurrence of an Event of Default, Note Owners representing beneficial interests
aggregating at least a majority of the Outstanding Amount of the Notes advise
the Trustee through the Clearing Agency in writing that the continuation of a
book entry system through the Clearing Agency is no longer in the best interests
of the Note Owners, then the Clearing Agency shall notify all Note Owners and
the Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Note Owners requesting the same. Upon surrender to the
Trustee of the typewritten Note or Notes representing the Book-Entry Notes by
the Clearing Agency, accompanied by registration instructions, the Issuer shall
execute and the Trustee shall authenticate the Definitive Notes in accordance
with the instructions of the Clearing Agency. None of the Issuer, the Note
Registrar or the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Notes, the Trustee shall
recognize the Holders of the Definitive Notes as Note-holders.
ARTICLE III
Covenants
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and
punctually pay the principal of and interest on the Notes in accordance with the
terms of the Notes and this Indenture. Without limiting the foregoing, subject
to Section 8.2(c), the Issuer will cause to be distributed all amounts on
deposit in the Note Distribution Account on a Distribution Date deposited
therein pursuant to the Sale and Servicing Agreement for the benefit of the
Class A-- Notes to Class A--Noteholders-List for all Classes. Amounts properly
withheld under the Code by any Person from a payment to any Noteholder of
interest and/or principal shall be considered as having been paid by the Issuer
to such Noteholder for all purposes of this Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain in
the Borough of Manhattan, The City of New York, an office or agency where Notes
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 hereby initially appoints the Trustee to serve as its
agent for the foregoing purposes. The Issuer will give prompt written notice to
the Trustee of the location, and of any change in the location, of any such
office or agency. If at any time the Issuer shall fail to maintain any such
office or agency or shall fail to furnish the Trustee with the address thereof,
such surrenders, notices and demands may be made or served at the Corporate
Trust Office, and the Issuer hereby appoints the Trustee as its agent to receive
all such surrenders, notices and demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Sections 8.2(a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Collection Account
and the Note Distribution Account
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pursuant to Section 8.2(c) 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 and the Note Distribution Account for payments of Notes shall be paid
over to the Issuer except as provided in this Section.
On or before each Distribution Date and Redemption Date, the Issuer
shall deposit or cause to be deposited in the Note Distribution Account an
aggregate sum sufficient to pay the amounts then becoming due under the Notes,
such sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Paying Agent is the Trustee) shall promptly notify the Trustee of
its action or failure so to act.
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:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided
and pay such sums to such Persons as herein provided;
(ii) give the Trustee notice of any default by the Issuer of
which it has actual knowledge (or any other obligor upon
the Notes) in the making of any payment required to be
made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to
the Trustee all sums so held in trust by such Paying
Agent;
(iv) 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
required to be met by a Paying Agent at the time of its
appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes
of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in
connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent 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 the sums were held by such Paying Agent; and upon such a
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
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Subject to applicable laws with respect to the escheat of funds, 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 shall be discharged from such trust and
be paid to the Issuer on Issuer Request; 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 thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense of
the Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Trustee shall also adopt and employ, at the
expense of the Issuer, any other 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 of any Paying Agent,
at the last address of record for each such Holder).
SECTION 3.4 Existence. Except as otherwise permitted by the provisions
of Section 3.10, the Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other state or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Collateral and each other instrument or agreement included in the
Trust Estate.
SECTION 3.5 Protection of Trust Estate. The Issuer will from time to
time prepare (or shall cause to be prepared), execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
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(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
The Issuer hereby designates the Trustee its agent and attorney-in-fact
to execute any financing statement, continuation statement or other instrument
required by the Trustee pursuant to this Section.
SECTION 3.6 Opinions as to Trust Estate. (a) On the Closing Date, the
Issuer shall furnish to the Trustee an Opinion of Counsel either stating that,
in the opinion of such counsel, such action has been taken with respect to the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any financing statements and continuation statements, as are necessary to
perfect and make effective the lien and security interest of this Indenture and
reciting the details of such action, or stating that, in the opinion of such
counsel, no such action is necessary to make such lien and security interest
effective.
(b) Within ____ days after the beginning of each calendar year,
beginning with the first calendar year beginning more than three months after
the Cut-Off Date, the Issuer shall furnish to the Trustee an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as are necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until January 30 in the following calendar
year.
SECTION 3.7 Performance of Obligations; Servicing of Loans. (a) The
Issuer will not take any action and will use its best efforts not to permit any
action to be taken by others that would release any Person from any of such
Person's material covenants or obligations under any instrument or agreement
included in the Trust Estate or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
ordered by any bankruptcy or other court or as expressly provided in this
Indenture, the Basic Documents or such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Trustee in an Officer's Certificate of the Issuer
shall be deemed to be action taken by the Issuer. Initially, the Issuer has
contracted with the Master Servicer to assist the Issuer in performing its
duties under this Indenture.
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(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to preparing (or causing to prepared) and filing (or causing to be
filed) all UCC financing statements and continuation statements required to be
filed by the terms of this Indenture and the Sale and Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Trustee or the Holders of at least a majority
of the Outstanding Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of a Master
Servicer Default under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Trustee and the Rating Agencies thereof in accordance with
Section 11.4, and shall specify in such notice the action, if any, the Issuer is
taking in respect of such default. If a Master Servicer Default shall arise from
the failure of the Master Servicer to perform any of its duties or obligations
under the Sale and Servicing Agreement with respect to the Loans, the Issuer
shall take all reasonable steps available to it to remedy such failure.
(e) As promptly as possible after the giving of notice of termination to
the Master Servicer of the Master Servicer's rights and powers pursuant to
Section 8.1 of the Sale and Servicing Agreement, the Issuer shall appoint a
successor Master Servicer (the "Successor Master Servicer"), and such Successor
Master Servicer shall accept its appointment by a written assumption in a form
acceptable to the Trustee. In the event that a Successor Master Servicer has not
been appointed and accepted its appointment at the time when the Master Servicer
ceases to act as Master Servicer, the Trustee without further action shall
automatically be appointed the Successor Master Servicer. The Trustee may resign
as the Master Servicer by giving written notice of such resignation to the
Issuer and in such event will be released from such duties and obligations, such
release not to be effective until the date a new Master Servicer enters into a
servicing agreement with the Issuer as provided below. Upon delivery of any such
notice to the Issuer, the Issuer shall obtain a new Master Servicer as the
Successor Master Servicer under the Sale and Servicing Agreement. Any Successor
Master Servicer other than the Trustee shall (i) be an established financial
institution having a net worth of not less than $50,000,000 and whose regular
business includes the servicing of Contracts and (ii) enter into a servicing
agreement with the Issuer having substantially the same provisions as the
provisions of the Sale and Servicing Agreement applicable to the Master
Servicer. If within 30 days after the delivery of the notice referred to above,
the Issuer shall not have obtained such a new Master Servicer, the Trustee may
appoint, or may petition a court of competent jurisdiction to appoint, a
Successor Master Servicer. 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, subject to the limitations set forth below and in the
Sale and Servicing Agreement, and in accordance with Section 8.2 of the Sale and
Servicing Agreement, the Issuer shall enter into an agreement with such
successor for the servicing of the Home Equity Loans (such agreement to be in
form and substance satisfactory to the Trustee). If the Trustee shall succeed to
the Master Servicer's duties as Master Servicer of the Home Equity Loans as
provided herein, it shall do so in its individual
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capacity and not in its capacity as Trustee and, accordingly, the provisions of
Article VI hereof shall be inapplicable to the Trustee in its duties as the
successor to the Master Servicer and the servicing of the Loans. In case the
Trustee shall become successor to the Master Servicer under the Sale and
Servicing Agreement, the Trustee shall be entitled to appoint as Master Servicer
any one of its Affiliates, or delegate any of its responsibilities as Master
Servicer to agents, subject to the terms of the Sale and Servicing Agreement,
provided that such appointment or delegation shall not affect or alter in any
way the liability of the Trustee as a successor for the performance of the
duties and obligations of the Master Servicer in accordance with the terms
hereof.
(f) Upon any termination of the Master Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify
the Trustee. As soon as a Successor Master Servicer (other than the Trustee) is
appointed, the Issuer shall notify the Trustee of such appointment, specifying
in such notice the name and address of such Successor Master Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Trustee under this Indenture or the rights of the Trustee
hereunder, the Issuer agrees that, unless such action is specifically permitted
hereunder or under the Basic Documents, it will not, without the prior written
consent of the Trustee or the Holders of at least a majority in Outstanding
Amount of the Notes, amend, modify, waive, supplement, terminate or surrender,
or agree to any amendment, modification, supplement, termination, waiver or
surrender of, the terms of any Collateral or the Basic Documents, or waive
timely performance or observance by the Master Servicer or the Seller under the
Sale and Servicing Agreement; provided, however, that no such amendment shall
(i) increase or reduce in any manner the amount of, or accelerate or delay the
timing of, distributions that are required to be made for the benefit of the
Noteholders, or (ii) reduce the aforesaid percentage of the Notes which are
required to consent to any such amendment, without the consent of the Holders of
all the Outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Trustee or such Holders, the Issuer
agrees, promptly following a request by the Trustee to do so, to execute and
deliver, in its own name and at its own expense, such agreements, instruments,
consents and other documents as the Trustee may deem necessary or appropriate in
the circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture or the
Basic Documents, sell, transfer, exchange or otherwise
dispose of any of the properties or assets of the Issuer,
including those included in the Trust Estate, unless
directed to do so by the Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes
(other than amounts properly withheld from such payments
under the Code) or assert any claim against any present or
former Noteholder by reason of the payment of the taxes
levied or assessed upon any part of the Trust Estate; or
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(iii) (A) 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 with respect to the Notes under
this Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance (other
than the lien of this Indenture) to be created on or
extend to or other-wise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the
proceeds thereof (other than tax liens, mechanics' liens
and other liens that arise by operation of law, in each
case on a Loan and arising solely as a result of an action
or omission of the related Obligor) or (C) permit the lien
of this Indenture not to constitute a valid first priority
(other than with respect to any such tax, mechanics' or
other lien) security interest in the Trust Estate.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Trustee, within ---days after the end of each fiscal year of the Issuer
(commencing with the fiscal year 199 ), and otherwise in compliance with the
requirements of TIA Section 314(a)(4) an Officer's Certificate stating, as to
the Authorized Officer signing such Officer's Certificate, that
(i) a review of the activities of the Issuer during such year
and of performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has complied with all
conditions and covenants under this Indenture throughout
such year, or, if there has been a default in the
compliance of any such condition or covenant, specifying
each such default known to such Authorized Officer and the
nature and status thereof.
SECTION 3.10 Issuer May Consolidate, Etc. Only on Certain Terms. (a) The
Issuer shall not consolidate or merge with or into any other Person, unless
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person
organized and existing under the laws of the United States
of America or any state and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, the due
and punctual payment of the principal of and interest on
all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of
the Issuer to be performed or observed, all as provided
herein;
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(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee) to the
effect that such transaction will not have any material
adverse tax consequence to the Trust, any Noteholder or
any Certificateholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have
been taken; and
(vi) the Issuer shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each
stating that such consolidation or merger and such
supplemental indenture comply with this Article III and
that all conditions precedent herein provided for relating
to such transaction have been complied with (including any
filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer all or substantially all of
its properties or assets, including those included in the Trust Estate, to any
Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or
transfer of which is hereby restricted shall (A) be a
United States citizen or a Person organized and existing
under the laws of the United States of America or any
state, (B) expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment
of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant
of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C)
expressly agree by means of such supplemental indenture
that all right, title and interest so conveyed or
transferred shall be subject and subordinate to the rights
of Holders of the Notes, (D) unless otherwise provided in
such supplemental indenture, expressly agree to indemnify,
defend and hold harmless the Issuer against and from any
loss, liability or expense arising under or related to
this Indenture and the Notes and (E) expressly agree by
means of such supplemental indenture that such Person (or
if a group of persons, then one specified Person) shall
prepare (or cause to be prepared) and make all filings
with the Commission (and any other appropriate Person)
required by the Exchange Act in connection with the Notes;
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(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee) to the
effect that such transaction will not have any material
adverse tax consequence to the Trust, any Noteholder or
any Certificateholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have
been taken; and
(vi) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each
stating that such conveyance or transfer and such
supplemental indenture comply with this Article III and
that all conditions precedent herein provided for relating
to such transaction have been complied with (including any
filing required by the Exchange Act).
SECTION 3.11 Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.10(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.10 (b), will be released from every covenant
and agreement of this Indenture to be observed or performed on the part of the
Issuer with respect to the Notes immediately upon the delivery of written notice
to the Trustee stating that is to be so released.
SECTION 3.12 No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the Home
Equity Loans in the manner contemplated by this Indenture and the Basic
Documents and activities incidental thereto.
SECTION 3.13 No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14 Master Servicer's Obligations. The Issuer shall cause the
Master Servicer to comply with Sections 4.9, 4.10, 4.11 and 5.8 of the Sale and
Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by the Sale and Servicing Agreement or this Indenture, the
Issuer shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an instrument having
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the effect of assuring another's payment or performance on any obligation or
capability of so doing or otherwise), endorse or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stocks or
dividends of, or own, purchase, repurchase or acquire (or agree contingently to
do so) any stock, obligations, assets or securities of, or any other interest
in, or make any capital contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17 Reserved
SECTION 3.18 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Master Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such owner-ship or equity interest or security
or (iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Master Servicer, the Owner Trustee, the Trustee and the
Certificateholders as permitted by, and to the extent funds are available for
such purpose under, the Sale and Servicing Agreement or Trust Agreement. The
Issuer will not, directly or indirectly, make payments to or distributions from
the Collection Account except in accordance with this Indenture and the Basic
Documents.
SECTION 3.19 Notice of Events of Default. The Issuer agrees to give the
Trustee and the Rating Agencies prompt written notice of each Event of Default
hereunder and each default on the part of the Master Servicer or the Seller of
its obligations under the Sale and Servicing Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the Trustee,
the Issuer will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
purpose of this Indenture.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.12 and 3.13, (v) the rights, obligations and immunities of the Trustee
hereunder (including the rights of the Trustee under Section 6.7 and the
obligations of the Trustee under Section 4.2) and (vi) the rights of Noteholders
as beneficiaries hereof with respect to the property so deposited with the
Trustee payable to all or any of them, and the Trustee, on demand of and at the
expense
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of the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes, when (A) either (1) all
Notes theretofore authenticated and delivered (other than (i) Notes that have
been destroyed, lost or stolen and that have been replaced or paid as provided
in Section 2.5 and (ii) Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Issuer and thereafter
repaid to the Issuer or discharged from such trust, as provided in Section 3.3)
have been delivered to the Trustee for cancellation; or (2) all Notes not
theretofore delivered to the Trustee for cancellation (i) have become due and
payable, (ii) will become due and payable at the Final Scheduled Distribution
Date within one year, or (iii) are to be called for redemption within one year
under 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 (i), (ii) or (iii) above, has irrevocably deposited
or caused to be irrevocably deposited with the Trustee cash or direct
obligations of or obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation when due to
the Final Scheduled Distribution Date or Redemption Date (if Notes shall have
been called for redemption pursuant to Section 10.1(a)), as the case may be; (B)
the Issuer has paid or caused to be paid all other sums payable hereunder by the
Issuer; and (C) the Issuer has delivered to the Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Trustee)
an Independent Certificate from a firm of certified public accountants, each
meeting the applicable requirements of Section 11.1(a) and each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Trustee pursuant to Section 4.1 hereof shall be held in trust and applied by it,
in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any Paying Agent, as the Trustee may
determine, to the Holders of the particular Notes for the payment or redemption
of which such moneys have been deposited with the Trustee, of all sums due and
to become due thereon for principal and interest; but such moneys need not be
segregated from other funds except to the extent required herein or in the Sale
and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection with
the satisfaction and discharge of this Indenture with respect to the Notes, all
moneys then held by any Paying Agent other than the Trustee under the provisions
of this Indenture with respect to such Notes shall, upon demand of the Issuer,
be paid to the Trustee to be held and applied according to Section 3.3 and
thereupon such Paying Agent shall be released from all further liability with
respect to such moneys.
ARTICLE V
Remedies
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SECTION 5.1 Events 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):
(i) a default for thirty days or more in the payment of any
principal of or interest on any Note; or
(ii) default in the observance or performance of any covenant
or agreement of the Issuer or the Trust Fund made in this
Indenture (other than a covenant or agreement, a default
in the observance or performance of which is elsewhere in
this Section specifically dealt with), which continues for
a period of 60 days after notice after thereof shall have
been given, by registered or certified mail, to the Issuer
by the Trustee or to the Issuer and the Trustee by the
Holders of at least 25% of the Outstanding Amount of the
Notes, a written notice specifying such default or
incorrect representation or warranty and requiring it to
be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(iii) any representation or warranty of the Issuer or the Trust
Fund made in this Indenture or in any certificate or other
writing delivered pursuant hereto or in connection
herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made,
and such breach is not cured within 60 days after notice
thereof after there shall have been given, by registered
or certified mail, to the Issuer by the Trustee or to the
Issuer and the Trustee by the Holders of at least 25% of
the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or
warranty and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(iv) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the
Issuer or any substantial part of the Trust Estate in an
involuntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the
Trust Estate, or ordering the winding-up or liquidation of
the Issuer's affairs, and such decree or order shall
remain unstayed and in effect for a period of 60
consecutive days; or
(v) the commencement by the Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or the
consent by the Issuer to the entry of an order for
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relief in an involuntary case under any such law, or the
consent by the Issuer to the appointment or taking
possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer or
for any substantial part of the Trust Estate, or the
making by the Issuer of any general 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 action by the Issuer in furtherance of any
of the foregoing.
The Issuer shall deliver to the Trustee, within five days after the
occurrence thereof, written notice in the form of an Officer's Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default under clause (iii), its status and what action the Issuer is
taking or proposes to take with respect thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Trustee or the Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes may declare the principal or if any Note is a
Zero Coupon Security, such portion of the principal amount as specified in the
Note to be immediately due and payable, by a notice in writing to the Issuer
(and to the Trustee if given by Noteholders), and upon any such declaration the
unpaid principal amount of such Notes, together with accrued and unpaid interest
thereon through the date of acceleration, shall become immediately due and
payable.
At any time after such declaration of acceleration of maturity 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 V provided, the Holders
of Notes representing a majority of the Outstanding Amount of the Notes, by
written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if:
(i) 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 that 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 and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the principal
of the Notes that has become due solely by such acceleration, have been cured or
waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
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SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee. (a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer will, upon demand of the Trustee, pay to it,
for the benefit of the Holders of the Notes, the whole amount then due and
payable on such Notes for principal and interest, with interest upon the overdue
principal, and, to the extent payment at such rate of interest shall be legally
enforceable, upon overdue installments of interest, at the rate borne by the
Notes and in addition thereto such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee and its agents
and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, 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 other obligor upon such Notes and collect in the
manner provided by law out of the property of the Issuer or other obligor upon
such Notes, wherever situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Trustee may, as
more particularly provided in Section 5.4, 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 to
enforce any other proper remedy or legal or equitable right vested in the
Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, proceedings under Title 11 of the United States Code or any
other applicable Federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Trustee, irrespective of whether the principal of any
Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims 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 reasonable
compensation to the Trustee and each predecessor Trustee,
and their respective agents,
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attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee, except as a
result of negligence, bad faith or willful misconduct) and
of the Noteholders allowed in such proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of
a trustee, a standby trustee or person performing similar
functions in any such proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to
distribute all amounts received with respect to the claims
of the Noteholders and of the Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the
claims of the Trustee or the Holders of Notes allowed in
any judicial proceedings relative to the Issuer, its
creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Noteholders to make
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of payments directly to such Noteholders, to pay to the Trustee such
amounts as shall be sufficient to cover reasonable compensation to the Trustee,
each predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or bad
faith.
(e) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting 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
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Trustee without the possession
of any of the Notes or the production thereof in any trial or other proceedings
relative thereto, and any such action or proceedings instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment, subject to the payment of the expenses, disbursements and
compensation of the Trustee, each predecessor Trustee and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of the
Notes.
(g) In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Notes, and it shall not be necessary to make any Noteholder a
party to any such proceedings.
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SECTION 5.4 Remedies; Priorities. (a) If an Event of Default shall have
occurred and be continuing, the Trustee may do one or more of the following
(subject to Section 5.5):
(i) institute proceedings in its own name and as trustee of an
express trust for the collection of all amounts then
payable on the Notes or under this Indenture with respect
thereto, whether by declaration or otherwise, enforce any
judgment obtained, and collect from the Issuer and any
other obligor upon such Notes moneys adjudged due;
(ii) institute proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to
the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and
take any other appropriate action to protect and enforce
the rights and remedies of the Trustee and the Holders of
the Notes; and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Trustee may not sell or other-wise liquidate the
Trust Estate following an Event of Default, other than an Event of Default
described in Section 5.1(i), unless (A) the Holders of 100% of the Outstanding
Amount of the Notes consent thereto, (B) the proceeds of such sale or
liquidation distributable to the Noteholders are sufficient to discharge in full
all amounts then due and unpaid upon such Notes for principal and interest or
(C) the Trustee determines that the Trust Estate will not continue to provide
sufficient funds for the payment of principal of and interest on the Notes as
they would have become due if the Notes had not been declared due and payable,
and the Trustee obtains the consent of Holders of 66-2/3% of the Outstanding
Amount of the Notes. In determining such sufficiency or insufficiency with
respect to clause (B) and (C), the Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose.
(b) If the Trustee collects any money or property pursuant to this
Article V, it shall pay out such money or property (and other amounts including
amounts held on deposit in the Reserve Account) held as Collateral for the
benefit of the Noteholders in the following order:
FIRST: to the Trustee for amounts due under Section 6.7;
SECOND: to Noteholders for amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
interest;
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THIRD: to Noteholders for amounts due and unpaid on the Notes for
principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for
principal; and
FOURTH: to the Issuer for distribution to the Certificateholders.
The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section. At least 15 days before such record date,
the Issuer shall mail to each Noteholder and the Trustee a notice that states
the record date, the payment date and the amount to be paid.
SECTION 5.5 Optional Preservation of the Loans. If the Notes have been
declared to be due and payable under Section 5.2 following an Event of Default
and such declaration and its consequences have not been rescinded and annulled,
the Trustee may, but need not, elect to maintain possession of the Trust Estate.
It is the desire of the parties hereto and the Noteholders that there be at all
times sufficient funds for the payment of principal of and interest on the
Notes, and the Trustee shall take such desire into account when determining
whether or not to maintain possession of the Trust Estate. In determining
whether to maintain possession of the Trust Estate, the Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such purpose.
SECTION 5.6 Limitation of Suits. No Holder of any Note shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding Amount
of the Notes have made written request to the Trustee to
institute such proceeding in respect of such Event of
Default in its own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to it against the costs,
expenses and liabilities to be incurred in complying with
such request;
(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute
such proceedings; and
(v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the
Holders of a majority of the Outstanding Amount of the
Notes;
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,
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disturb or prejudice the rights of any other Holders of Notes or to obtain or to
seek to obtain priority or preference over any other Holders or to enforce any
right under this Indenture, except in the manner herein provided.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Notes, each
representing less than a majority of the Outstanding Amount of the Notes, the
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective due dates thereof expressed in such Note or in this Indenture (or, in
the case of redemption, on or after the Redemption Date) and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
SECTION 5.8 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 5.9 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
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 5.10 Delay or Omission Not a Waiver. No delay or omission of the
Trustee or any Holder of any Note to exercise any right or remedy accruing upon
any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V 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 5.11 Control by Noteholders. The Holders of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
with respect to the Notes or exercising any trust or power conferred on the
Trustee; provided that
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(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any direction
to the Trustee to sell or liquidate the Trust Estate shall
be by the Holders of Notes representing not less than 100%
of the Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the
trustee by Holders of Notes representing less than 100% of
the Outstanding Amount of the Notes to sell or liquidate
the Trust Estate shall be of no force and effect; and
(iv) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Trustee need not take any
action that it determines might involve it in liability or might materially
adversely affect the rights of any Noteholders not consenting to such action.
Section 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the
Holders of Notes of not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences except
a Default (a) in payment of principal of or interest on any of the Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note. In the case of any such waiver,
the Issuer, the Trustee and the Holders of the Notes shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Note by such Holder's acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the 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 (a) any suit instituted by the Trustee, (b) any suit
instituted by any Note-holder, or
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group of Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 5.15 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 Noteholders shall be impaired by the recovery of any judgment
by the Trustee against the Issuer or by the levy of any execution under such
judgment upon any portion of the Trust Estate or upon any of the assets of the
Issuer.
SECTION 5.16 Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Trustee to do so and at the Master
Servicer's expense, the Issuer agrees to take all such lawful action as the
Trustee may request to compel or secure the performance and observance by the
Seller and the Master Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Sale and Servicing Agreement in
accordance with the terms thereof, and to exercise any and all rights, remedies,
powers and privileges lawfully available to the Issuer under or in connection
with the Sale and Servicing Agreement to the extent and in the manner directed
by the Trustee, including the transmission of notices of default on the part of
the Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Sale and
Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the Trustee
may, and, at the direction (which direction shall be in writing or by telephone
(confirmed in writing promptly thereafter)) of the Holders of 66-2/3% of the
Outstanding Amount of the Notes shall, exercise all rights, remedies, powers,
privileges and claims of the Issuer against the Seller or the Master Servicer
under or in connection with the Sale and Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Seller or the Master Servicer of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Sale and Servicing Agreement, and any right of the
Issuer to take such action shall be suspended.
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ARTICLE VI
The Trustee
SECTION 6.1 Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise 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 person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) 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; however,
the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(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:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) 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; and
(iii) 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 5.11.
(d) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Issuer.
(e) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law or the terms of this Indenture or the
Sale and Servicing Agreement.
(f) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that
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repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 6.2 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
Officer's Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officer's Certificate or Opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Trustee shall not be responsible
for any misconduct or negligence on the part of, or for the supervision of, or
any other such agent, attorney, custodian or nominee appointed with due care by
it hereunder.
(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; provided, however, that the Trustee's conduct does not constitute
willful misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the Notes
shall be full and complete authorization and protection from liability in
respect to any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.
SECTION 6.3 Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Notes and may otherwise
deal with the Issuer or its Affiliates with the same rights it would have if it
were not Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying
agent may do the same with like rights. However, the Trustee must comply with
Sections 6.11 and 6.12.
SECTION 6.4 Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Notes, it shall not be accountable for the Issuer's use of the proceeds
from the Notes, and it shall not be responsible for any statement of the Issuer
in the Indenture or in any document issued in connection with the sale of the
Notes or in the Notes other than the Trustee's certificate of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is either actually known or written notice of the existence thereof
has been delivered to a Responsible Officer of the Trustee, the Trustee shall
mail to each Noteholder notice of the
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Default within 90 days after such knowledge or notice occurs. Except in the case
of a Default in payment of principal of or interest on any Note (including
payments pursuant to the mandatory redemption provisions of such Note), the
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of Noteholders.
SECTION 6.6 Reports by Trustee to Holders. The Trustee shall deliver to
each Noteholder such information as may be reasonably required to enable such
Holder to prepare its Federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Issuer shall or shall cause
the Master Servicer to pay to the Trustee from time to time compensation for its
services in accordance with a separate agreement between the Master Servicer and
the Trustee. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuer shall or shall cause
the Master Servicer to reimburse the Trustee for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Issuer shall or shall cause the Master
Servicer to indemnify the Trustee and its officers, directors, employees and
agents against any and all loss, liability or expense (including attorneys' fees
and expenses) incurred by it in connection with the acceptance or the
administration of this trust and the performance of its duties hereunder. The
Trustee shall notify the Issuer and the Master Servicer promptly of any claim
for which it may seek indemnity. Failure by the Trustee to so notify the Issuer
and the Master Servicer shall not relieve the Issuer of its obligations
hereunder or the Master Servicer of its obligations under Article X of the Sale
and Servicing Agreement. The Issuer shall or shall cause the Master Servicer to
defend the claim and the Trustee may have separate counsel and the Issuer shall
or shall cause the Master Servicer to pay the fees and expenses of such counsel.
Neither the Issuer nor the Master Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Trustee pursuant to this Section
shall survive the discharge of this Indenture subject to a satisfaction of the
Rating Agency Condition. When the Trustee incurs expenses after the occurrence
of a Default specified in Section 5.1(iv) or (v) with respect to the Issuer, the
expenses are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law.
SECTION 6.8 Replacement of Trustee. The Trustee may resign at any time
by so notifying the Issuer. The Holders of a majority in Outstanding Amount of
the Notes may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee. The Issuer shall remove the Trustee if:
(i) the Trustee fails to comply with Section 6.11; or
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(ii) the Trustee is adjudged a bankrupt or insolvent.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Issuer shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture subject to satisfaction of the Rating Agency Condition. The successor
Trustee shall mail a notice of its succession to Noteholders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holders of a majority in Outstanding Amount of the Notes may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.11, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
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 pursuant to
Section 6.8 and payment of all fees and expenses owed to the outgoing Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section,
the Issuer's and the Master Servicer's obligations under Section 6.7 shall
continue for the benefit of the retiring Trustee.
SECTION 6.9 Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee. The Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have.
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SECTION 6.10 Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Trust may at the time be located, the Trustee shall have the power and
may execute and deliver all instruments to appoint one or more Persons to act as
a co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Noteholders, such title to the Trust, or any part
hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to meet
the terms of eligibility as a successor trustee under Section 6.11 and no notice
to Noteholders of the appointment of any co-trustee or separate trustee shall be
required under Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) 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 (it
being understood that such separate trustee or
co-trustee is not authorized to act separately without
the Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any
particular act or acts are to be performed 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 or any portion thereof in any such
jurisdiction) shall be exercised and performed singly
by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee
hereunder, including acts or omissions of predecessor
or successor trustees; and
(iii) the Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) 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 VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Indenture, specifically including every provision of
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this Indenture relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed with
the Trustee.
(d) 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 invest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Section 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition and it shall have a long term debt
rating of BBB-or better by the Rating Agencies. The Trustee shall comply with
TIA Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities of the Issuer are outstanding if the requirements
for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1 Issuer To Furnish Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Trustee (a)
not more than five days after the earlier of (i) each Record Date and (ii) three
months after the last Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of such Record
Date, (b) 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.
SECTION 7.2 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 contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The Trustee may destroy any list furnished to it as provided in such Section 7.1
upon receipt of a new list so furnished.
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(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 7.3 Reports by Issuer.
(a) The Issuer shall:
(i) file with the Trustee, within 15 days after the Issuer
is required to file the same 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
from time to time by rules and regulations prescribe)
which the Issuer may be required to file with the
Commission pursuant to Section 13 or 15(d) of the
Exchange Act;
(ii) file with the Trustee and the Commission in accordance
with rules and regulations prescribed from time to
time by the Commission such additional information,
documents and reports with respect to compliance by
the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such
rules and regulations; and
(iii) supply to the Trustee (and the Trustee shall transmit
by mail to all Noteholders described in TIA Section
313(c)) such summaries of any information, documents
and reports required to be filed by the Issuer
pursuant to clauses (i) and (ii) of this Section
7.3(a) as may be required by rules and regulations
prescribed from time to time by the Commission.
(d) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on December 31 of each year.
SECTION 7.4 Reports by Trustee. If required by TIA Section 313(a),
within 60 days after each , beginning with , 199 , the Trustee shall mail to
each Noteholder as required by TIA Section 313(c) a brief report dated as of
such date that complies with TIA Section 313(a). The Trustee also shall comply
with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall be
filed by the Trustee with the Commission and each stock exchange, if any, on
which the Notes are listed. The Issuer shall notify the Trustee if and when the
Notes are listed on any stock exchange.
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ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1 Collection of Money. 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 apply all such money
received by 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 any agreement or instrument that is part of the Trust Estate,
the Trustee may 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 any right to proceed
thereafter as provided in Article V.
SECTION 8.2 Trust Accounts. (a) On or prior to the Closing Date, the
Issuer shall cause the Master Servicer to establish and maintain, in the name of
the Trustee, for the benefit of the Noteholders and the Certificateholders, the
Trust Accounts as provided in Section 5.1 of the Sale and Servicing Agreement.
(b) On or before each Distribution Date, the Total Distribution
Amount with respect to the preceding Collection Period will be deposited in the
Collection Account as provided in Section 5.2 of the Sale and Servicing
Agreement. On or before each Distribution Date, the Noteholders' Distributable
Amount with respect to the preceding Collection Period will be transferred from
the Collection Account and/or the Reserve Account to the Note Distribution
Account as provided in Sections 5.5 and 5.6 of the Sale and Servicing Agreement.
(c) On each Distribution Date and Redemption Date, the Trustee
shall distribute all amounts on deposit in the Note Distribution Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes for principal and interest in the following amounts and in the
following order of priority (except as otherwise provided in Section 5.4(b)):
(i) accrued and unpaid interest on the Notes; provided
that if there are not sufficient funds in the Note
Distribution Account to pay the entire amount of
accrued and unpaid interest then due on the Notes, the
amount in the Note Distribution Account shall be
applied to the payment of such interest on the Notes
pro rata on the basis of the total such interest due
on the Notes;
(ii) to the Holders of the Class A-1 Notes until the
Outstanding Amount of the Class A-1 Notes is reduced
to zero;
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List, as appropriate .
SECTION 8.3 General Provisions Regarding Accounts. (a) So long as no
Default or Event of Default shall have occurred and be continuing, all or a
portion of the funds in the Trust Accounts shall be invested in Eligible
Investments and reinvested by the Trustee upon Issuer Order, subject to the
provisions of Section 5.1(b) of the Sale and Servicing Agreement. All income or
other gain from investments of moneys deposited in the Trust Accounts shall be
deposited (or caused to be deposited) by the Trustee in the Collection Account,
and any loss resulting from such investments shall be charged to such account.
The Issuer will not direct the Trustee to make any investment of any funds or to
sell any investment held in any of the Trust Accounts unless the security
interest Granted and perfected in such account will continue to be perfected in
such investment or the proceeds of such sale, in either case without any further
action by any Person, and, in connection with any direction to the Trustee to
make any such investment or sale, if requested by the Trustee, the Issuer shall
deliver to the Trustee an Opinion of Counsel, acceptable to the Trustee, to such
effect.
(b) Reserved
(c) Subject to Section 6.1(c), the Trustee shall not in any way
be held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Trustee's failure to make payments on such Eligible
Investments issued by the Trustee, in its commercial capacity as principal
obligor and not as trustee, in accordance with their terms.
(d) If (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Trustee by TIME
(or such other time as may be agreed by the Issuer and Trustee) on any Business
Day; or (ii) a Default or Event of Default shall have occurred and be continuing
with respect to the Notes but the Notes shall not have been declared due and
payable pursuant to Section 5.2, or, if such Notes shall have been declared due
and payable following an Event of Default, amounts collected or receivable from
the Trust Estate are being applied in accordance with Section 5.5 as if there
had not been such a declaration; then the Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments.
SECTION 8.4 Release of Trust Estate. (a) Subject to the payment of its
fees and expenses pursuant to Section 6.7, the Trustee may, and when required by
the provisions of this Indenture 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 that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Trustee as provided in this Article VIII 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) The Trustee shall, at such time as there are no Notes
outstanding and all sums due the Trustee pursuant to Section 6.7 have been paid,
release any remaining portion of
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the Trust Estate that secured the Notes from the lien of this Indenture and
release to the Issuer or any other Person entitled thereto any funds then on
deposit in the Trust Accounts. The Trustee shall release property from the lien
of this Indenture pursuant to this Section 8.4(b) only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA) Independent Certificates in accordance with TIA Sections
314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.5 Opinion of Counsel. The Trustee shall receive at least seven
days' notice when requested by the Issuer to take any action pursuant to Section
8.4(a), accompanied by copies of any instruments involved, and the Trustee shall
also require as a condition to such action, an Opinion of Counsel, in form and
substance satisfactory to the Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with
and such action will not materially and adversely impair the security for the
Notes or the rights of the Noteholders in contravention of the provisions of
this Indenture; provided, however, that such Opinion of Counsel shall not be
required to express an opinion as to the fair value of the Trust Estate. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Trustee in connection with any such action.
ARTICLE IX
Supplemental Indentures
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders. (a)
Without the consent of the Holders of any Notes but with prior notice to the
Rating Agencies by the Issuer, as evidenced to the Trustee, 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 (which shall conform
to the provisions of the Trust Indenture Act as in force at the date of the
execution thereof), in form satisfactory to the Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or
better to assure, convey and confirm unto the Trustee
any property subject or required to be subjected to
the lien of this Indenture, or to subject to the lien
of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the
Issuer, and the assumption by any such successor of
the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit
of the Holders of the Notes, or to surrender any right
or power herein conferred upon the Issuer;
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(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture
which may be inconsistent with any other provision
herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions
arising under this Indenture or in any supplemental
indenture; provided that such action shall not
adversely affect the interests of the Holders of the
Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with
respect to the Notes and to add to or change any of
the provisions of this Indenture as shall be necessary
to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the
requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to
effect the qualification of this Indenture under the
TIA or under any similar federal statute hereafter
enacted and to add to this Indenture such other
provisions as may be expressly required by the TIA.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Issuer and the Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but with
prior notice to the Rating Agencies by the Issuer, as evidenced to the Trustee,
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that such action
shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Noteholder.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders. The
Issuer and the Trustee, when authorized by an Issuer Order, also may, with prior
notice to the Rating Agencies and with the consent of the Holders of not less
than a majority of the outstanding Amount of the Notes, by Act of such Holders
delivered to the Issuer and the Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that
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no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the
principal amount thereof, the interest rate thereon or
the Redemption Price with respect thereto, change the
provision of this Indenture relating to the
application of collections on, or the proceeds of the
sale of, the Trust Estate to payment of principal of
or interest on the Notes, or change any place of
payment where, or the coin or currency in which, any
Note or the interest thereon is payable;
(ii) impair the right to institute suit for the enforcement
of the provisions of this Indenture requiring the
application of funds available therefor, as provided
in Article V, to the payment of any such amount due on
the Notes on or after the respective due dates thereof
(or, in the case of redemption, on or after the
Redemption Date);
(iii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Holders of which is required
for any such supplemental indenture, or the consent of
the Holders of which is required for any waiver of
compliance with certain provisions of this Indenture
or certain defaults hereunder and their consequences
provided for in this Indenture;
(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(v) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Trustee to direct the
Issuer to sell or liquidate the Trust Estate pursuant
to Section 5.4;
(vi) modify any provision of this Section except to
increase any percentage specified herein or to provide
that certain additional provisions of this Indenture
or the Basic Documents cannot be modified or waived
without the consent of the Holder of each Outstanding
Note affected thereby;
(vii) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of
any payment of interest or principal due on any Note
on any Distribution Date (including the calculation of
any of the individual components of such calculation)
or to affect the rights of the Holders of Notes to the
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benefit of any provisions for the mandatory redemption
of the Notes contained herein; or
(viii) permit the creation of any lien ranking prior to or on
a parity with the lien of this Indenture with respect
to any part of the Trust Estate or, except as
otherwise permitted or contemplated herein or in the
Basic Documents, terminate the lien of this Indenture
on any property at any time subject hereto or deprive
the Holder of any Note of the security provided by the
lien of this Indenture.
The Trustee may determine whether or not any Notes would be affected by
any supplemental indenture 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
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to the
Holders of the Notes to which such amendment or supplemental indenture relates a
notice setting forth in general terms the substance of such supplemental
indenture. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and subject to
Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture that affects the Trustee's own
rights, duties, liabilities or immunities under this Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith with respect
to the Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Trustee, the Issuer and the Holders of the Notes shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
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SECTION 9.5 Conformity With Trust Indenture Act. Every amendment of this
Indenture and every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the Trust Indenture Act as then in effect
so long as this Indenture shall then be qualified under the Trust Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Trustee shall, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Issuer or the Trustee shall so determine, new
Notes so modified as to conform, in the opinion of the Trustee and the Issuer,
to any such supplemental indenture may be prepared and executed by the Issuer
and authenticated and delivered by the Trustee in exchange for Outstanding
Notes.
ARTICLE X
Redemption of Notes
SECTION 10.1 Redemption. (a) The Class A-Notes are subject to redemption
in whole, but not in part, at the direction of the Seller pursuant to Section
9.1(a) of the Sale and Servicing Agreement, on any Distribution Date on which
the Seller exercises its option to purchase the Trust Estate pursuant to said
Section 9.1(a), for a purchase price equal to the Redemption Price; provided,
however, that the Issuer has available funds sufficient to pay the Redemption
Price. The Master Servicer or the Issuer shall furnish the Rating Agencies
notice of such redemption. If the Class A-Notes are to be redeemed pursuant to
this Section 10.1(a), the Master Servicer or the Issuer shall furnish notice of
such election to the Trustee not later than days prior to the Redemption Date
and the Issuer shall deposit with the Trustee in the Note Distribution Account
the Redemption Price of the Class A-Notes to be redeemed whereupon all such
Class A-Notes shall be due and payable on the Redemption Date upon the
furnishing of a notice complying with Section 10.2 to each Holder of the Class
A-Notes.
(b) In the event that the assets of the Trust are sold
pursuant to Section 9.2 of the Trust Agreement, all amounts on
deposit in the Note Distribution Account shall be paid to the
Noteholders up to the Outstanding Amount of the Notes and all
accrued and unpaid interest thereon. If amounts are to be paid to
Noteholders pursuant to this Section 10.1(b), the Master Servicer
or the Issuer shall, to the extent practicable, furnish notice of
such event to the Trustee not later than days prior to the
Redemption Date whereupon all such amounts shall be payable on
the Redemption Date.
SECTION 10.2 Form of Redemption Notice. (a) Notice of redemption under
Section 10.1(a) shall be given by the Trustee by facsimile or by first-class
mail, postage prepaid, transmitted or mailed prior to the applicable Redemption
Date to each Holder of Class A-Notes, as of the close of business on the Record
Date preceding the applicable Redemption Date, at such Holder's address
appearing in the Note Register.
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All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such
Redemption Date is not applicable and that payments
shall be made only upon presentation and surrender of
such Class A-Notes and the place where such Class
A-Notes are to be surrendered for payment of the
Redemption Price (which shall be the office or agency
of the Issuer to be maintained as provided in Section
3.2); and
(iv) that interest on the Class A-Notes shall cease to
accrue on the Redemption Date.
Notice of redemption of the Class A-Notes shall be given by the Trustee
in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Class A-Note shall not
impair or affect the validity of the redemption of any other Class A-Note.
(b) Prior notice of redemption under Sections 10.1(b) is not
required to be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date. The Class A-Notes to be
redeemed shall, following notice of redemption as required by Section 10.2 (in
the case of redemption pursuant to Section 10.1(a)), on the Redemption Date
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on the
Redemption Price for any period after the date to which accrued interest is
calculated for purposes of calculating the Redemption Price.
ARTICLE XI
Miscellaneous
SECTION 11.1 Compliance Certificates and Opinions, etc. (a) 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 (i) an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with,
(ii) an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with and (iii) (if required by
the TIA) an Independent Certificate from a firm of certified public accountants
meeting the applicable requirements of this Section, except that, in the case of
any such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
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Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such
covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements
or opinions contained in such certificate or opinion
are based;
(iii) a statement that, in the opinion of each such
signatory, such signatory has made such examination or
investigation as is necessary to enable such signatory
to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied
with.
(b) (i) Prior to the deposit of any Collateral or other
property or securities with the Trustee that is to be made the
basis for the release of any property or securities subject to
the lien of this Indenture, the Issuer shall, in addition to any
obligation imposed in Section 11.1(a) or elsewhere in this
Indenture, furnish to the Trustee an Officer's Certificate
certifying or stating the opinion of each person signing such
certificate as to the fair value (within --days of such deposit)
to the Issuer of the Collateral or other property or securities
to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Trustee an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in
clause (i) above, the Issuer shall also deliver to the Trustee an
Independent Certificate as to the same matters, if the fair value
to the Issuer of the securities to be so deposited and of all
other such securities made the basis of any such withdrawal or
release since the commencement of the then-current fiscal year of
the Issuer, as set forth in the certificates delivered pursuant
to clause (i) above and this clause (ii), is % or more of the
Outstanding Amount of the Notes, but such a certificate need not
be furnished with respect to any securities so deposited, if the
fair value thereof to the Issuer as set forth in the related
Officer's Certificate is less than $ or less than percent of the
Outstanding Amount of the Notes.
(iii) Other than with respect to the release of any
Purchased Home Equity Loans or Liquidated Loans, whenever any
property or securities are to be released from the lien of this
Indenture, the Issuer shall also furnish to the Trustee
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an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within
--days of such release) of the property or securities proposed to
be released and stating that in the opinion of such person the
proposed release will not impair the security under this
Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Trustee an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in
clause (iii) above, the Issuer shall also furnish to the Trustee
an Independent Certificate as to the same matters if the fair
value of the property or securities and of all other property
other than Purchased Home Equity Loans and Defaulted Loans, or
securities released from the lien of this Indenture since the
commencement of the then current calendar year, as set forth in
the certificates required by clause (iii) above and this clause
(iv), equals % or more of the Outstanding Amount of the Notes,
but such certificate need not be furnished in the case of any
release of property or securities if the fair value thereof as
set forth in the related Officer's Certificate is less than
$___________ or less than percent of the then Outstanding Amount
of the Notes.
(v) Notwithstanding Section 2.9 or any other provision of
this Section, the Issuer may (A) collect, liquidate, sell or
otherwise dispose of Home Equity Loans as and to the extent
permitted or required by the Basic Documents and (B) make cash
payments out of the Trust Accounts as and to the extent permitted
or required by the Basic Documents.
SECTION 11.2 Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his or her certificate or opinion is
based are erroneous. Any such certificate of an Authorized Officer or 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
Master Servicer, the Seller or the Issuer, stating
that the information with respect to such factual matters is in the possession
of the Master Servicer, the Seller or the Issuer, unless such counsel knows, or
in the exercise of reasonable care should know, that the certificate or opinion
or representations with respect to such matters are erroneous.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article
VI.
SECTION 11.3 Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any customary manner of the Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.4 Notices, etc., to Trustee, Issuer and Rating Agencies. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture to be
made upon, given or furnished to or filed with:
(a) The Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if personally delivered, delivered by
overnight courier or mailed
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certified mail, return receipt requested and shall be deemed to have been duly
given upon receipt to the Trustee at its Corporate Trust Office, or
(b) The Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered, delivered by
overnight courier or mailed certified mail, return receipt requested and shall
be deemed to have been duly given upon receipt to the Issuer addressed to:
_______________, in care of Attention: ________________or at any other address
previously furnished in writing to the Trustee by Issuer. The Issuer shall
promptly transmit any notice received by it from the Noteholders to the Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Trustee or the Owner Trustee shall be in writing, personally delivered,
delivered by overnight courier or mailed certified mail, return receipt
requested to (i) in the case of Moody's, at the following address: Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10004 and (ii) in
the case of S&P, at the following address: Standard & Poor's Ratings Group, 26
Broadway (15th Floor), New York, New York 10004, Attention of Asset Backed
Surveillance Department; or as to each of the foregoing, at such other address
as shall be designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner here
in provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure
to give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
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SECTION 11.6 Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Trustee or any Paying Agent to such Holder, that is
different from the methods provided for in this Indenture for such payments or
notices, provided that such methods are reasonable and consented to by the
Trustee (which consent shall not be unreasonably withheld). The Issuer will
furnish to the Trustee a copy of each such agreement and the Trustee will cause
payments to be made and notices to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.9 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Trustee in this
Indenture shall bind its successors.
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, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other person with an Ownership interest in any part
of the Trust Estate, 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 on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date an which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
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REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 11.14 Counterparts. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Trustee or any other counsel reasonably acceptable
to the Trustee) to the effect that such recording is necessary either for the
protection of the Noteholders or any other person secured hereunder or for the
enforcement of any right or remedy granted to the Trustee under this Indenture.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Seller, the
Representative, the Master Servicer, the Owner Trustee or the Trustee on the
Notes or under this Indenture or any certificate or other writing delivered in
connection herewith or therewith, against (i) the Seller, the Representative,
the Master Servicer, the Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of the
Seller, the Master Servicer, the Representative, the Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Seller, the Master Servicer, the Representative, the Owner Trustee
or the Trustee or of any successor or assign of the Seller, the Master Servicer,
the Representative, the Trustee or the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.
SECTION 11.17 No Petition. The Trustee, by entering into this Indenture,
and each Noteholder, by accepting a Note, hereby covenant and agree that they
will not at any time institute against the Seller or the Trust, or join in any
institution against the Seller, the Representative or the Trust of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Trustee, during the Issuer's
normal business hours, to examine all the books of account, records, reports,
and other papers of the Issuer, to make copies and
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extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Trustee may reasonably determine
that such disclosure is consistent with its Obligations hereunder.
THIS SPACE LEFT INTENTIONALLY BLANK
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IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized, all as of the day and year first above written.
AVCO HOME EQUITY LOAN TRUST
199_-_
By:___________________________________
____________, not in its
individual capacity but solely as
Owner Trustee,
By:___________________________________
Name:
Title:
_________, not in its
individual capacity but solely as
Trustee,
By:___________________________________
Name:
Title:
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<PAGE> 64
Form of Note
EXHIBIT D
REGISTERED
$--------------
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is registered
in the name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
CLASS A % ASSET BACKED NOTES
_______________, a business trust organized and existing under the laws
of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of DOLLARS payable on each Distribution Date in an amount equal to
the result obtained by multiplying (i) a fraction the numerator of which is
$__________ INSERT INITIAL PRINCIPAL AMOUNT OF NOTE and the denominator of which
is $_______________ by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class A-Notes pursuant to
Section 3.1 of the Indenture; provided, however, that the entire unpaid
principal amount of this Note shall be due and payable on the Distribution Date
(the "Class A-Final Scheduled Distribution Date"). The Issuer will pay interest
on this Note at the rate per annum shown above on each Distribution Date until
the principal of this Note is paid or made available for payment, on the
principal amount of this Note outstanding on the preceding Distribution Date
(after giving effect to all payments of principal made on the preceding
Distribution Date). Interest on this Note will accrue for each Distribution Date
from the most recent Distribution Date on which interest has been paid to but
excluding such Distribution Date or, if no interest has yet been paid, from ,
199 . Interest will be
<PAGE> 65
computed on the basis of the actual number of days elapsed in a day year. Such
principal of and interest on this Note shall be paid in the manner specified on
the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture referred to on the reverse hereof,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer as of the date set forth
below.
By:___________________________________
__________,
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
_______________________________________
Name:
Title:
Date:
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<PAGE> 66
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date:________
_________, not in its
individual capacity but solely as
Trustee,
by_________________________________
Authorized Signatory
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<PAGE> 67
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-_ __% Asset Backed Notes (herein called the "Class
A-Notes"), all issued under an Indenture dated as of _______, 199_ (such
indenture, as supplemented or amended, is 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 and obligations thereunder of the Issuer, the Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indenture. All
terms used in this Note that are defined in the Indenture, as supplemented or
amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.
List Class(es) of Notes (together, the "Notes") are and will be equally
and ratably secured by the collateral pledged as security therefor as provided
in the Indenture.
Principal of the Class A-Notes will be payable on each Distribution Date
in an amount described on the face hereof. "Distribution Date" means the
fifteenth day of each month, or, if any such date is not a Business Day, the
next succeeding Business Day, commencing , 199 .
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the Class A-Final Scheduled Distribution Date.
Notwithstanding the foregoing, the entire unpaid principal amount of the
Notes shall be due and payable on the date on which an Event of Default shall
have occurred and be continuing and the Trustee or the Holders of the Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in the manner provided
in Section 5.2 of the Indenture. All principal payments on the Class A- Notes
shall be made pro rata to the Class A-Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Holder of this Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on each Record Date, except that
with respect to Notes registered on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Distribution
Date shall be binding upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected
<PAGE> 68
to be available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Trustee, in the name of and on behalf of the Issuer, will notify the Person who
was the Holder hereof as of the Record Date preceding such Distribution Date by
notice mailed prior to such Distribution Date and the amount then due and
payable shall be payable only upon presentation and surrender of this Note at
the Trustee's principal Corporate Trust Office or at the office of the Trustee's
agent appointed for such purposes located in The City of New York.
The Issuer shall pay interest on overdue installments of interest at the
Class A-Interest Rate to the extent lawful.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar which requirements include
membership or participation in Securities Transfer Agents Medallion Program
("Stamp") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, Stamp, all in
accordance with the Exchange Act, and (ii) accompanied by such other documents
as the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Seller, the Master Servicer, the Representative, the Trustee or
the Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director or employee of the Seller, the Master Servicer, the Representative, the
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Seller, the Master Servicer, the
Representative, the Owner Trustee or the Trustee or of any successor or assign
of the Seller, the Master Servicer, the Representative, the Trustee or the Owner
Trustee in its individual capacity, except as any such Person may have expressly
agreed (it being understood that the Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
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<PAGE> 69
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Seller, the Representative, or the Issuer or join in
any institution against the Seller, the Representative or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings, under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note (as of the day of determination or as of such
other date as may be specified in the Indenture) is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, 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 of this Note (or
any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Trustee to amend or waive certain terms and conditions set
forth in the Indenture without the consent of Holders of the Notes issued
thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the
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<PAGE> 70
principal of and interest on this Note at the times, place, and rate, and in the
coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither in its individual
capacity, in its individual capacity, any owner of a beneficial interest in the
Issuer, 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 or
interest on, or performance of, or omission to perform, any of the covenants,
obligations or indemnifications contained in this Note or the Indenture, it
being expressly understood that said covenants, obligations and indemnifications
have been made by the Owner Trustee for the sole purposes of binding the
interests of the Owner Trustee in the assets of the Issuer. The Holder of this
Note by the acceptance hereof agrees that except as expressly provided in the
Indenture or the Basic Documents, in the case of an 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 enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
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<PAGE> 71
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto (name and address of assignee) the within Note and all rights thereunder,
and hereby irrevocably constitutes and appoints _________________, attorney, to
transfer said Note on the books kept for registration thereof, with full power
of substitution in the premises.
Dated:
Signature Guaranteed:
NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
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<PAGE> 1
Exhibit 4.4
================================================================================
AVCO FINANCIAL HOME EQUITY LOAN
TRUST 199_-_
FORM OF TRUST AGREEMENT
between
AVCO ABS RECEIVABLES CORP.,
as Seller,
and
-------------------------------,
as Owner Trustee
Dated as of __________, 199_
================================================================================
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1. Capitalized Terms........................................................................ 1
SECTION 1.2. Other Definitional Provisions............................................................ 3
ARTICLE II
ORGANIZATION
SECTION 2.1. Name..................................................................................... 4
SECTION 2.2. Office................................................................................... 4
SECTION 2.3. Purposes and Powers...................................................................... 4
SECTION 2.4. Appointment of Owner Trustee............................................................. 5
SECTION 2.5. Initial Capital Contribution of Trust Estate............................................. 5
SECTION 2.6. Declaration of Trust..................................................................... 5
SECTION 2.7. Liability of the Certificateholders...................................................... 6
SECTION 2.8. Title to Trust Property.................................................................. 6
SECTION 2.9. Situs of Trust........................................................................... 6
SECTION 2.10. Representations and Warranties of the Seller............................................. 6
SECTION 2.12. Federal Income Tax Allocations........................................................... 7
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. Initial Ownership........................................................................ 7
SECTION 3.2. The Trust Certificates................................................................... 7
SECTION 3.3. Authentication of Trust Certificates..................................................... 8
SECTION 3.4. Registration of Transfer and Exchange of Trust Certificates.............................. 8
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Trust Certificates.................................. 9
SECTION 3.6. Persons Deemed Certificateholders........................................................ 9
SECTION 3.7. Access to List of Certificateholders' Names and Addresses................................ 9
SECTION 3.8. Maintenance of Office or Agency.......................................................... 10
SECTION 3.9. Appointment of Paying Agent.............................................................. 10
SECTION 3.10. Reserved................................................................................. 11
SECTION 3.11. Reserved................................................................................. 11
SECTION 3.12. Reserved................................................................................. 11
SECTION 3.13. Reserved................................................................................. 11
SECTION 3.14. Book-Entry Trust Certificates............................................................ 11
SECTION 3.15. Notices to Clearing Agency............................................................... 12
SECTION 3.16. Definitive Trust Certificates............................................................ 12
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1. Prior Notice to Owners with Respect to Certain Matters................................... 12
SECTION 4.2. Action by Certificateholders with Respect to Certain Matters............................. 13
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy.................................. 13
SECTION 4.4. Restrictions on Certificateholders' Power................................................ 14
SECTION 4.5. Majority Control......................................................................... 14
ARTICLE V
APPLICATION OF TRUST FUNDS: CERTAIN DUTIES
SECTION 5.1. Establishment of Certificate Distribution Account........................................ 14
SECTION 5.2. Application of Funds in Certificate Distribution Account................................. 14
SECTION 5.3. Reserved................................................................................. 15
SECTION 5.4. Method of Payment........................................................................ 15
SECTION 5.5. No Segregation of Monies; No Interest.................................................... 15
SECTION 5.6. Accounting and Reports to the Noteholders, Certificateholders, the Internal
Revenue Service and Others............................................................ 15
SECTION 5.7. Signature on Returns; Tax Matters Partner................................................ 16
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1. General Authority........................................................................ 16
SECTION 6.2. General Duties........................................................................... 17
SECTION 6.3. Action upon Instruction.................................................................. 17
SECTION 6.4. No Duties Except as Specified in this Agreement or in Instructions....................... 18
SECTION 6.5. No Action Except under Specified Documents or Instructions............................... 18
SECTION 6.6. Restrictions............................................................................. 18
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1. Acceptance of Trusts and Duties.......................................................... 19
SECTION 7.2. Furnishing of Documents.................................................................. 20
SECTION 7.3. Representations and Warranties........................................................... 20
SECTION 7.4. Reliance; Advice of Counsel.............................................................. 21
SECTION 7.5. Not Acting in Individual Capacity........................................................ 21
SECTION 7.6. Owner Trustee Not Liable for Trust Certificates or Home Equity Loans..................... 21
SECTION 7.7. Owner Trustee May Own Trust Certificates and Notes....................................... 22
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1. Owner Trustee's Fees and Expenses........................................................ 22
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 8.2. Indemnification.......................................................................... 22
SECTION 8.3. Payments to the Owner Trustee............................................................ 23
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. Termination of Trust Agreement........................................................... 23
SECTION 9.2. Reserved................................................................................. 24
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1. Eligibility Requirements for Owner Trustee............................................... 24
SECTION 10.2. Resignation or Removal of Owner Trustee.................................................. 24
SECTION 10.3. Successor Owner Trustee.................................................................. 25
SECTION 10.4. Merger or Consolidation of Owner Trustee................................................. 26
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee............................................ 26
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Supplements and Amendments............................................................... 27
SECTION 11.2. No Legal Title to Owner Trust Estate in Certificateholders............................... 28
SECTION 11.3. Limitations on Rights of Others.......................................................... 29
SECTION 11.4. Notices.................................................................................. 29
SECTION 11.5. Severability............................................................................. 29
SECTION 11.6. Separate Counterparts.................................................................... 29
SECTION 11.7. Successors and Assigns................................................................... 29
SECTION 11.8. Reserved................................................................................. 20
SECTION 11.9. No Petition.............................................................................. 30
SECTION 11.10. No Recourse.............................................................................. 30
SECTION 11.11. Headings................................................................................. 30
SECTION 11.12. GOVERNING LAW............................................................................ 30
SECTION 11.13. Trust Certificate Transfer Restrictions.................................................. 30
SECTION 11.14. Master Servicer.......................................................................... 30
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A - Form of Trust Certificate
Exhibit B - Form of Certificate of Trust
Exhibit C - Form of Certificate Depository Agreement
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<PAGE> 6
TRUST AGREEMENT dated as of ____________, 199_ between Avco ABS
Receivables Corp., a Nevada corporation, as Seller, and _______________, a
____________, as Owner Trustee.
ARTICLE I
Definitions
SECTION 1.1. Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended
and supplemented from time to time.
"Basic Documents" shall mean the Sale and Servicing Agreement, the
Indenture, the Certificate Depository Agreement, the Note Depository Agreement
and the other documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
11.13.
["Book Entry Trust Certificates" means a beneficial interest in the Trust
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.14.]
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended
from time to time.
"Certificate" means a certificate evidencing the beneficial interest of a
Certificateholder in the Trust, substantially in the form of Exhibit A attached
hereto.
["Certificate Depository Agreement" shall mean the agreement among the
Trust, the Owner Trustee, the Master Servicer and The Depository Trust Company,
as the initial Clearing Agency, dated as of the Closing Date, relating to the
Trust Certificates, substantially in the form attached hereto as Exhibit C, as
the same may be amended and supplemented from time to time.]
"Certificate Distribution Account" shall have the meaning assigned to such
term in Section 5.1. "Certificate of Trust" shall mean the Certificate of Trust
in the form of Exhibit B to be filed for the Trust pursuant to Section 3810(a)
of the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the register
mentioned and the registrar appointed pursuant to Section 3.4.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
<PAGE> 7
["Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.]
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at
_______________; or at such other address as the Owner Trustee may designate by
notice to the Certificateholders and the Seller, or the principal corporate
trust office of any successor Owner Trustee (the address of which the successor
owner trustee will notify the Certificateholders and the Seller).
["Definitive Trust Certificates" shall mean either or both (as the context
requires) of (i) Trust Certificates issued in certificated, fully registered
form as provided in Section 3.14 and (ii) Trust Certificates issued in
certificated, fully registered form as provided in Section 3.16.]
"Delaware Trustee" shall have the meaning assigned to such term in Section
10.1.
"ERISA" shall have the meaning assigned to such term in Section 11.13.
"Expenses" shall have the meaning assigned to such term in Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose name a
Trust Certificate is registered on the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.2.
"Note Depository Agreement" shall mean the agreement among the Trust, the
Master Servicer and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, relating to the Notes, as the same may be
amended or supplemented from time to time.
"Owner" shall mean each Person who is the beneficial owner of a Book Entry
Certificate as reflected in the records of the Clearing Agency or if a Clearing
Agency Participant is not the Owner, then as reflected in records of a Person
maintaining an account with such Clearing Agency (directly or indirectly, in
accordance with the rules of such Clearing Agency).
"Owner Trust Estate" shall mean all right, title and interest of the Trust
in and to the property and rights assigned to the Trust pursuant to Article II
of the Sale and Servicing Agreement, all funds on deposit from time to time in
the Trust Accounts and the Certificate Distribution Account and all other
property of the Trust from time to time, including any rights of the Owner
Trustee and the Trust pursuant to the Sale and Servicing Agreement. "Owner
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<PAGE> 8
Trustee" shall mean ____________, a ___________, not in its individual capacity
but solely as owner trustee under this Agreement, and any successor Owner
Trustee hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent appointed
pursuant to Section 3.9 and shall initially be the Owner Trustee.
"Record Date" shall mean, with respect to any Distribution Date, the last
Business Day of the month immediately preceding the month in which the related
Distribution Date occurs.
"Sale and Servicing Agreement" shall mean the Sale and Servicing Agreement
among the Trust, Avco ABS Receivables Corp., as Seller, Avco Financial Services
Management Company, as Master Master Servicer, Avco Financial Services, Inc., as
Representative and the Originators listed therein, dated as of _____________,
199_ , as the same may be amended and supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Certificate" shall mean a Certificate.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined have
the meanings assigned to them in the Sale and Servicing Agreement or, if not
defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles as in effect on the
date of this Agreement or any such certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles,
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<PAGE> 9
the definitions contained in this Agreement or in any such certificate or other
document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein.
ARTICLE II
Organization
SECTION 2.1. Name. The Trust created hereby shall be known as Avco
Financial Home Equity Loan Trust 199_ -_," in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2. Office. The office of the Trust shall be in care of the Owner
Trustee at the Corporate Trust Office or at such other address as the Owner
Trustee may designate by written notice to the Certificateholders and the
Seller.
SECTION 2.3. Purposes and Powers. The purpose of the Trust is, and
the Trust shall have the power and authority, to engage in the following
activities:
(i) to issue the Notes pursuant to the Indenture and the Trust
Certificates pursuant to this Agreement, and to sell the Notes and
the Trust Certificates;
(ii) with the proceeds of the sale of the Notes and the Trust
Certificates, and to pay the organizational, start-up and
transactional expenses of the Trust and to pay the balance to the
Seller pursuant to the Sale and Servicing Agreement;
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<PAGE> 10
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Trust Estate pursuant to the Indenture and to hold, manage and
distribute to the Certificateholders pursuant to the terms of the
Sale and Servicing Agreement any portion of the Trust Estate
released from the Lien of, and remitted to the Trust pursuant to,
the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of
distributions to the Certificateholders and the Noteholders. The
Trust is hereby authorized to engage in the foregoing activities.
The Trust shall not engage in any activity other than in connection
with the foregoing or other than as required or authorized by the
terms of this Agreement or the Basic Documents.
SECTION 2.4. Appointment of Owner Trustee. The Seller hereby appoints the
Owner Trustee as trustee of the Trust effective as of the date hereof, to have
all the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate. The Seller
hereby sells, assigns, transfers, conveys and sets over to the Owner Trustee, as
of the date hereof, the sum of $_________. The Owner Trustee hereby acknowledges
receipt in trust from the Seller, as of the date hereof, of the foregoing
contribution, which shall constitute the initial Owner Trust Estate and shall be
deposited in the Certificate Distribution Account. The Seller shall pay
organizational expenses of the Trust as they may arise or shall, upon the
request of the Owner Trustee, promptly reimburse the Owner Trustee for any such
expenses paid by the Owner Trustee.
SECTION 2.6. Declaration of Trust. The Owner Trustee hereby declares that
it will hold the Owner Trust Estate in trust upon and subject to the conditions
set forth herein for the use and benefit of the Certificateholders, subject to
the obligations of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a business trust under the Business
Trust Statute and that this Agreement constitute the governing instrument of
such business trust. It is the intention of the parties hereto that, solely for
federal income tax purposes, the Trust shall be treated as a partnership. The
parties agree that, unless otherwise required by appropriate tax authorities,
the Trust will file or cause to be filed annual or other necessary returns,
reports and other forms consistent with the characterization of the Trust as a
partnership for such tax purposes. Effective as of the date hereof, the Owner
Trustee shall have all rights, powers and duties set forth herein and to the
extent not inconsistent herewith, in the Business
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<PAGE> 11
Trust Statute with respect to accomplishing the purposes of the Trust. The Owner
Trustee and the Delaware Trustee shall file the Certificate of Trust with the
Secretary of State of Delaware.
SECTION 2.7. Liability of the Certificateholders. No Certificateholder
shall have any personal liability for any liability or obligation of the Trust.
SECTION 2.8. Title to Trust Property. Legal title to all the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
SECTION 2.9. Situs of Trust. The Trust will be located and administered in
the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
_____________. Payments will be received by the Trust only in Delaware or , and
payments will be made by the Trust only from Delaware or ____________. The only
office of the Trust will be at the Corporate Trust Office in ________________.
SECTION 2.10. Representations and Warranties of the Seller. The Seller
hereby represents and warrants to the Owner Trustee that:
(a) The Seller is duly organized and validly existing as a Nevada
corporation with power and authority to own its properties and to conduct
its business as such properties are currently owned and such business is
presently conducted.
(b) The Seller is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its
property or the conduct of its business shall require such qualifications.
(c) The Seller has the corporate power and authority to execute and
deliver this Agreement and to carry out its terms; the Seller has full
power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trust and the Seller has duly
authorized such sale and assignment and deposit to the Trust by all
necessary corporate action; and the execution, delivery and performance of
this Agreement has been duly authorized by the Seller by all necessary
corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the articles of
association or by-laws of the Seller, or any material indenture, agreement
or other instrument to which the Seller is a party or by which it is
bound; nor result in the creation or imposition of any Lien upon any of
its properties
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pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or, to
the best of the Seller's knowledge, any order, rule or regulation
applicable to the Seller of any court or of any Federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties.
(e) To the Seller's best knowledge, there are no proceedings or
investigations pending or threatened before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Seller or its properties: (A) asserting the
invalidity of the Trust Agreement, (B) seeking to prevent the consummation
of any of the transactions contemplated by the Trust Agreement or (C)
seeking any determination or ruling that might materially and adversely
affect the performance by the Seller of its obligations under, or the
validity or enforceability of, the Trust Agreement.
SECTION 2.11. Federal Income Tax Allocations. Net income of the Trust for
any month as determined for Federal income tax purposes (and each item of
income, gain, loss, credit and deduction entering into the computation thereof)
shall be allocated to the extent of available net income, among the
Certificateholders as of the first Record Date following the end of such month,
in proportion to their ownership of principal amount of Trust Certificates on
such date, an amount of net income up to the sum of (i) the Certificateholders'
Monthly Interest Distributable Amount for such month, (ii) interest on the
excess, if any, of the Certificateholders' Interest Distributable Amount for the
preceding Distribution Date over the amount in respect of interest at the
Certificate Rate that is actually deposited in the Certificate Distribution
Account on such preceding Distribution Date, to the extent permitted by law, at
the Certificate Rate from such preceding Distribution Date through the current
Distribution Date, and (iii) the portion of the market discount on the Home
Equity Loans accrued during such month that is allocable to the excess of the
initial aggregate principal amount of the Trust Certificates over their initial
aggregate issue price.
Net losses, then net losses shall be allocated among the
Certificateholders as of the first Record Date following the end of such month
in proportion to their ownership of principal amount of Trust Certificates on
such Record Date until the principal balance of the Trust Certificates is
reduced to zero.
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership. Upon the formation of the Trust by
the contribution by the Seller pursuant to Section 2.5 and until the issuance
of the Trust Certificates, the Seller shall be the sole beneficiary of the
Trust.
SECTION 3.2. The Trust Certificates. The Trust Certificates shall be
issued in denominations of $25,000 and integral multiples of $11,000 in excess
thereof; provided, that one
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Trust Certificate may be issued in a denomination other than an integral
multiple of $25,000. The Trust Certificates shall be executed on behalf of the
Trust by manual or facsimile signature of an authorized officer of the Owner
Trustee. Trust Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be validly issued and entitled
to the benefit of this Agreement, notwithstanding that such individuals or any
of them shall have ceased to be so authorized prior to the authentication and
delivery of such Trust Certificates or did not hold such offices at the date of
authentication and delivery of such Trust Certificates. A transferee of a Trust
Certificate shall become a Certificateholder, and shall be entitled to the
rights and subject to the obligations of a Certificateholder hereunder, upon due
registration of such Trust Certificate in such transferee's name pursuant to
Section 3.4.
SECTION 3.3. Authentication of Trust Certificates. Concurrently with the
initial sale of the Home Equity Loans to the Trust pursuant to the Sale and
Servicing Agreement, the Owner Trustee shall cause the Trust Certificates in an
aggregate principal amount equal to the initial Certificate Balance to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Seller, signed by its chairman of the board, its president
or any vice president, without further corporate action by the Seller, in
authorized denominations. No Trust Certificate shall entitle its holder to any
benefit under this Agreement, or shall be valid for any purpose, unless there
shall appear on such Trust Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Owner Trustee
or _____________, as the Owner Trustee's authentication agent, by manual
signature; such authentication shall constitute conclusive evidence that such
Trust Certificate shall have been duly authenticated and delivered hereunder.
All Trust Certificates shall be dated the date of their authentication.
SECTION 3.4. Registration of Transfer and Exchange of Trust Certificates.
The Certificate Registrar shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 3.8, a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Owner Trustee
shall provide for the registration of Trust Certificates and of transfers and
exchanges of Trust Certificates as herein provided. The Owner Trustee shall be
the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate at
the office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver (or shall cause ____________, ____________as
its authenticating agent to authenticate and deliver), in the name of the
designated transferee or transferees, one or more new Trust Certificates in
authorized denominations of a like class and aggregate face amount dated the
date of authentication by the Owner Trustee or any authenticating agent. At the
option of a Holder, Trust Certificates may be exchanged for other Trust
Certificates of the same class in authorized denominations of a like aggregate
amount upon surrender of the Trust Certificates to be exchanged at the office or
agency maintained pursuant to Section 3.8.
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Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Certificateholder or his attorney duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Certificate Registrar, which requirements include
membership or participation in the Securities Transfer Agent's Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Certificate Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act. Each Trust Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently disposed
of by the Owner Trustee in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar 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 Trust Certificates.
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Trust Certificates. If
(a) any mutilated Trust Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Trust Certificate and (b)
there shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Trust Certificate shall have been
acquired by a bona fide purchaser, the Owner Trustee on behalf of the Trust
shall execute and the Owner Trustee, ______________ or _________, as the Owner
Trustee's authenticating agent, shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Trust Certificate, a
new Trust Certificate of like class, tenor and denomination. In connection with
the issuance of any new Trust Certificate under this Section, the Owner Trustee
or the Certificate Registrar may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Certificate issued pursuant to this Section shall
constitute conclusive evidence of an ownership interest in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Trust
Certificate shall be found at any time.
SECTION 3.6. Persons Deemed Certificateholders. Every person by virtue of
becoming a Certificateholder or Owner in accordance with this Agreement shall be
deemed to be bound by the terms of this Agreement. Prior to due presentation of
a Trust Certificate for registration of transfer, the Owner Trustee or the
Certificate Registrar may treat the Person in whose name any Trust Certificate
shall be registered in the Certificate Register as the Owner of such Trust
Certificate for the purpose of receiving distributions pursuant to Section 5.2
and for all other purposes whatsoever, and neither the Owner Trustee nor the
Certificate Registrar shall be bound by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholders' Names and Addresses.
The Owner Trustee shall furnish or cause to be furnished to the Master Servicer,
the Seller and the Representative, within __ days after receipt by the Owner
Trustee of a request therefor from the
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Master Servicer, the Seller or the Representative in writing, a list, in such
form as the Master Servicer, the Seller or the Representative may reasonably
require, of the names and addresses of the Certificateholders as of the most
recent Record Date. If three or more Holders of Trust Certificates or one or
more Holders of Trust Certificates evidencing not less than 25% of the
Certificate Balance apply in writing to the Owner Trustee, and such application
states that the applicants desire to communicate with other Certificateholders
with respect to their rights under this Agreement or under the Trust
Certificates and such application is accompanied by a copy of the communication
that such applicants propose to transmit, then the Owner Trustee shall, within
five Business Days after the receipt of such application, afford such applicants
access during normal business hours to the current list of Certificateholders.
Each Holder, by receiving and holding a Trust Certificate, shall be deemed to
have agreed not to hold either the Seller or the Owner Trustee accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
SECTION 3.8. Maintenance of Office or Agency. The Owner Trustee shall
maintain in the Borough of Manhattan, The City of New York, an office or offices
or agency or agencies where Trust Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Trust Certificates and the Basic Documents
may be served. The Owner Trustee initially designates ____________, as its
principal corporate trust office for such purposes. The Owner Trustee shall give
prompt written notice to the Seller and to the Certificateholders of any change
in the location of the Certificate Register or any such office or agency.
SECTION 3.9. Appointment of Paying Agent. The Paying Agent shall make
distributions to Certificateholders from the Certificate Distribution Account
pursuant to Section 5.2 and shall report the amounts of such distributions to
the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw
funds from the Certificate Distribution Account for the purpose of making the
distributions referred to above. The Owner Trustee may revoke such power and
remove the Paying Agent if the Owner Trustee determines in its sole discretion
that the Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Paying Agent shall initially be the Owner
Trustee, and any co-paying agent chosen by the Owner Trustee, and acceptable to
the Master Servicer. The Paying Agent shall be permitted to resign upon 30 days'
written notice to the Owner Trustee and the Master Servicer. In the event that
the Owner Trustee shall no longer be the Paying Agent, the Owner Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company). The Owner Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Owner Trustee to execute and deliver to
the Owner Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Owner Trustee that as Paying Agent,
such successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Certificateholders in trust for the benefit
of the Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders. The Paying Agent shall return all unclaimed funds to the
Owner Trustee and upon removal of a Paying Agent such Paying Agent shall also
return all funds in its possession to the Owner Trustee. The provisions of
Sections 7.1, 7.3, 7.4 and 8.1 shall apply to the Owner Trustee also in
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its role as Paying Agent, for so long as the Owner Trustee shall act as Paying
Agent and, to the extent applicable, to any other paying agent appointed
hereunder. Any reference in this Agreement to the Paying Agent shall include any
co-paying agent unless the context requires otherwise.
SECTION 3.10. Reserved.
SECTION 3.11. Reserved.
SECTION 3.12. Reserved.
SECTION 3.13. Reserved.
[SECTION 3.14. Book-Entry Trust Certificates. The Trust Certificates, upon
original issuance, will be issued in the form of a typewritten Trust Certificate
or Trust Certificates representing Book-Entry Trust Certificates, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by or on
behalf of the Trust. Such Book-Entry Trust Certificate or Trust Certificates
shall initially be registered on the Certificate Register in the name of Cede &
Co., the nominee of the initial Clearing Agency, and no beneficial owner (other
than the Seller) will receive a definitive Trust Certificate representing such
beneficial owner's interest in such Trust Certificate, except as provided in
Section 3.16. Unless and until Definitive Trust Certificates have been issued to
beneficial owners pursuant to Section 3.16:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Certificate Registrar and the Owner Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Agreement relating to the Book-Entry Trust Certificates (including the
payment of principal of and interest on the Book-Entry Trust Certificates
and the giving of instructions or directions to Owners of Book-Entry Trust
Certificates) as the sole Holder of Book-Entry Trust Certificates and
shall have no obligations to the Owners thereof;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Agreement, the provisions of this
Section shall control;
(iv) the rights of the Owners of the Book-Entry Trust Certificates
shall be exercised only through the Clearing Agency and shall be limited
to those established by law and agreements between such Owners and the
Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Trust
Certificates are issued pursuant to Section 3.16, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and
interest on the Book-Entry Trust Certificates to such Clearing Agency
Participants; and
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(v) whenever this Agreement requires or permits actions to be taken
based upon instructions or directions of Holders of Trust Certificates
evidencing a specified percentage of the Certificate Balance, the Clearing
Agency shall be deemed to represent such percentage only to the extent
that it has received instructions to such effect from Owners and/or
Clearing Agency Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Book-Entry Trust
Certificates and has delivered such instructions to the Owner Trustee.]
[SECTION 3.15. Notices to Clearing Agency. Whenever a notice or other
communication to the Owners is required under this Agreement, unless and until
Definitive Trust Certificates shall have been issued to Owners pursuant to
Section 3.16, the Owner Trustee shall give all such notices and communications
specified herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.]
[SECTION 3.16. Definitive Trust Certificates. If (i) the Master Servicer
advises the Owner Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Trust Certificates, and the Master Servicer is unable to locate a qualified
successor, (ii) the Master Servicer at its option advises the Owner Trustee in
writing that it elects to terminate the book-entry system through the Clearing
Agency or (iii) after the occurrence of an Event of Default, Owners of
Certificates representing beneficial interests aggregating at least a majority
of the Certificate Balance advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interest of the Owners of Trust Certificates, then the Clearing Agency
shall notify all Owners and the Owner Trustee of the occurrence of any such
event and of the availability of the Definitive Trust Certificates to Owners
requesting the same. Upon surrender to the Owner Trustee of the typewritten
Trust Certificate or Trust Certificates representing the Book Entry Trust
Certificates by the Clearing Agency, accompanied by registration instructions,
the Owner Trustee shall execute and authenticate the Definitive Trust
Certificates in accordance with the instructions of the Clearing Agency. Neither
the Certificate Registrar nor the Owner Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Trust Certificates, the Owner Trustee shall recognize the Holders of the
Definitive Trust Certificates as Certificateholders. The Definitive Trust
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Owner Trustee, as evidenced
by its execution thereof.]
ARTICLE IV
Actions by Owner Trustee
SECTION 4.1. Prior Notice to Owners with Respect to Certain Matters. With
respect to the following matters, the Owner Trustee shall not take action unless
at least ___ days before the taking of such action, the Owner Trustee shall have
notified the Certificateholders in writing of the proposed action and the
Certificateholders shall not have notified the Owner Trustee in
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writing prior to the ___th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any material claim or lawsuit by the Trust
except claims or lawsuits brought in connection with the collection of the
Home Equity Loans and the compromise of any material action, claim or
lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of the Home Equity
Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed under
the Business Trust Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the
Certificateholders;
(e) the amendment, change or modification of the Sale and Servicing
Agreement, except to cure any ambiguity or defect or to amend or
supplement any provision in a manner that would not materially adversely
affect the interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Trustee
or the consent to the assignment by the Note Registrar, Paying Agent or
Trustee or Certificate Registrar of its obligations under the Indenture or
this Agreement, as applicable. The Owner Trustee shall notify the
Certificateholders in writing of any appointment of a successor Note
Registrar, Paying Agent or Certificate Registrar within five Business Days
thereof.
SECTION 4.2. Action by Certificateholders with Respect to Certain Matters.
The Owner Trustee shall not have the power, except upon the direction of the
Certificateholders, to (a) remove the Master Servicer under the Sale and
Servicing Agreement pursuant to Section 8.1 thereof or (b) except as expressly
provided in the Basic Documents, sell the Home Equity Loans after the
termination of the Indenture. The Owner Trustee shall take the actions referred
to in the preceding sentence only upon written instructions signed by the
Certificateholders.
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy. The
Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent.
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SECTION 4.4. Restrictions on Certificateholders' Power. The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 nor shall the Owner Trustee be
obligated to follow any such direction, if given.
SECTION 4.5. Majority Control. Except as expressly provided herein, any
action that may be taken by the Certificateholders under this Agreement may be
taken by the Holders of Trust Certificates evidencing not less than a majority
of the Certificate Balance. Except as expressly provided herein, any written
notice of the Certificateholders delivered pursuant to this Agreement shall be
effective if signed by Holders of Certificates evidencing not less than a
majority of the Certificate Balance at the time of the delivery of such notice.
ARTICLE V
Application of Trust Funds: Certain Duties
SECTION 5.1. Establishment of Certificate Distribution Account. The Owner
Trustee, for the benefit of the Certificateholders, shall establish and maintain
in the name of the Trust an Eligible Deposit Account (the "Certificate
Distribution Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders. Except as
otherwise provided herein, the Certificate Distribution Account shall be under
the sole dominion and control of the Owner Trustee for the benefit of the
Certificateholders. The Certificate Distribution Account shall not be held in
the State of Texas.
SECTION 5.2. Application of Funds in Certificate Distribution Account.
(a) On each Distribution Date, the Owner Trustee will, based on the
information contained in the Master Servicer's Certificate delivered on
the related Determination Date pursuant to Section 4.9 of the Sale and
Servicing Agreement, distribute to Certificateholders, to the extent of
the funds available, amounts deposited in the Certificate Distribution
Account pursuant to Section 5.5 of the Sale and Servicing Agreement on
such Distribution Date in the following order of priority:
(i) first, to the Certificateholders, on a pro rata basis, an
amount equal to the Certificateholders' Interest Distributable
Amount; and
(ii) second, to the Certificateholders, on a pro rata basis,
an amount equal to the Certificateholders' Principal Distributable
Amount.
(b) On each Distribution Date, the Owner Trustee shall send to each
Certificateholder the statement provided to the Owner Trustee by the
Master Servicer pursuant to Section 5.8 of the Sale and Servicing
Agreement on such Distribution Date.
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(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in
accordance with this Section. The Owner Trustee is hereby authorized and
directed to retain from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the
Owner Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome
of such proceedings). The amount of any withholding tax imposed with
respect to a Certificateholder shall be treated as cash distributed to
such Certificateholder at the time it is withheld by the Trust and
remitted to the appropriate taxing authority. If there is a possibility
that withholding tax is payable with respect to a distribution (such as a
distribution to a non-US Certificateholder), the Owner Trustee may in it
sole discretion withhold such amounts in accordance with this clause (c).
In the event that an Owner wishes to apply for a refund of any such
withholding tax, the Owner Trustee shall reasonably cooperate with such
Certificateholder in making such claim so long as such Certificateholder
agrees to reimburse the Owner Trustee for any out-of-pocket expenses
incurred.
SECTION 5.3. Reserved.
SECTION 5.4. Method of Payment. Subject to Section 9.1(c), distributions
required to be made to Certificateholders on any Distribution Date shall be made
to each Certificateholder of record on the preceding Record Date either by wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Distribution Date
and such Holder's Trust Certificates in the aggregate evidence a denomination of
not less than $____________ or, if not, by check mailed to such
Certificateholder at the address of such holder appearing in the Certificate
Register; provided, however, that, unless Definitive Certificates have been
issued pursuant to Section 3.16, with respect to Trust Certificates registered
on the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee to be Cede & Co.), distributions will be made by wire transfer in
immediately available funds to the account designated by such nominee.
Notwithstanding the foregoing, the final distribution in respect of any Trust
Certificate (whether on the Final Scheduled Distribution Date or otherwise) will
be payable only upon presentation and surrender of such Trust Certificate at the
office or agency maintained for that purpose by the Owner Trustee pursuant to
Section 3.8.
SECTION 5.5. No Segregation of Monies; No Interest. Subject to Sections
5.1 and 5.2, monies received by the Owner Trustee hereunder need not be
segregated in any manner except to the extent required by law and may be
deposited under such general conditions as may be prescribed by law, and the
Owner Trustee shall not be liable for any interest thereon.
SECTION 5.6. Accounting and Reports to the Noteholders,
Certificateholders, the Internal Revenue Service and Others. Subject to Sections
10.1(b)(iii) and 10.1(c) of the Sale and
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Servicing Agreement, the Seller shall (a) maintain (or cause to be maintained)
the books of the Trust on a calendar year basis on the accrual method of
accounting, (b) deliver (or cause to be delivered) to each Certificateholder, as
may be required by the Code and applicable Treasury Regulations, such
information as may be required (including Schedule K-1) to enable each
Certificateholder to prepare its Federal and state income tax returns, (c) file
or cause to be filed such tax returns relating to the Trust (including a
partnership information return, Form 1065), and direct the Owner Trustee to make
such elections as may from time to time be required or appropriate under any
applicable state or Federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a partnership for Federal income tax
purposes and (d) collect or cause to be collected any withholding tax as
described in and in accordance with Section 5.2(c) with respect to income or
distributions to Certificateholders. The Owner Trustee shall make all elections
pursuant to this Section as directed by the Seller. The Owner Trustee shall sign
all tax information returns filed pursuant to this Section 5.6 and any other
returns as may be required by law, and in doing so shall rely entirely upon, and
shall have no liability for information provided by, or calculations provided
by, the Seller. The Owner Trustee shall elect under Section 1278 of the Code to
include in income currently any market discount that accrues with respect to the
Home Equity Loans. The Owner Trustee shall not make the election provided under
Section 754 of the Code.
SECTION 5.7. Signature on Returns; Tax Matters Partner.
(a) Notwithstanding the provisions of Section 5.6, the Owner Trustee
shall sign on behalf of the Trust the tax returns of the Trust, unless
applicable law requires a Certificateholder or an Owner to sign such
documents, in which case such documents shall be signed by the Seller as
"tax matters partner."
(b) The Seller shall be the "tax matters partner" of the Trust
pursuant to the Code.
ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is named
as a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is named as a party and
any amendment thereto, in each case, in such form as the Seller shall approve as
evidenced conclusively by the Owner Trustee's execution thereof, and on behalf
of the Trust, to direct the Trustee to authenticate and deliver List Class(es)
of Notes and Aggregate Principal Amount(s). In addition to the foregoing, the
Owner Trustee is authorized, but shall not be obligated, to take all actions
required of the Trust pursuant to the Basic Documents. The Owner Trustee is
further authorized from time to time to take such action as the Master Servicer
recommends with respect to the Basic Documents.
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SECTION 6.2. General Duties. It shall be the duty of the Owner Trustee to
discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Sale and Servicing Agreement and to
administer the Trust in the interest of the Owners, subject to the Basic
Documents and in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the Owner Trustee shall be deemed to have
discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Master Servicer has agreed in the Sale and Servicing
Agreement to perform any act or to discharge any duty of the Owner Trustee
hereunder or under any Basic Document, and the Owner Trustee shall not be liable
for the default or failure of the Master Servicer to carry out its obligations
under the Sale and Servicing Agreement.
SECTION 6.3. Action upon Instruction.
(a) Subject to Article IV, the Certificateholders may, by written
instruction, direct the Owner Trustee in the management of the Trust. Such
direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such
action is likely to result in liability on the part of the Owner Trustee
or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Basic Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders requesting instruction as to the course of action
to be adopted, and to the extent the Owner Trustee acts in good faith in
accordance with any written instruction of the Certificateholders
received, the Owner Trustee shall not be liable on account of such action
to any Person. If the Owner Trustee shall not have received appropriate
instruction within ten days of such notice (or within such shorter period
of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or
refrain from taking such action, not inconsistent with this Agreement or
the Basic Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such
action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or
any such provision is ambiguous as to its application, or is, or appears
to be, in conflict with any other applicable provision, or in the event
that this Agreement permits any determination by the Owner Trustee or is
silent or is incomplete as to the course of action that the Owner Trustee
is
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required to take with respect to a particular set of facts, the Owner
Trustee may give notice (in such form as shall be appropriate under the
circumstances) to the Certificateholders requesting instruction and, to
the extent that the Owner Trustee acts or refrains from acting in good
faith in accordance with any such instruction received, the Owner Trustee
shall not be liable, on account of such action or inaction, to any Person.
If the Owner Trustee shall not have received appropriate instruction
within 10 days of such notice (or within such shorter period of time as
reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such
action or inaction.
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Commission filing for the Trust or to
record this Agreement or any Basic Document. The Owner Trustee nevertheless
agrees that it will, at its own cost and expense, promptly take all action as
may be necessary to discharge any Liens on any part of the Owner Trust Estate
that result from actions by, or claims against, the Owner Trustee that are not
related to the ownership or the administration of the Owner Trust Estate.
SECTION 6.5. No Action Except under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement, (ii) in accordance with the Basic Documents and (iii) in
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
SECTION 6.6. Restrictions. The Owner Trustee shall not take any action (a)
that is inconsistent with the purposes of the Trust set forth in Section 2.3 or
(b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section.
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ARTICLE VII
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Agreement. The Owner
Trustee also agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable hereunder or
under any Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.3 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by a Responsible Officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of
the Master Servicer or any Certificateholder;
(c) no provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers
hereunder or under any Basic Document if the Owner Trustee shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or
provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of
the validity or sufficiency of this Agreement or for the due execution
hereof by the Seller or for the form, character, genuineness, sufficiency,
value or validity of any of the Owner Trust Estate or for or in respect of
the validity or sufficiency of the Basic Documents, other than the
certificate of authentication on the Trust Certificates, and the Owner
Trustee shall in no event assume or incur any liability, duty or
obligation to any Noteholder or to any Certificateholder, other than as
expressly provided for herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Trustee or the Master Servicer under any of the Basic
Documents or otherwise and the Owner Trustee shall have no obligation or
liability to perform the obligations of the Trust
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under this Agreement or the Basic Documents that are required to be
performed by the Trustee under the Indenture or the Master Servicer under
the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
direction of any of the Certificateholders, unless such Certificateholders
have offered to the Owner Trustee security or indemnity satisfactory to it
against the costs, expenses and liabilities that may be incurred by the
Owner Trustee therein or thereby. The right of the Owner Trustee to
perform any discretionary act enumerated in this Agreement or in any Basic
Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence, bad faith or willful
misconduct in the performance of any such act.
SECTION 7.2. Furnishing of Documents. The Owner Trustee shall furnish to
the Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
SECTION 7.3. Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Seller, for the benefit of the
Certificateholders, that:
(a) It is a duly organized and validly existing in good standing
under the laws of the _______________ and having an office within the
State of New York. It has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Agreement,
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will
contravene any federal, Delaware, New York or ____________ state law,
governmental rule or regulation governing the banking or trust powers of
the Owner Trustee or any judgment or order binding on it, or constitute
any default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by
which any of its properties may be bound.
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SECTION 7.4. Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in acting
upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or paper
believed by it to be genuine and believed by it to be signed by the proper
party or parties. The Owner Trustee may accept a certified copy of a
resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to
any fact or matter the method of the determination of which is not
specifically prescribed herein, the Owner Trustee may for all purposes
hereof rely on a certificate, signed by the president or any vice
president or by the treasurer, secretary or other authorized officers of
the relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Owner Trustee for any action taken or
omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its
agents or attorneys pursuant to agreements entered into with any of them,
and the Owner Trustee shall not be liable for the conduct or misconduct of
such agents or attorneys if such agents or attorneys shall have been
selected by the Owner Trustee with reasonable care, and (ii) may consult
with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable
for anything done, suffered or omitted in good faith by it in accordance
with the written opinion or advice of any such counsel, accountants or
other such persons and not contrary to this Agreement or any Basic
Document.
SECTION 7.5. Not Acting in Individual Capacity. Except as provided in this
Article VII, in accepting the trusts hereby created acts solely as Owner Trustee
hereunder and not in its individual capacity and all Persons having any claim
against the Owner Trustee by reason of the transactions contemplated by this
Agreement or any Basic Document shall look only to the Owner Trust Estate for
payment or satisfaction thereof.
SECTION 7.6. Owner Trustee Not Liable for Trust Certificates or Home
Equity Loans. The recitals contained herein and in the Trust Certificates (other
than the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Seller and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Basic Document or of the Trust Certificates (other than the signature and
countersignature of the Owner Trustee on the Trust Certificates) or the Notes,
or of any Home Equity Loan or related documents. The Owner Trustee shall at no
time have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Home Equity Loan, or the perfection and
priority of any security interest created by any Home Equity Loan in any
Mortgaged Property or the maintenance of any such perfection and priority, or
for or with respect to the
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sufficiency of the Owner Trust Estate or its ability to generate the payments to
be distributed to Certificateholders under this Agreement or the Noteholders
under the Indenture, including, without limitation: the existence, condition and
ownership of any Mortgaged Property; the existence and enforceability of any
insurance thereon; the existence and contents of any Home Equity Loan on any
computer or other record thereof; the validity of the assignment of any Home
Equity Loan to the Trust or of any intervening assignment; the completeness of
any Home Equity Loan; the performance or enforcement of any Home Equity Loan;
the compliance by the Seller or the Master Servicer with any warranty or
representation made under any Basic Document or in any related document or the
accuracy of any such warranty or representation or any action of the Trustee or
the Master Servicer or any subMaster Servicer taken in the name of the Owner
Trustee.
SECTION 7.7. Owner Trustee May Own Trust Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Trust Certificates or Notes and may deal with the Seller, the Trustee and the
Master Servicer in banking transactions with the same rights as it would have if
it were not Owner Trustee.
ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Seller and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Seller
for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
SECTION 8.2. Indemnification. The Seller shall be liable as primary
obligor for, and shall indemnify the Owner Trustee and its successors, assigns,
agents and servants (collectively, the "Indemnified Parties") from and against,
any and all liabilities, obligations, losses, damages, taxes, claims, actions
and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Seller shall not be liable
for or required to indemnify the Owner Trustee from and against Expenses arising
or resulting from any of the matters described in the third sentence of Section
7.1. The indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Seller, which approval shall not be unreasonably
withheld.
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SECTION 8.3. Payments to the Owner Trustee. Any amounts paid to the Owner
Trustee pursuant to this Article VIII shall be deemed not to be a part of the
Owner Trust Estate immediately after such payment.
ARTICLE IX
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust shall
terminate and be of no further force or effect, upon the final
distribution by the Owner Trustee of all moneys or other property or
proceeds of the Owner Trust Estate in accordance with the terms of the
Indenture, the Sale and Servicing Agreement and Article V. The bankruptcy,
liquidation, dissolution, death or incapacity of any Certificateholder or
Owner, shall not (x) operate to terminate this Agreement or the Trust, nor
(y) entitle such Certificateholder's or Owner's legal representatives or
heirs to claim an accounting or to take any action or proceeding in any
court for a partition or winding up of all or any part of the Trust or
Owner Trust Estate nor (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) Except as provided in clause (a), neither the Seller nor any
Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender their
Trust Certificates to the Paying Agent for payment of the final
distribution and cancellation, shall be given by the Owner Trustee by
letter to Certificateholders mailed within five Business Days of receipt
of notice of such termination from the Master Servicer given pursuant to
Section 9.1(c) of the Sale and Servicing Agreement, stating (i) the
Distribution Date upon or with respect to which final payment of the Trust
Certificates shall be made upon presentation and surrender of the Trust
Certificates at the office of the Paying Agent 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 Trust Certificates
at the office of the Paying Agent therein specified. The Owner Trustee
shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Paying Agent at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Trust
Certificates, the Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Distribution Date
pursuant to Section 5.2.
In the event that all of the Certificateholders shall not surrender
their Trust Certificates for cancellation within six months after the date
specified in the above
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mentioned written notice, the Owner Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Trust
Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Owner
Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Trust Certificates, and the cost thereof shall be paid
out of the funds and other assets that shall remain subject to this
Agreement. Any funds remaining in the Trust after exhaustion of such
remedies shall be distributed, subject to applicable escheat laws, by the
Owner Trustee to the Seller.
(d) Any funds remaining in the Trust after funds for final
distribution have been distributed or set aside for distribution shall be
distributed by the Owner Trustee to the Seller.
(e) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with
the provisions of Section 3810 of the Business Trust Statute.
SECTION 9.2. Reserved.
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation authorized to exercise corporate
trust powers; and having a combined capital and surplus of at least $50,000,000
and subject to supervision or examination by Federal or state authorities. If
such corporation shall publish reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 10.2. In addition, at all
times the Owner Trustee or a co-trustee shall be a person that satisfies the
requirements of Section 3807(a) of the Business Trust Statute (the "Delaware
Trustee").
SECTION 10.2. Resignation or Removal of Owner Trustee. The Owner Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Master Servicer. Upon receiving such notice
of resignation, the Master Servicer shall promptly appoint a successor Owner
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Owner Trustee and one copy to the
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successor Owner Trustee. If no successor Owner Trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Owner Trustee may petition any court of
competent jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in accordance
with the provisions of Section 10.1 and shall fail to resign after written
request therefor by the Master Servicer, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Master Servicer may remove the Owner Trustee. If the
Master Servicer shall remove the Owner Trustee under the authority of the
immediately preceding sentence, the Master Servicer shall promptly appoint a
successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee and payment of all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Master Servicer shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.3. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Master Servicer and to its predecessor Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective and such successor Owner
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Master Servicer and the predecessor Owner Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Master Servicer shall mail notice of the successor of such
Owner Trustee to all Certificateholders, the Trustee, the Noteholders and the
Rating Agencies. If the Master Servicer
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shall fail to mail such notice within 10 days after acceptance of appointment by
the successor Owner Trustee, the successor Owner Trustee shall cause such notice
to be mailed at the expense of the Master Servicer.
SECTION 10.4. Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
further that the Owner Trustee shall mail notice of such merger or consolidation
to the Rating Agencies.
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Mortgaged Property may at the time be located,
the Master Servicer and the Owner Trustee acting jointly shall have the power
and shall execute and deliver all instruments to appoint one or more Persons
approved by the Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or separate trustee or separate trustees, of all or any part of the
Owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Master
Servicer and the Owner Trustee may consider necessary or desirable. If the
Master Servicer shall not have joined in such appointment within 15 days after
the receipt by it of a request so to do, the Owner Trustee alone shall have the
power to make such appointment. Pursuant to the Co Trustee Agreement, dated as
of ______________, 199_, between and , the Owner Trustee shall appoint as a co
trustee hereunder for the purpose of his acting as Delaware Trustee and such
agreement is hereby incorporated herein by reference. If the Delaware Trustee
shall die, become incapable of acting, resign or be removed, unless the Owner
Trustee is qualified to act as Delaware Trustee, a successor co-trustee shall
promptly be appointed in the manner specified in this Section 10.5 to act as
Delaware Trustee. No co-trustee or separate trustee under this Agreement shall
be required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed
by the Owner Trustee and such separate trustee or co-trustee jointly (it
being understood that such separate trustee or co-trustee is not
authorized to act separately without the Owner Trustee joining in such
act), except to the extent that under any law of any jurisdiction in which
any
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particular act or acts are to be performed, the Owner Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement;
and
(iii) the Master Servicer and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Owner Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Owner Trustee. Each such instrument shall be filed with the Owner Trustee and a
copy thereof given to the Master Servicer.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
ARTICLE XI
Miscellaneous
SECTION 11.1. Supplements and Amendments. This Agreement may be amended by
the Seller and the Owner Trustee, with prior written notice to the Rating
Agencies, without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity or defect, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interests
of any Noteholder or Certificateholder.
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This Agreement may also be amended from time to time by the Seller and the
Owner Trustee, with prior written notice to the Rating Agencies, with the
consent of the Holders of Notes evidencing not less than a majority of the
Outstanding Amount of the Notes and, to the extent affected thereby, the consent
of the Holders of Certificates evidencing not less than a majority of the
Certificate Balance for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Noteholders or the Certificateholders;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Home Equity Loans or distributions that shall be required to be made
for the benefit of the Noteholders or the Certificateholders or (b) reduce the
aforesaid percentage of the Outstanding Amount of the Notes and the Certificate
Balance required to consent to any such amendment, without the consent of the
Holders of all the outstanding Notes and Holders of all outstanding
Certificates.
Promptly after the execution of any such amendment or consent, the Owner
Trustee shall furnish written notification of the substance of such amendment or
consent to each Certificateholder, the Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Trustee pursuant to this Section to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The manner of obtaining such
consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of Trust,
the Owner Trustee shall cause the filing of such amendment with the Secretary of
State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.2. No Legal Title to Owner Trust Estate in Certificateholders.
The Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided ownership interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title or interest of the Certificateholders to and in their ownership interest
in the Owner Trust Estate shall operate to terminate this Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate.
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SECTION 11.3. Limitations on Rights of Others. Except for Section 2.7, the
provisions of this Agreement are solely for the benefit of the Owner Trustee,
the Seller, the Certificateholders, the Master Servicer and, to the extent
expressly provided herein, the Trustee and the Noteholders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Owner Trust Estate
or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.4. Notices.
(a) Unless otherwise expressly specified or permitted by the terms
hereof, all notices shall be in writing and shall be deemed given upon
receipt personally delivered, delivered by overnight courier or mailed
certified mail, return receipt requested and shall be deemed to have been
duly given upon receipt, if to the Owner Trustee, addressed to
_____________; if to the Seller, addressed to Avco ABS Receivables Corp.,
___________________________, Attention: ____________; as to each party, at
such other address as shall be designated by such party in a written
notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at
the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
SECTION 11.5. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the Seller,
the Owner Trustee and its successors and each Certificateholder and its
successors and permitted assigns, all as herein provided. Any request, notice,
direction, consent, waiver or other instrument or action by a Certificateholder
shall bind the successors and assigns of such Certificateholder.
SECTION 11.8. Reserved.
-29-
<PAGE> 35
SECTION 11.9. No Petition. The Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Trust Certificate, and the Trustee and each
Noteholder by accepting the benefits of this Agreement, hereby covenants and
agrees that they will not at any time institute against the Seller, or join in
any institution against the Seller of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Trust Certificates, the Notes, this Agreement or
any of the Basic Documents.
SECTION 11.10. No Recourse. Each Certificateholder by accepting a Trust
Certificate acknowledges that such Certificateholder's Trust Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Seller, the Master Servicer, the Owner Trustee, the
Trustee or any Affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Agreement, the Trust Certificates or the Basic Documents.
SECTION 11.11. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. Trust Certificate Transfer Restrictions. The Trust
Certificates may not be acquired by or for the account of (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of
Title 1 of ERISA, (ii) a plan described in Section 4975(e) (1) of the Code, or
(iii) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). By accepting and
holding a Trust Certificate, the Holder thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan.
SECTION 11.14. Master Servicer. The Master Servicer is authorized to
execute on behalf of the Trust all such documents, reports, filings,
instruments, certificates and opinions as it shall be the duty of the Trust to
prepare, file or deliver pursuant to the Basic Documents. Upon written request,
the Owner Trustee shall execute and deliver to the Master Servicer a power of
attorney appointing the Master Servicer the Trust's agent and attorney-in-fact
to execute all such documents, reports, filings, instruments, certificates and
opinions.
-30-
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed by their respective officers hereunto duly authorized as of the
day and year first above written.
By:
--------------------------------------
Name:
Title:
AVCO ABS RECEIVABLES CORP.
Seller,
By:
--------------------------------------
Name:
Title:
-31-
<PAGE> 37
EXHIBIT A
NUMBER $___________
R-___________ CUSIP NO. _______
SEE REVERSE FOR CERTAIN DEFINITIONS UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE PRINCIPAL
OF THIS TRUST CERTIFICATE IS DISTRIBUTABLE IN INSTALLMENTS AS SET FORTH IN THE
TRUST AGREEMENT. ACCORDINGLY, THE OUTSTANDING PRINCIPAL OF THIS TRUST
CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
AVCO HOME EQUITY LOAN TRUST 199_-_% ASSET BACKED CERTIFICATE evidencing a
beneficial ownership interest in certain distributions of the Trust, as defined
below, the property of which includes a pool of closed-end and/or revolving home
equity loans or certain balances thereof and home improvement sales contracts
and installment loan agreements sold to the Trust by Avco ABS Receivables Corp.
(This Trust Certificate does not represent an interest in or obligation of Avco
ABS Receivables Corp. or any of its Affiliates, except to the extent described
below.) THIS CERTIFIES THAT is the registered owner of _____________ DOLLARS
nonassessable, fully paid, beneficial ownership interest in certain
distributions of Avco Home Equity Loan Trust 199_-_ (the "Trust") formed by Avco
ABS Receivables Corp., a Nevada corporation (the "Seller"). The Trust
Certificates have a Certificate Rate of __________% per annum.
A-1
<PAGE> 38
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned Trust
Agreement.
as Owner Trustee or as Owner Trustee
By
Authenticating Agent
by by
The Trust was created pursuant to a Trust Agreement dated as of , 199_ (the
"Trust Agreement"), between the Seller and ________________, as owner trustee
(the "Owner Trustee"), a summary of certain of the pertinent provisions of which
is set forth below. To the extent not otherwise defined herein, the capitalized
terms used herein have the meanings assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Trust Certificates designated as
"___% Asset Backed Certificates" (herein called the "Trust Certificates"). Also
issued under the Indenture dated as of ____________, 199_, between the Trust and
____________, as trustee, are classes of Notes designated as List Classes of
Notes . This Trust Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement, to which Trust Agreement the
holder of this Trust Certificate by virtue of the acceptance hereof assents and
by which such holder is bound. The property of the Trust includes closed-end
and/or revolving home equity loans or certain balances thereof and home
improvement sales contracts and installment loan agreements (the "Home Equity
Loans"), all monies received on the Home Equity Loans on or after ___________,
199_, security interests in the properties financed thereby, certain bank
accounts and the proceeds thereof, proceeds from claims on certain insurance
policies and certain other rights under the Trust Agreement and the Sale and
Servicing Agreement.
Under the Trust Agreement, there will be distributed on the __th day of each
month or, if such __th day is not a Business Day, the next Business Day (the
"Distribution Date"), commencing in ______________, 199_, to the Person in whose
name this Trust Certificate is registered at the close of business on the 14th
day of such month (the "Record Date") such Certificateholder's fractional
undivided interest in the amount to be distributed to Certificateholders on such
Distribution Date; provided, however, that principal will be distributed to the
Certificateholders on (to the extent of funds remaining after the Class A--Notes
have been paid in full) and after the date on which the Class A--Notes have been
paid in full. The holder of this Trust Certificate acknowledges and agrees that
its rights to receive distributions in respect of this Trust Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture and the Trust Agreement, as applicable.
A-2
<PAGE> 39
It is the intent of the Seller, Master Servicer, and Certificateholders that,
for purposes of Federal income taxes, the Trust will be treated as a partnership
and the Certificateholders will be treated as partners in that partnership. The
Certificateholders by acceptance of a Trust Certificate, agree to treat, and to
take no action inconsistent with the treatment of, the Trust Certificates for
such tax purposes as partnership interests in the Trust.
Each Certificateholder, by its acceptance of a Trust Certificate, covenants and
agrees that such Certificateholder will not at any time institute against the
Seller, or join in any institution against the Seller of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Trust Certificates, the
Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Trust Certificate will be made as provided in the Trust
Agreement by the Owner Trustee by wire transfer or check mailed to the
Certificateholder of record in the Trust Certificate Register without the
presentation or surrender of this Trust Certificate or the making of any
notation hereon, except that with respect to Trust Certificates registered on
the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee to be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except as
otherwise provided in the Trust Agreement and notwithstanding the above, the
final distribution on this Trust Certificate will be made after due notice by
the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Trust Certificate at the office or agency
maintained for the purpose by the Owner Trustee in the Borough of Manhattan, The
City of New York.
Reference is hereby made to the further provisions of this Trust Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed by an
authorized officer of the Owner Trustee, by manual signature, this Trust
Certificate shall not entitle the holder hereof to any benefit under the Trust
Agreement or the Sale and Servicing Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-3
<PAGE> 40
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in its
individual capacity, has caused this Trust Certificate to be duly executed.
AVCO HOME EQUITY LOAN TRUST 199_-_
By:
--------------------------------------
as Owner Trustee
Dated:
------------------------
By:
------------------------
A-4
<PAGE> 41
(Reverse of Trust Certificate)
The Trust Certificates do not represent an obligation of, or an interest in, the
Seller, the Master Servicer, the Owner Trustee or any Affiliates of any of them
and no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated herein or in the Trust Agreement, the
Indenture or the Basic Documents. In addition, this Trust Certificate is not
guaranteed by any governmental agency or instrumentality and is limited in right
of payment to certain collections with respect to the Home Equity Loans (and
certain other amounts), all as more specifically set forth herein and in the
Sale and Servicing Agreement. The Trust Certificates are limited in right of
payment to certain collections and recoveries respecting the Home Equity Loans,
all as more specifically set forth in the Sale and Servicing Agreement. A copy
of each of the Sale and Servicing Agreement and the Trust Agreement may be
examined during normal business hours at the principal office of the Seller, and
at such other places, if any, designated by the Seller, by any Certificateholder
upon written request.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Seller and the rights of the Certificateholders under the Trust Agreement at any
time by the Seller and the Owner Trustee with the consent of the holders of the
Notes and the Trust Certificates evidencing not less than a majority of the
outstanding Notes and the Certificate Balance. Any such consent by the holder of
this Trust Certificate shall be conclusive and binding on such holder and on all
future holders of this Trust Certificate and of any Trust Certificate issued
upon the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Trust Certificate. The Trust
Agreement also permits the amendment thereof, in certain limited circumstances,
without the consent of the holders of any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain limitations therein
set forth, the transfer of this Trust Certificate is registerable in the
Certificate Register upon surrender of this Trust Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Borough of Manhattan, The City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Owner Trustee and the Certificate Registrar duly executed by the holder hereof
or such holder's attorney duly authorized in writing, and thereupon one or more
new Trust Certificates in authorized denominations evidencing the same aggregate
interest in the Trust will be issued to the designated transferee.
The initial Certificate Registrar appointed under the Trust Agreement is
____________, ____________, ____________.
The Trust Certificates are issuable only as registered Trust Certificates
without coupons in denominations of $25,000 or integral multiples of $1,000 in
excess thereof; except as otherwise provided in the Trust Agreement. As provided
in the Trust Agreement and subject to certain limitations therein set forth,
Trust Certificates are exchangeable for new Trust Certificates in authorized
denominations evidencing the same aggregate denomination, as requested by the
holder surrendering the same. No service charge will be made for any such
registration of
A-5
<PAGE> 42
transfer or exchange, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
payable in connection therewith.
The Owner Trustee, the Certificate Registrar and any agent of the Owner Trustee
or the Certificate Registrar may treat the person in whose name this Trust
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Registrar or any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Trust Agreement and the
Sale and Servicing Agreement and the disposition of all property held as part of
the Trust. The Seller of the Home Equity Loans may at its option purchase the
corpus of the Trust at a price specified in the Sale and Servicing Agreement,
and such purchase of the Home Equity Loans and other property of the Trust will
effect early retirement of the Trust Certificates; however, such right of
purchase is exercisable, subject to certain restrictions, only as of the last
day of any Collection Period as of which the Pool Balance is % or less of the
Original Pool Balance.
The Trust Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title 1
of ERISA, (b) a plan described in Section 4975(e) (l) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (each, a "Benefit Plan"). By accepting and holding this
Trust Certificate, the Holder hereof shall be deemed to have represented and
warranted that it is not a Benefit Plan.
A-6
<PAGE> 43
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(Please print or type name and address, including postal zip code, of
assignee)
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
Attorney to transfer said Trust Certificate on the books of the Trust
Certificate Registrar, with full power of substitution in the premises.
Dated:
------------------
*
Signature Guaranteed:
- ----------
* NOTICE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Certificate in
every particular, without alteration, enlargement or any change whatever.
Such signature must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Certificate Registrar, which requirements
include membership or participation in STAMP or such other "signature
guarantee program" as may be determined by the Certificate Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-7
<PAGE> 44
EXHIBIT B
FORM OF
CERTIFICATE OF TRUST OF
AVCO HOME EQUITY LOAN
TRUST 199_
THIS Certificate of Trust of Avco Home Equity Loan Trust 199_ (the "Trust"),
dated as of ______________, 199 , is being duly executed and filed by
_______________, a ___________, and _______________, a ____________, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. Code, ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby is AVCO HOME EQUITY
LOAN TRUST 199_-_.
2. Delaware Trustee. The name and business address of the trustee of the
Trust resident in the State of Delaware is _______________.
3. This Certificate of Trust will be effective _______________, 199_.
B-1
<PAGE> 45
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
______________________, not in its individual capacity but solely as owner
trustee of the Trust.
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
not in his individual capacity but solely as trustee of the Trust
B-2
<PAGE> 1
Exhibit 5.1
June 18, 1998
Avco ABS Receivables Corp.
1727-B Charleston
Las Vegas, Nevada 89104
Ladies and Gentlemen:
We have acted as counsel to Avco ABS Receivables Corp., a Nevada corporation
(the "Company"), in connection with the preparation of a registration statement
on Form S-3 (the "Registration Statement") relating to the proposed offering
from time to time in one or more series (each, a "Series") by one or more trusts
of Asset-Backed Notes (the "Notes") and Asset-Backed Certificates (the
"Certificates," and, together with the Notes, the "Securities"). The
Registration Statement will be filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act"). As
set forth in the Registration Statement, each Series of Securities is to be
issued under and pursuant to the terms of a separate pooling and servicing
agreement, or sale and servicing agreement, trust agreement and indenture (each,
an "Agreement") among two or more of the Company, Avco Financial Services
Management Company (the "Master Servicer"), Avco Financial Services, Inc. (the
"Representative"), the issuer of a Series of Securities and one or more
independent trustees (each, a "Trustee") to be identified in the prospectus
supplement for such Series of Securities.
As such counsel, we have examined copies of the Certificate of Incorporation and
By-Laws of the Company, the Registration Statement, the base Prospectus and form
of Prospectus Supplement included therein, the form of each Agreement, and
originals or copies of such other corporate minutes, records, agreements and
other instruments of the Company, certificates of public officials and other
documents and have made such examinations of law, as we have deemed necessary to
form the basis for the opinions hereinafter expressed. In our examination of
such materials, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to such opinion, we have relied, to the extent we deemed
appropriate, upon representations, statements and certificates of officers and
representatives of the Company, the
<PAGE> 2
Avco ABS Receivables Corp.
June 18, 1998
Page 2
Representative and others.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not express any opinion herein concerning
any law other than the federal laws of the United States of America, the laws of
the State of New York and the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes have
been authorized by all necessary corporate action of the Company in accordance
with the provisions of the related indenture, and when such Notes have been duly
executed and delivered, authenticated by the Trustee and sold as described in
the Registration Statement, assuming that the terms of such Notes are otherwise
in compliance with applicable law at such time, such Notes will constitute valid
and binding obligations of the issuer thereof in accordance with their terms and
the terms of such indenture. This opinion is subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and we express no opinion with respect to the application of
equitable principles or remedies in any proceeding, whether at law or in equity.
2. When the issuance, execution and delivery of each Series of
Certificates have been authorized by all necessary corporate action of the
Company in accordance with the provisions of the related Agreement or
Agreements, and when such Certificates have been duly executed and delivered,
authenticated by the Trustee and sold as described in the Registration
Statement, assuming that the terms of such Certificates are otherwise in
compliance with applicable law at such time, such Certificates will be legally
issued, fully paid and non-assessable.
3. The statements set forth in the Prospectus under the heading "Federal
Income Tax Consequences," to the extent they constitute matters of law or legal
conclusions with respect thereto, are correct.
<PAGE> 3
Avco ABS Receivables Corp.
June 18, 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Federal Income Tax Consequences" and "Legal Matters" in the prospectus which
forms a part of the Registration Statement. In giving such consent, we do not
admit hereby that we come within the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
<PAGE> 1
Exhibit 10.1
================================================================================
AVCO ABS RECEIVABLES CORP.,
as Seller,
and
AVCO FINANCIAL SERVICES MANAGEMENT COMPANY,
as Master Servicer,
and
AVCO FINANCIAL SERVICES, INC.,
as Representative,
and
AVCO HOME EQUITY LOAN TRUST 199_-_,
as Issuer
and
THE ORIGINATORS LISTED HEREIN
-----------------------
FORM OF SALE AND SERVICING AGREEMENT
Dated as of ________________
----------------------
Home Equity Loan Asset-Backed Certificates
Series 199_-_
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions...................................................................... 1
SECTION 1.2. Other Definitional Provisions.................................................... 18
SECTION 1.3. Interest Calculations............................................................ 19
ARTICLE II
CONVEYANCE OF HOME EQUITY LOANS
SECTION 2.1. Conveyance of Home Equity Loans.................................................. 19
SECTION 2.2. Acceptance by Trustee............................................................ 22
SECTION 2.3. Reserved......................................................................... 22
SECTION 2.4. Representations and Warranties of the Originators Regarding the Home
Equity Loans................................................................... 22
SECTION 2.5. Substitution of Home Equity Loans................................................ 30
ARTICLE III
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
SECTION 3.1. Duties of Master Servicer........................................................ 31
SECTION 3.2. Collection and Allocation of Home Equity Loan Payments........................... 32
SECTION 3.3. Withdrawals from each Collection Account......................................... 33
SECTION 3.4. Reserved......................................................................... 34
SECTION 3.4. Reserved......................................................................... 34
SECTION 3.4. Reserved......................................................................... 34
SECTION 3.7. Management and Realization Upon Defaulted Home Equity Loans...................... 34
SECTION 3.8. Trustee to Cooperate............................................................. 34
SECTION 3.9. Servicing Fee.................................................................... 35
SECTION 3.10. Master Servicer's Certificate.................................................... 35
SECTION 3.11 Annual Statement as to Compliance; Notice of Default............................. 36
SECTION 3.12. Annual Independent Certified Public Accountants' Report.......................... 36
SECTION 3.13. Access to Certain Documentation and Information Regarding Home Equity Loans...... 36
SECTION 3.14. Master Servicer Expenses......................................................... 37
SECTION 3.15. Advances by the Master Servicer.................................................. 37
SECTION 3.15. Optional Purchase of Defaulted Home Equity Loans................................. 37
SECTION 3.16. Superior Liens................................................................... 38
SECTION 3.17. Reserved......................................................................... 38
SECTION 3.18. Appointment of Subservicer....................................................... 38
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IV
DISTRIBUTIONS; RESERVE ACCOUNT; STATEMENTS TO
CERTIFICATEHOLDERS AND NOTEHOLDERS
SECTION 4.1. Establishment of Trust Accounts.................................................. 39
SECTION 4.2. Reserved......................................................................... 41
SECTION 4.3. Application of Collections....................................................... 41
SECTION 4.4. Additional Deposits.............................................................. 41
SECTION 4.5. Distributions.................................................................... 42
SECTION 4.6. Reserve Account.................................................................. 43
SECTION 4.7. Reserved......................................................................... 43
SECTION 4.8 Statements to Certificateholders and Noteholders................................. 43
SECTION 4.9. Net Deposits..................................................................... 44
ARTICLE V
THE SELLER, THE REPRESENTATIVE AND THE ORIGINATORS
SECTION 5.1. Representations of Seller........................................................ 44
SECTION 5.2. Corporate Existence.............................................................. 45
SECTION 5.3 Liability of Seller; Indemnities................................................. 45
SECTION 5.4. Merger or Consolidation of, or Assumption of the Obligations of, Seller.......... 46
SECTION 5.5. Limitation on Liability of Seller and Others..................................... 47
SECTION 5.6. Seller May Own Certificates or Notes............................................. 47
SECTION 5.6. Representations and Warranties Regarding the Representative and the
Originators.................................................................... 47
ARTICLE VI
THE MASTER SERVICER
SECTION 6.1. Representations of Master Servicer............................................... 52
SECTION 6.2. Indemnities of Master Servicer................................................... 55
SECTION 6.3. Merger or Consolidation of, or Assumption of the Obligations of, Master
Servicer......................................................................... 55
SECTION 6.4. Limitation on Liability of Master Servicer and Others............................ 56
SECTION 6.5. Avco Financial Services Management Company Not To Resign as Master Servicer...... 56
ARTICLE VII
DEFAULT
SECTION 7.1. Master Servicer Default.......................................................... 57
SECTION 7.2. Appointment of Successor......................................................... 58
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 7.3. Payment of Servicing Fee......................................................... 59
SECTION 7.4. Notification to Noteholders and Certificateholders............................... 59
SECTION 7.5. Waiver of Past Defaults.......................................................... 59
ARTICLE VIII
TERMINATION
SECTION 8.1. Optional Purchase of All Home Equity Loans....................................... 59
ARTICLE IX
ADMINISTRATIVE DUTIES OF THE MASTER SERVICER
SECTION 9.1. Administrative Duties............................................................ 60
SECTION 9.2. Records.......................................................................... 62
SECTION 9.3. Additional Information To Be Furnished to the Issuer............................. 62
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Amendment........................................................................ 63
SECTION 10.2. Protection of Title to Trust..................................................... 63
SECTION 10.3. Notices.......................................................................... 65
SECTION 10.4. Assignment....................................................................... 66
SECTION 10.5. Limitations on Rights of Others.................................................. 66
SECTION 10.6. Severability..................................................................... 66
SECTION 10.7. Separate Counterparts............................................................ 66
SECTION 10.8. Headings......................................................................... 66
SECTION 10.9. Governing Law.................................................................... 66
SECTION 10.10. Assignment to Trustee............................................................ 66
SECTION 10.11. Nonpetition Covenant............................................................. 67
SECTION 10.12. Limitation of Liability of Owner Trustee and Trustee............................. 67
SECTION 10.13. Independence of the Master Servicer.............................................. 67
SECTION 10.14. No Joint Venture................................................................. 67
</TABLE>
-iii-
<PAGE> 5
SALE AND SERVICING AGREEMENT dated as of _________________, 199 , among
Avco Home Equity Loan Trust 199_-_, a Delaware business trust (the "Issuer"),
Avco ABS Receivables Corp., as Seller (the "Seller"), Avco Financial Services
Management Company, as Master Servicer (the "Master Servicer"), Avco Financial
Services, Inc., as Representative (the "Representative") and the entities listed
on Exhibit D hereto (collectively, the "Originators").
WHEREAS, the Issuer desires to purchase a portfolio of mortgage loans
from the Seller; and
WHEREAS, the Master Servicer is willing to service such mortgage loans.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Accrual Period" means as to any Simple Interest Loan and Monthly Payment,
the period commencing from and after the date through which interest was last
paid up to but excluding the date of receipt of such Monthly Payment. As to any
Actuarial Loan and Monthly Payment, the period from and including a Due Date for
such Actuarial Loan to but excluding the succeeding Due Date.
"Actuarial Loan" means a Home Equity Loan for which the relative
application of each Monthly Payment to interest and principal is based on the
period between Due Dates and not on the timing of receipt of such Monthly
Payment.
"Aggregate Net Losses" means with respect to a Due Period, the aggregate
principal balance of all Home Equity Loans newly designated during such Due
Period as Liquidated Home Equity Loans minus Liquidation Proceeds collected
during such Due Period with respect to all Liquidated Home Equity Loans.
"Agreement" means this Sale and Servicing Agreement, as the same may be
amended and supplemented from time to time.
"ARM" means a Home Equity Loan which is serviced as an Actuarial Loan and
the Mortgage Rate of which is subject to adjustment on each Change Date by
reference to the Index, subject to rounding and the Periodic Cap, the applicable
Lifetime Cap and the applicable Lifetime Floor.
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"Assignment of Mortgage" means, with respect to any Mortgage, an
assignment, notice of transfer or equivalent instrument, in recordable form,
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect the sale of the Mortgage to the Issuer, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Home Equity Loans secured by
Mortgaged Properties located in the same jurisdiction.
"Available Principal" means with respect to any Distribution Date, the sum
of the following amounts without duplication: (a) that portion of all
collections on the Home Equity Loans allocable to principal in respect of the
preceding Due Period; (b) Liquidation Proceeds attributable to the principal
amount of Home Equity Loans which became Liquidated Home Equity Loans during the
preceding Due Period in accordance with the Master Servicer's customary
servicing procedures; and (c) to the extent attributable to principal, the
Purchase Price of each Home Equity Loan repurchased by the Seller or purchased
by the Master Servicer during the preceding Due Period; provided, however, that
in calculating the Available Principal, all payments and proceeds (including
Liquidation Proceeds) of any Home Equity Loans repurchased by the Seller or
purchased by the Master Servicer the Purchase Price of which has been included
in the Available Principal in a prior Due Period shall be excluded.
"Basic Documents" means the Certificate of Trust, the Trust Agreement, the
Indenture, the Depository Agreements and other documents and certificates
delivered in connection therewith.
"Business Day" means any day other than (i) a Saturday or a Sunday or (ii)
a day on which banking institutions in New York City or the city in which the
corporate trust office of the Trustee under this Agreement is located are
authorized or obligated by law or executive order to close.
"Certificate" means a Trust Certificate (as defined in the Trust
Agreement).
"Certificate Balance" equals, initially, $_______________ and, thereafter,
equals the initial Certificate Balance, reduced by all amounts allocable to
principal previously distributed to Certificateholders.
"Certificate Distribution Account" has the meaning assigned to such term
in the Trust Agreement.
"Certificate Rate" means __% per annum.
"Certificateholder" has the meaning assigned to such term in the Trust
Agreement.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Interest Distributable
Amount and the Certificateholders' Principal Distributable Amount.
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"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest at the Certificate Rate that is
actually deposited in the Certificate Distribution Account on such preceding
Distribution Date, plus interest on such excess, to the extent permitted by law,
at the Certificate Rate from and including such preceding Distribution Date to
but excluding the current Distribution Date.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, 30 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Closing Date to
but excluding such Distribution Date) at the Certificate Rate on the Certificate
Balance on the immediately preceding Distribution Date, after giving effect to
all payments of principal to the Certificateholders on or prior to such
Distribution Date (or, in the case of the first Distribution Date, the
Certificate Balance on the Closing Date).
"Certificateholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distribution Amount or, with respect to any Distribution Date on or
after the Distribution Date on which the outstanding principal balance of the
Class A Notes is reduced to zero, 100% of the Principal Distribution Amount
(less any amount required on the first such Distribution Date to reduce the
outstanding principal balance of the Class A Notes to zero, which shall be
deposited into the Note Distribution Account).
"Certificateholders' Percentage" means 100% minus the Noteholders'
Percentage.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders' Principal
Carryover Shortfall from the preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account on such current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with respect
to any Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Certificate
Final Scheduled Distribution Date, the principal required to be distributed to
Certificateholders will include the lesser of (a) any payments of principal due
and remaining unpaid on each Home Equity Loan in the Trust as of _________,
______ or (b) the portion of the amount that is
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necessary (after giving effect to the other amounts to be deposited in the
Certificate Distribution Account on such Distribution Date and allocable to
principal) to reduce the Certificate Balance to zero, in either case after
giving effect to any required distribution of the Noteholders' Principal
Distributable Amount to the Note Distribution Account. In addition, on any
Distribution Date on which, after giving effect to all distributions to the
Master Servicer, the Noteholders and the Certificateholders on such Distribution
Date, (i) the outstanding principal balance of the Notes is zero and (ii) the
amount on deposit in the Reserve Account is equal to or greater than the
Certificate Balance, Certificateholders' Principal Distributable Amount shall
include an amount equal to such Certificate Balance.
"Change Date" means the date on which the Mortgage Rate of each ARM is
subject to adjustment, which date is the Due Date set forth in the related
Mortgage Note and every twelfth Due Date thereafter.
"Charge-off Rate" means, with respect to a Due Period, the Aggregate Net
Losses with respect to the Home Equity Loans expressed, on an annualized basis,
as a percentage of the average of (x) the Pool Balance on the last day of the
immediately preceding Due Period and (y) the Pool Balance on the last day in
such Due Period.
"Civil Relief Act" means the Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"Closing Date" means _________, 199__.
"Collection Account" means the account designated as such, established and
maintained pursuant to Section 3.2(c).
"Cutoff Date" means __________, 199__.
"Cutoff Date Principal Balance" means with respect to any Home Equity
Loan, the unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to an Eligible Substitute Home
Equity Loan pursuant to Section 2.2 or 2.4).
"Debt Service Reduction" means with respect to any Home Equity Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Home Equity Loan.
"Defective Home Equity Loan" means any Home Equity Loan subject to
repurchase or substitution pursuant to Section 2.2 or 2.4.
"Delinquency Percentage" means, with respect to a Due Period, the ratio of
(a) the outstanding principal balance of all outstanding Home Equity Loans 60
days or more delinquent (which amount shall include Home Equity Loans in respect
of Mortgaged Properties that have been repossessed but not yet sold or otherwise
liquidated) as of the last day of such Due Period, determined in accordance with
the Master Servicer's normal practices, divided by (b) the outstanding principal
balance of all Home Equity Loans on the last day of such Due Period.
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"Delivery" when used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9.105(1)(i) of the UCC and are
susceptible of physical delivery, transfer thereof to the Trustee or its nominee
or custodian by physical delivery to the Trustee or its nominee or custodian
endorsed to, or registered in the name of, the Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of such
certificated security endorsed to, or registered in the name of, the Trustee or
its nominee or custodian or endorsed in blank to a financial intermediary (as
defined in Section 8-313 of the UCC) and the making by such financial
intermediary of entries on its books and records identifying such certificated
securities as belonging to the Trustee or its nominee or custodian and the
sending by such financial intermediary of a confirmation of the purchase of such
certificated security by the Trustee or its nominee or custodian, or (ii) by
delivery thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate entries on
its books reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial intermediary by the
amount of such certificated security, the identification by the clearing
corporation of the certificated securities for the sole and exclusive account of
the financial intermediary, the maintenance of such certificated securities by
such clearing corporation or a "custodian bank" (as defined in Section 8-102(4)
of the UCC) or the nominee of either subject to the clearing corporation's
exclusive control, the sending of a confirmation by the financial intermediary
of the purchase by the Trustee or its nominee or custodian of such securities
and the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the name of
the Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property to the Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury,
FHLMC or by FNMA that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations, the following procedures, all
in accordance with applicable law, including applicable Federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such Trust Account
Property to an appropriate book-entry account maintained with a Federal Reserve
Bank by a financial intermediary which is also a "depository" pursuant to
applicable Federal regulations and issuance by such financial intermediary of a
deposit advice or other written confirmation of such book-entry registration to
the Trustee or its nominee or custodian of the purchase by the Trustee or its
nominee or custodian of such book-entry securities; the making by such financial
intermediary of entries in its books and records identifying such book-entry
security held through the Federal Reserve System pursuant to Federal book-entry
regulations as belonging to the Trustee or its nominee or custodian and
indicating that such custodian holds
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such Trust Account Property solely as agent for the Trustee or its nominee or
custodian; and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust Account
Property to the Trustee or its nominee or custodian, consistent with changes in
applicable law or regulations or the interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed by
clause (b) above, registration on the books and records of the issuer thereof in
the name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Trustee or its nominee or
custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such uncertificated
certificates as belonging to the Trustee or its nominee or custodian.
"Depository Agreements" mean the Certificate Depository Agreement and
the Note Depository Agreement.
"Determination Date" means, with respect to any Distribution Date, the
fourth Business Day prior to each Distribution Date.
"Distribution Date" means, with respect to each Due Period, the ______ day
of the following month, or if such day is not a Business Day, the immediately
following Business Day, commencing on _______________, 199___.
"Due Period" means a calendar month, except with respect to the first Due
Period, which shall be the period from the Cutoff Date to ______________, 199__.
Any amount stated "as of the close of business on the last day of a Due Period"
shall give effect to the following calculations as determined as of the end of
the day on such last day: (1) all applications of collections and (2) all
distributions to be made on the immediately following Distribution Date.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution (other than the Seller or any affiliate
of the Seller) organized under the laws of the United States of America or any
one of the states thereof or the District of Columbia (or any domestic branch of
a foreign bank), having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such depository
institution have a credit rating from each Rating Agency in one of its generic
rating categories which signifies investment grade.
"Eligible Institution" means a depository institution (other than the
Seller or any affiliate of the Seller) organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), which (i) has (A) either a long-term
senior unsecured debt rating of AAA or a short-term senior unsecured debt or
certificate of deposit rating of A-l+ or better by Standard & Poor's and (B)(1)
a long-term senior unsecured debt rating of Al or better and (2) a short-term
senior unsecured debt rating of Pl or
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better by Moody's, or any other long-term, short-term or certificate of deposit
rating acceptable to the Rating Agencies and (ii) whose deposits are insured by
the Federal Deposit Insurance Corporation. If so qualified, the Owner Trustee or
the Trustee may be considered an Eligible Institution.
"Eligible Investments" mean book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution (including the Seller or any Affiliate of the Seller) or
trust company incorporated under the laws of the United States of America or any
state thereof or the District of Columbia (or any domestic branch of a foreign
bank) and subject to supervision and examination by Federal or state banking or
depository institution authorities (including depository receipts issued by any
such institution or trust company as custodian with respect to any obligation
referred to in clause (a) above or portion of such obligation for the benefit of
the holders of such depository receipts); provided, however, that at the time of
the investment or contractual commitment to invest therein (which shall be
deemed to be made again each time funds are reinvested following each
Distribution Date), the commercial paper or other short-term senior unsecured
debt obligations (other than such obligations the rating of which is based on
the credit of a Person other than such depository institution or trust company)
of such depository institution or trust company shall have a credit rating from
Standard & Poor's of A-1+ and from Moody's of P1;
(c) commercial paper (including commercial paper of the Seller or
any Affiliate of the Seller) having, at the time of the investment or
contractual commitment to invest therein, a rating from Standard & Poor's of
A-1+ and from Moody's of P1;
(d) investments in money market funds (including funds for which the
Seller, the Trustee or the Owner Trustee or any of their respective Affiliates
is investment manager or advisor) having a rating from Standard & Poor's of
AAA-m or AAAm-G and from Moody's of Aaa;
(e) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America or
any agency or instrumentality thereof the obligations of which are backed by the
full faith and credit of the United States of America, in either case entered
into with a depository institution or trust company (acting as principal)
referred to in clause (b) above; and
(g) any other investment which would not cause either Rating Agency
to downgrade or withdraw its then current rating of any class of Notes or the
Certificates.
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"Eligible Substitute Home Equity Loan" means a Home Equity Loan
substituted by the Seller for a Defective Home Equity Loan which must, on the
date of such substitution, (i) have an outstanding Principal Balance not in
excess of and not more than ___% less than the Principal Balance of the
Defective Home Equity Loan; (ii) have a current Mortgage Rate not less than the
Mortgage Rate of the Defective Home Equity Loan and not more than ___% in excess
of the Mortgage Rate of such Defective Home Equity Loan; (iii) have a Mortgage
of the same or higher level of lien priority as the Mortgage relating to the
Defective Home Equity Loan at the time such Mortgage was transferred to the
Trust; (iv) have a remaining term to maturity not more than six months earlier
and not later than the remaining term to maturity of the Defective Home Equity
Loan; (v) comply with each representation and warranty set forth in Section 2.4
(deemed to be made as of the date of substitution); and (vi) have an original
Loan-to-Value Ratio not greater than that of the Defective Home Equity Loan;
(vii) be an ARM if the Defective Home Equity Loan was an ARM; and (viii) if an
ARM, use the same Index, have the same Periodic Cap, have a Lifetime Cap and a
Gross Margin no less than, those of the Defective Home Equity Loan.
"FHLMC" means Federal Home Loan Mortgage Corporation or any successor
thereto.
"Final Scheduled Distribution Date" means with respect to List Classe(s)
of Notes and their Respective Final Scheduled Distribution Dates.
"Final Scheduled Maturity Date" means ______________, _________.
"First Lien" means, with respect to any Home Equity Loan which is a second
priority lien, the mortgage loan relating to the corresponding Mortgaged
Property having a first priority lien.
"Fitch" means Fitch Investors Service, L.P., or its successors.
"FNMA" means Federal National Mortgage Association or any successor
thereto.
"Foreclosure Profits" means, with respect to a Liquidated Home Equity
Loan, the amount, if any, by which (i) the aggregate of the related Net
Liquidation Proceeds exceeds (ii) the related Principal Balance (plus accrued
and unpaid interest thereon at the applicable Mortgage Rate from the date
interest was last paid through the date of receipt of the final Liquidation
Proceeds) of such Liquidated Home Equity Loan immediately prior to the final
recovery of its Liquidation Proceeds.
"Gross Margin" means, with respect to each ARM, the number of basis points
set forth in the related Mortgage Note which is added to the Index to determine
the Mortgage Rate on the related Change Date, subject to rounding and the
Periodic Cap and the applicable Lifetime Cap and the applicable Lifetime Floor.
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"Home Equity Loan" means a mortgage loan transferred and assigned to the
Trustee pursuant to Section 2.1 or Section 2.4 and held as a part of the Trust,
as identified in the Home Equity Loan Schedule.
"Home Equity Loan Schedule" means with respect to any date, the schedule
of Home Equity Loans included in the Trust on such date. The initial schedule of
Home Equity Loans as of the Cutoff Date is the schedule set forth herein as
Exhibit A, which schedule sets forth as to each Home Equity Loan (i) the Cut-Off
Date Principal Balance, (ii) the account number, (iii) the original principal
amount, (iv) the Loan-to-Value Ratio as of the date of the origination of the
related Home Equity Loan, (v) the Due Date, (vi) the current Mortgage Rate,
(vii) the first date on which a Monthly Payment is due under the Mortgage Note,
(viii) the original stated maturity date of the Mortgage Note, (ix) the
remaining number of months to maturity as of the Cutoff Date, (x) the State in
which the related Mortgaged Property is situated, (xi) the type of property,
(xii) the lien status, (xiii) a code indicating whether the Home Equity Loan is
an ARM, and (xiv) for each ARM, the Gross Margin and the Mortgage Rate at
origination.
"Indenture" means the Indenture dated as of ________________, 199_,
between the Issuer and the Trustee, as the same may be amended and supplemented
from time to time.
"Index" means the weekly average yield on United States Treasury
securities adjusted to a constant maturity of one year, as made available by the
Federal Reserve Board and most recently available as of the date --days before
each Change Date.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver
(including any receiver appointed under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended), liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the consent by
such Person to the entry of an order for relief in an involuntary case under any
such law, or the consent by such Person to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for such Person or for any substantial part of its property,
or the making by such Person of any general assignment for the benefit of
creditors, or the failure by such Person generally to pay its debts as such
debts become due, or the taking of action by such Person in furtherance of any
of the foregoing.
"Insurance Proceeds" means proceeds paid by any insurer pursuant to any
insurance policy covering a Home Equity Loan, or amounts required to be paid by
the Master Servicer pursuant to Section 3.5, net of any component thereof (i)
covering any expenses incurred by or on behalf of the Master Servicer in
connection with obtaining such proceeds, (ii) that is applied
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to the restoration or repair of the related Mortgaged Property, (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Home Equity Loan.
"Interest Distribution Amount" means, with respect to any Distribution
Date, the sum of the following amounts without duplication: (a) that portion of
all collections on the Home Equity Loans allocable to interest in respect of the
preceding Due Period; (b) Liquidation Proceeds attributable to interest on the
Home Equity Loans which became Liquidated Home Equity Loans during the preceding
Due Period in accordance with the Master Servicer's customary servicing
procedures; (c) the Purchase Price of each Home Equity Loan that became a
Purchased Home Equity Loan during the preceding Due Period to the extent
attributable to accrued interest on such Home Equity Loan; (d) Recoveries for
such Due Period and (e) Investment Earnings for such Distribution Date;
provided, however, that in calculating the Interest Distribution Amount, all
payments and proceeds (including Liquidation Proceeds) of any Purchased Home
Equity Loans the Purchase Price of which has been included in the Interest
Distribution Amount in a prior Due Period shall be excluded.
"Investment Earnings" means, with respect to any Distribution Date, the
investment earnings (net of losses and investment expenses) on amounts on
deposit in the Trust Accounts and the Certificate Distribution Account to be
deposited into the Collection Account on such Distribution Date pursuant to
Section 4.1(b).
"Issuer" means Avco Home Equity Loan Trust 199_-_.
"Lien" means a security interest, lien, charge, pledge or encumbrance of
any kind, other than tax liens, mechanics' liens and any liens which attach to
the respective Home Equity Loan by operation of law as a result of any act or
omission by the related Mortgagor.
"Lifetime Cap" means the provision in the Mortgage Note for each ARM which
limits the maximum Mortgage Rate over the life of such ARM to __ basis points
greater than the Mortgage Rate on the date of origination of such ARM.
"Lifetime Floor" means the provision in the Mortgage Note for each ARM
which limits the minimum Mortgage Rate over the life of such ARM to the Mortgage
Rate on the date of origination of such ARM.
"Liquidated Home Equity Loan" means, as to any Distribution Date, any Home
Equity Loan with respect to which the Master Servicer has determined, in
accordance with the servicing procedures specified herein, as of the end of the
related Due Period that all Liquidation Proceeds which it expects to recover
with respect to the liquidation of the Home Equity Loan or disposition of the
related REO Property have been recovered.
"Liquidation Proceeds" means proceeds (including Insurance Proceeds)
received in connection with the liquidation of any Home Equity Loan or related
REO Property, whether through trustee's sale, foreclosure sale or otherwise.
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"Loan-to-Value Ratio" means the fraction, expressed as a percentage, the
numerator of which is the original principal balance of the related Home Equity
Loan and the denominator of which is the Original Value of the related Mortgaged
Property.
"Monthly Advance" means an advance made by the Master Servicer pursuant to
Section 3.15 hereof.
"Monthly Payment" means the scheduled monthly payment of principal and/or
interest required to be made by a Mortgagor on the related Home Equity Loan.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Mortgage" means the mortgage, deed of trust or other instrument creating
a first or second lien on an estate in fee simple interest in real property
securing a Home Equity Loan.
"Mortgage File" means the mortgage documents listed in Section 2.1(b)
pertaining to a particular Home Equity Loan and any additional documents
required to be added to the Mortgage File pursuant to this Agreement.
"Mortgage Note" means the originally executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under the related Home
Equity Loan.
"Mortgaged Property" means the land and improvements securing the
indebtedness of a Mortgagor under the related Home Equity Loan.
"Mortgagor" means the obligor or obligors on a Mortgage Note.
"Net Liquidation Proceeds" means, with respect to any Liquidated Home
Equity Loan, Liquidation Proceeds net of unreimbursed Servicing Fees,
unreimbursed Servicing Advances and Monthly Advances with respect thereto.
"Net Rate" means, with respect to any Home Equity Loan as to any day, the
Mortgage Rate less the related Servicing Fee Rate.
"Nonrecoverable Advances" means, with respect to any Home Equity Loan, (i)
any Monthly Advance previously made and not reimbursed pursuant to Section
3.2(c) or 3.3(ii), or (ii) a Servicing Advance or Monthly Advance proposed to be
made in respect of a Home Equity Loan or REO Property which, in the good faith
business judgment of the Master Servicer, will not or, in the case of a proposed
advance, would not be ultimately recoverable pursuant to Sections 3.2(c) or
3.3(ii).
"Note Distribution Account" means the account designated as such,
established and maintained pursuant to Section 4.1.
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"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Distribution Date and any outstanding Noteholders'
Interest Carryover Shortfall on such preceding Distribution Date, over the
amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus interest on the
amount of interest due but not paid to Noteholders on the preceding Distribution
Date, to the extent permitted by law, at the respective Interest Rate borne by
each class of Notes from such preceding Distribution Date through the current
Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carryover
Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect
to any Distribution Date, the product of (i)(A) in the case of the Class
A-Notes, the product of the Interest Rate for such class and a fraction, the
numerator of which is the number of days elapsed from and including the prior
Distribution Date (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding such Distribution Date and the
denominator of which is ___________ and (B) in the case of each other class of
Notes, of the Interest Rate for such class (or, in the case of the first
Distribution Date, the Interest Rate for such class multiplied by a fraction,
the numerator of which is the number of days elapsed from and including the
Closing Date to but excluding such Distribution Date and the denominator of
which is ____________) and (ii) the outstanding principal balance of the Notes
of such class on the immediately preceding Distribution Date, after giving
effect to all distributions of principal to Noteholders of such class on such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date).
"Noteholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Noteholders' Percentage of the
Principal Distribution Amount.
"Noteholders' Percentage" means 100% until the point in time at which List
Class(es) of Notes have been paid in full and zero thereafter.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholder's Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding
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Distribution Date; provided, however, that the Noteholders' Principal
Distributable Amount shall not exceed the outstanding principal balance of the
Notes. In addition, on the Final Scheduled Distribution Date of each class of
Notes, the principal required to be deposited in the Note Distribution Account
will include the amount necessary (after giving effect to the other amounts to
be deposited in the Note Distribution Account on such Distribution Date and
allocable to principal) to reduce the Outstanding Amount of such class of Notes
to zero.
"Officers' Certificate" means a certificate signed by (a) the chairman of
the board, the president, the vice chairman of the board, any executive vice
president, any senior vice president or any vice president and (b) a cashier,
assistant cashier, secretary or assistant secretary of the Seller or the Master
Servicer, as appropriate, provided that no one person may sign in a capacity
fulfilling both clause (a) and clause (b).
"Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to the Seller or the Master Servicer, which counsel
shall be acceptable to the Trustee, the Owner Trustee or the Rating Agencies, as
applicable. "Original Pool Balance" means the Pool Balance as of the Cutoff Date
which is $_____________.
"Original Value" means the value of the Mortgaged Property at the time of
origination of the related Home Equity Loan, such value being the lower of the
value of such property set forth in an appraisal acceptable to the originator of
the Home Equity Loan or the sales price of such property at the time of
origination or, in the case of a refinancing, the value of such property set
forth in an appraisal acceptable to the originator.
"Owner Trust Estate" has the meaning assigned to such term in the Trust
Agreement.
"Owner Trustee" means, not in its individual capacity but solely as Owner
Trustee under the Trust Agreement, its successors in interest or any successor
Owner Trustee under the Trust Agreement.
"Payahead" on a Actuarial Home Equity Loan means the amount, as of the
close of business on the last day of a Due Period, computed in accordance with
Section 4.3 with respect to such Home Equity Loan.
"Payahead Account" means the account designated as such, established and
maintained pursuant to Section 4.1(d)(ii).
"Payahead Balance" on a Actuarial Home Equity Loan means the sum, as of
the close of business on the last day of a Due Period, of all Payaheads made by
or on behalf of the Mortgagor with respect to such Actuarial Home Equity Loan,
as reduced by applications of previous Payaheads with respect to such Actuarial
Home Equity Loan, pursuant to Sections 4.3 and 4.4.
"Periodic Cap" means the provision in the Mortgage Note for each ARM which
limits increases or decreases in the Mortgage Rate on each Change Date to basis
points.
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"Person" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term in the
definition of "Delivery" above.
"Pool Balance" as of the close of business on the last day of a Due Period
means the aggregate Principal Balance of the Home Equity Loans (excluding
Purchased Home Equity Loans and Liquidated Home Equity Loans).
"Primary Mortgage Insurance Policy" means the certificate of primary
mortgage insurance relating to a particular Home Equity Loan, or any replacement
policy therefor.
"Principal Balance" means as to any Home Equity Loan other than a
Liquidated Home Equity Loan and any day, the related Cut-Off Date Principal
Balance (or unpaid principal balance as of the date of substitution), minus all
collections credited against the Principal Balance of any such Home Equity Loan.
For purposes of this definition, a Liquidated Home Equity Loan shall be deemed
to have a Principal Balance equal to the Principal Balance of the related Home
Equity Loan immediately prior to the final recovery of related Liquidation
Proceeds and a Principal Balance of zero thereafter.
"Principal Distribution Amount" means, with respect to any Distribution
Date, the sum of the following amounts, without duplication, in respect of the
preceding Due Period: (a) that portion of all collections on Home Equity Loans
(including, with respect to Actuarial Loans, amounts withdrawn from the Payahead
Account but excluding amounts deposited into the Payahead Account) allocable to
principal, (b) Liquidation Proceeds attributable to the principal amount of Home
Equity Loans which became Liquidated Home Equity Loans during such Due Period in
accordance with the Master Servicer's customary servicing procedures, plus the
amount of Realized Losses with respect to such Liquidated Home Equity Loans, (c)
to the extent attributable to principal, the Purchase Price of each Home Equity
Loan that became a Purchased Home Equity Loan during such Due Period and (d) on
the Final Scheduled Distribution Date for the Certificates, any amounts advanced
by the Master Servicer on such Final Scheduled Distribution Date with respect to
principal on the Home Equity Loans; provided, however, that in calculating the
Principal Distribution Amount the following will be excluded: (i) amounts
received on Actuarial Home Equity Loans to the extent that the Master Servicer
has previously made an unreimbursed Precomputed Advance of principal, (ii)
Liquidation Proceeds with respect to a particular Actuarial Home Equity Loan to
the extent of any unreimbursed Precomputed Advances of principal, (iii) all
payments and proceeds (including Liquidation Proceeds) of any Purchased Home
Equity Loans the Purchase Price of which has been included in the Principal
Distribution Amount in a prior Due Period and (iv) Recoveries.
"Purchase Price" means as to any Defective Home Equity Loan repurchased on
any date pursuant to Sections 2.2 or 2.4, an amount equal to the sum of (i) the
unpaid Principal Balance
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thereof, (ii) the greater of (a) all unpaid accrued interest thereon and (b)
days' interest thereon, computed at the applicable Mortgage Rate and (iii) any
unreimbursed Servicing Advances with respect to such Home Equity Loan; provided,
however, that if at the time of repurchase the Seller or an Affiliate is the
Master Servicer, the amount described in clause (ii) shall be computed at the
Net Rate.
"Purchased Home Equity Loan" means a Home Equity Loan purchased as of the
close of business on the last day of a Due Period by the Master Servicer
pursuant to Section 3.16 or repurchased by the Seller, an Originator or the
Representative pursuant to Section 2.2.
"Rating Agency" means ______, _________, ______ and/or any other rating
agency requested by the Seller or an affiliate thereof to rate the Notes and/or
the Certificates. If no such organization or successor is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by the Seller, notice of
which designation shall be given to the Trustee, the Owner Trustee and the
Master Servicer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days' prior notice thereof (or such
shorter period as shall be acceptable to the Rating Agencies) and that neither
of the Rating Agencies shall have notified the Seller, the Master Servicer, the
Owner Trustee or the Trustee in writing that such action will, in and of itself,
result in a reduction or withdrawal of the then current rating of any class of
Notes, or the Certificates.
"Realized Losses" means the excess of the Principal Balance of any
Liquidated Home Equity Loan over Liquidation Proceeds to the extent allocable to
principal.
"Recoveries" means, with respect to any Liquidated Home Equity Loan,
monies collected in respect thereof, from whatever source, during any Due Period
following the Due Period in which such Home Equity Loan became a Liquidated Home
Equity Loan, net of the sum of any amounts expended by the Master Servicer for
the account of the Mortgagor and any amounts required by law to be remitted to
the Mortgagor.
"REO Property" means a Mortgaged Property that is acquired by the Master
Servicer on behalf of the Trustee in foreclosure or by deed-in-lieu of
foreclosure.
"Released Mortgaged Property Proceeds" means, as to any Home Equity 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,
mortgage servicing standards the Master Servicer would use in servicing mortgage
loans for its own account and this Agreement.
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"Reserve Account" means the account designated as such, established and
maintained pursuant to Section 4.1.
"Reserve Account Initial Deposit" means, with respect to the Closing Date,
$___________________.
"Reserve Account Transfer Amount" means an amount equal to the lesser of
(i) the amount of cash or other immediately available funds on deposit in the
Reserve Account on such Distribution Date (before giving effect to any
withdrawals therefrom relating to such Distribution Date) or (ii) the amount, if
any, by which (x) the sum of the Total Servicing Fee, the Noteholders' Interest
Distributable Amount, the Certificateholders' Interest Distributable Amount, the
Noteholders' Principal Distributable Amount and the: _________________
Certificateholders' Principal Distributable Amount for such Distribution Date
exceeds (y) the sum of the Interest Distribution Amount and the Available
Principal for such Distribution Date.
"Seller" means Avco ABS Receivables Corp., as the seller of the Home
Equity Loans, and each successor to Avco ABS Receivables Corp.(in the same
capacity) to the extent permitted hereunder.
"Master Servicer" means Avco Financial Services Management Company, the
master servicer of the Home Equity Loans, and each successor to Avco Financial
Services Management Company, (in the same capacity) pursuant to Section 6.3 or
7.2.
"Master Servicer Default" means an event specified in Section 7.1.
"Master Servicer's Certificate" means an Officers' Certificate of the
Master Servicer delivered pursuant to Section 3.10, substantially in the form of
Exhibit D.
"Servicing Advances" means all reasonable and customary "out of pocket"
costs and expenses incurred in the performance by the Master Servicer of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, including reasonable fees paid
to any independent contractor in connection therewith, (iv) compliance with the
obligations under Sections 3.4, 3.7 or 3.19 and (v) in connection with the
liquidation of a Home Equity Loan, expenditures relating to the purchase or
maintenance of the First Lien pursuant to Section 3.17.
"Servicing Compensation" means the Servicing Fee, the Supplemental
Servicing Fee and any other amounts to which the Master Servicer is entitled
pursuant to Section 3.9.
"Servicing Fee" has the meaning specified in Section 3.9.
"Servicing Fee Rate" means __% per annum.
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"Simple Interest Loan" means any Home Equity Loan as to which, pursuant to
the Mortgage Note related thereto, interest is calculated on the basis of the
outstanding principal balance of the Home Equity Loan multiplied by the
applicable Mortgage Rate and further multiplied by a fraction, of which the
numerator is the number of days in the period elapsed since the date to which
interest was paid and the denominator is the number of days in the annual period
for which interest accrues on such Home Equity Loan, and the Monthly Payment
received is applied first to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance.
"Specified Reserve Account Balance" means, with respect to (i) any
Distribution Date prior to the Distribution Date on which the Outstanding Amount
of the Class A 1 Notes has been paid in full, $______________ and (ii) any
Distribution Date on or after the Distribution Date on which the Outstanding
Amount of the Class A Notes has been paid in full the greater of (a) ______% of
the sum of the aggregate outstanding principal amount of each class of Notes
plus the outstanding Certificate Balance on such Distribution Date (after giving
effect to all payments on the Notes and distributions with respect to the
Certificates to be made on such Distribution Date); or (b) ______% of the sum of
the aggregate initial principal of the Notes plus the initial Certificate
Balance except that, if on any Distribution Date (x) the average of the Charge
off Rates for the three preceding Due Periods exceeds ____% or (y) the average
of the Delinquency Percentages for the three preceding Due Periods exceeds
_____%, then the Specified Reserve Account Balance shall be an amount equal to
________% of the sum of the aggregate outstanding principal amount of each class
of Notes and the aggregate outstanding Certificate Balance on such Distribution
Date (after giving effect to all payments on the Notes and distributions with
respect to the Certificates to be made on such Distribution Date).
"Standard & Poor's" means Standard & Poor's Ratings Group, or its
successor.
"Supplemental Servicing Fee" means the fee payable to the Master Servicer
for certain services rendered during the respective Due Period, determined
pursuant to and defined in Section 3.9.
"Total Servicing Fee" means with respect to each Distribution Date the
Servicing Fee for the related Due Period and all accrued and unpaid Servicing
Fees for prior Due Periods.
"Total Distribution Amount" means, for each Distribution Date, the sum of
(i) the Interest Distribution Amount (ii) the Available Principal and (iii) the
Reserve Account Transfer Amount, in each case in respect of such Distribution
Date; provided, however, that if on the Class A-1 Final Scheduled Distribution
Date, the Total Distribution Amount (as defined above) would be insufficient to
pay the Total Servicing Fee, Noteholders' Interest Distributable Amount,
Certificateholders' Interest Distributable Amount and the Noteholders' Principal
Distributable Amount for such Distribution Date, then the Total Distribution
Amount for such Distribution Date will include, in addition to the Total
Distribution Amount (as defined above), an amount, up to the amount necessary to
pay any such items, of the Interest Distribution Amount and the Available
Principal on deposit (or, if the conditions specified in Section 3.2(c) have
been satisfied, that would have been required to have been deposited but for the
satisfaction of such
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conditions) in the Collection Account on the Determination Date relating to such
Class A-1 Final Scheduled Distribution Date which would have constituted the
Interest Distribution Amount or Available Principal, as the case may be, for the
Due Period relating to the succeeding Distribution Date and the Interest
Distribution Amount and Available Principal, as the case may be, for such
succeeding Distribution Date will be reduced accordingly.
"Transfer Date" means, with respect to any Distribution Date, the Business
Day preceding such Distribution Date.
"Trust" means the Issuer.
"Trust Account Property" means the Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit, and all
proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section 4.1.
"Trust Agreement" means the Trust Agreement dated as of _________,
_______, between the Seller and the Owner Trustee, as the same may be amended
and supplemented from time to time.
"Trust Officer" means, (i) in the case of the Trustee, any Officer within
the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary 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 matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject and (ii)
in the case of the Owner Trustee, any officer in the corporate trust office of
the Owner Trustee with direct responsibility for the administration of this
Agreement or any of the Basic Documents on behalf of the Owner Trustee.
"Trustee" means the Person acting as Trustee under the Indenture, its
successors in interest and any successor trustee under the Indenture.
SECTION 1.2. Other Definitional Provisions. (a) Capitalized terms used
herein and not otherwise defined herein have the meanings assigned to them in
the Indenture, or, if not defined therein, in the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(c) As used in this Agreement, in any instrument governed hereby and
in any certificate or other document made or delivered pursuant hereto or
thereto, accounting terms not
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defined in this Agreement or in any such instrument, certificate or other
document, and accounting terms partly defined in this Agreement or in any such
instrument, certificate or other document to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles as in effect on the date of this Agreement or any such instrument,
certificate or other document, as applicable. To the extent that the definitions
of accounting terms in this Agreement or in any such instrument, certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such instrument, certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
SECTION 1.3. Interest Calculations. All calculations of interest hereunder
that are made in respect of the Principal Balance of a Simple Interest Loan
shall be made on the basis of the actual number of days in an Accrual Period and
a year assumed to consist of 365 days. All calculations of interest in respect
of the Principal Balance of an Actuarial Loan or in respect of the Notes or the
Certificates shall be made on the basis of a 360-day year consisting of twelve
30-day months. The calculation of the Servicing Fee shall be made on the basis
of the actual number of days in an Accrual Period and a year assumed to consist
of 365 days.
ARTICLE II
Conveyance of Home Equity Loans
SECTION 2.1. Conveyance of Home Equity Loans. (a) In consideration of the
Issuer's delivery to or upon the order of the Seller on the Closing Date of the
net proceeds from the sale of the Notes and the Certificates and the other
amounts to be distributed from time to time to the Seller in accordance with the
terms of this Agreement, the Originators, concurrently with the execution and
delivery of this Agreement, hereby transfer, assign, set over and otherwise
convey to the Seller and the Seller does hereby transfer, assign, set over and
otherwise convey to the Issuer, without recourse (subject to the obligations
herein): (A) all right, title and interest of the Seller in and to the Home
Equity Loans, and all moneys received thereon, on or after the Cutoff Date; (B)
all right, title and interest of the Seller in the security interests in the
Mortgaged Properties granted by Mortgagors pursuant to the Home Equity Loans and
any other interest of the Seller in the Mortgaged Properties; (C) the interest
of the Seller in any proceeds with respect to the Home Equity Loans from claims
on any physical damage, theft, credit life or disability insurance policies
covering Mortgaged Properties or Mortgagors; (D) all right, title and interest
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in all funds on deposit from time to time in the Certificate Distribution
Account, in the Trust Accounts, including the Reserve Account Initial Deposit,
and in all investments and proceeds thereof (including all income thereon); and
(E) the proceeds of any and all of the foregoing. In connection with such
transfer, assignment and conveyance by the Originators to the Seller and by the
Seller to the Trust, the Seller shall deliver to, and deposit with the Trustee,
on or before the Closing Date, the following documents or instruments with
respect to each Home Equity Loan (the "Related Documents"):
(i) The original Mortgage Note, with all prior and intervening
endorsements showing a complete chain of endorsements from the originator
of the Home Equity Loan to the Person so endorsing the Home Equity Loan to
the Trustee, endorsed by such Person "Pay to the order of
______________________ without recourse" and signed, by facsimile or
manual signature, in the name of the Person delivering the Mortgage Note
by a Responsible Officer;
(ii) Any of: (1) the original Mortgage and related power of
attorney, if any, with evidence of recording thereon, (2) a copy of the
Mortgage and related power of attorney, if any, certified as a true copy
of the original Mortgage or power of attorney by a Responsible Officer by
facsimile or manual signature or by the closing attorney or by an officer
of the title insurer or agent of the title insurer that issued the related
title insurance policy, in each case, if the original has been transmitted
for recording until such time as the original is returned by the public
recording office or (3) a copy of the original recorded Mortgage and
related power of attorney, if any, certified by the public recording
office;
(iii) The original Assignment of Mortgage in recordable form, from
the Person delivering such Assignment to [Name of Trustee];
(iv) The original lender's policy of title insurance or a true copy
thereof or, if such original lender's title insurance policy has been
lost, a copy thereof certified by the appropriate title insurer to be true
and complete or, if such lender's title insurance policy has not been
issued as of the Closing Date, a marked up commitment (binder) to issue
such policy;
(v) All intervening assignments, if any, showing a complete chain of
assignments from the originator to the Person delivering such assignment,
including any recorded warehousing assignments, with evidence of recording
thereon, or a copy thereof certified by a Responsible Officer by facsimile
or manual signature, or by the closing attorney or by an officer of the
title insurer or agent of the title insurer that issued the related title
insurance policy, as a true copy of the original of such intervening
assignments if the original has been transmitted for recording until such
time as the original is returned by the public recording office or a copy
of the original recorded intervening assignments certified by the public
recording office;
(vi) Originals of all assumption, written assurance, substitution
and modification agreements, if any; and
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(vii) in the case of a Cooperative Loan, the originals of the
following documents or instruments:
(a) The Cooperative Shares, together with a stock power in
blank;
(b) The executed Security Agreement;
(c) The executed Proprietary Lease;
(d) The executed Recognition Agreement;
(e) The executed assignment of Recognition Agreement;
(f) The executed UCC-1 financing statement with evidence of
recording thereon which have been filed in all places required
to perfect the applicable Originator's interest in the
Cooperative Shares and the Proprietary Lease; and
(g) Executed UCC-3 financing statements or other appropriate UCC
financing statements required by state law, evidencing a
complete and unbroken line from the mortgagee to the Trustee
with evidence of recording thereon (or in a form suitable for
recordation).
(h) The Trustee agrees, for the benefit of the Noteholders and the
Certificateholders, within 90 days after execution and delivery of this
Agreement, to review the Mortgage Files to ascertain that all required documents
set forth in paragraphs (i) - (v) of Section 2.1(a) have been executed and
received, and that the Mortgage Notes have been endorsed as set forth in Section
2.1(a), and that such documents relate to the Home Equity Loans identified on
the Home Equity Loan Schedule and in so doing the Trustee may rely on the
purported due execution and genuineness of any signature thereon. If within such
90-day period the Trustee finds any document constituting a part of a Mortgage
File not to have been executed or received or to be unrelated to the Home Equity
Loans identified in said Home Equity Loan Schedule or, if in the course of its
review, the Trustee determines that such Mortgage File is otherwise defective in
any material respect, the Trustee shall promptly upon the conclusion of its
review notify the Seller, and the Seller shall have a period of 90 days after
such notice within which to correct or cure any such defect.
(i) The Trustee shall have no responsibility for reviewing any Mortgage
File except as expressly provided in Section 2.1(b). Without limiting the effect
of the preceding sentence, in reviewing any Mortgage File pursuant to such
subsection, the Trustee shall have no responsibility for determining whether any
document is valid and binding, whether the text of any assignment or endorsement
is in proper or recordable form (except, if applicable, to determine if the
Trustee is the assignee or endorsee), whether any document has been recorded in
accordance with the requirements of any applicable jurisdiction, or whether a
blanket assignment
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is permitted in any applicable jurisdiction, but shall only be required to
determine whether a document has been executed, that it appears to be what it
purports to be, and, where applicable, that it purports to be recorded, but
shall not be required to determine whether any Person executing any document is
authorized to do so or whether any signature thereon is genuine.
SECTION 2.2. Acceptance by Trustee. The Trustee hereby acknowledges,
subject to the review and period for delivery provided for in Section 2.1, its
receipt of the Mortgage Files, and declares that the Trustee holds and will hold
such documents and all amounts received by it thereunder and hereunder in trust,
upon the terms herein set forth, for the use and benefit of all present and
future Noteholders and Certificateholders. If the Seller is given notice under
Section 2.1(c) above and if the Seller does not correct or cure such omission or
defect within the 90-day period specified in Section 2.1(c) above, the Seller
shall substitute one or more Eligible Substitute Home Equity Loans therefor as
provided in Section 2.5 hereof or purchase such Home Equity Loan from the
Trustee on the Determination Date in the month following the month in which such
90-day period expired at the Purchase Price of such Home Equity Loan. The
Purchase Price for the purchased Home Equity Loan shall be deposited in the
Collection Account no later than the applicable Determination Date or the
Business Day preceding the expiration of such 90-day period, as the case may be,
and, upon receipt by the Trustee of written notification of such deposit signed
by an officer of the Seller, the Trustee shall release to the Seller the related
Mortgage File and the Trustee shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be necessary to
vest in the Seller or its designee any Home Equity Loan released pursuant
hereto. It is understood and agreed that the obligation of the Seller to cure,
substitute for or purchase any Home Equity Loan as to which a material defect in
or omission of a constituent document exists shall constitute the sole remedy
against the Seller respecting such defect or omission available to the Issuer,
the Owner Trustee, the Trustee, the Noteholders or the Certificateholders. The
Master Servicer, promptly following the transfer of (i) a Defective Home Equity
Loan from or (ii) an Eligible Substitute Home Equity Loan to the Trust pursuant
to this Section and Section 2.5, as the case may be, shall amend the Home Equity
Loan Schedule and make appropriate entries in its general account records to
reflect such transfer and the addition of any Eligible Substitute Home Equity
Loan, if applicable.
SECTION 2.3. Reserved
SECTION 2.4. Representations and Warranties of the Originators Regarding
the Home Equity Loans (a) Each Originator with respect to each Home Equity Loan
it has conveyed hereunder represents and warrants to the Trustee on behalf of
the Certificateholders as follows as of the Closing Date:
(i) The information set forth on the Home Equity Loan Schedule
relating to the Home Equity Loans is complete, true and correct as of the
Cut-Off Date;
(ii) The Mortgage Notes and the Mortgages have not been assigned or
pledged by the applicable Originator to any Person, and immediately prior
to the transfer and assignment of the Home Equity Loans by the Originators
to the Seller herein contemplated, the applicable Originator had good and
marketable title thereto, and was the sole owner and
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holder of the Home Equity Loans free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges, charges
or security interests of any nature (collectively, a "Lien"), other than
any such Lien released simultaneously with the sale contemplated herein,
and had full right and authority, subject to no interest or participation
of, or agreement with, any other party, to sell and assign the same
pursuant to this Agreement, and immediately upon the transfer and
assignment of the Home Equity Loans by the Originators to the Seller and
by the Seller to the Trustee on behalf of the Certificateholders as
contemplated herein, the Trustee will be the sole beneficial owner of,
each Home Equity Loan free and clear of any lien, claim, participation
interest, mortgage, security interest, pledge, charge or other encumbrance
or other interest of any nature;
(iii) Each Mortgage is a valid and existing lien on the property
therein described, and each Mortgaged Property is free and clear of all
encumbrances and liens having priority over the lien of the Mortgage,
except (i) liens for real estate taxes and special assessments not yet due
and payable, (ii) in the case of a Mortgaged Property that is a
condominium or an individual unit in a planned unit development, liens for
common charges permitted by statute, (iii) in the case of a Home Equity
Loan secured by a second lien on the related Mortgaged Property, the
related First Lien and (iv) easements, mineral rights and covenants,
conditions and restrictions of record. Any security agreement, chattel
mortgage or equivalent document related to the Mortgage and delivered to
the Trustee establishes in the applicable Originator a valid and
subsisting lien on the property described therein, and such Originator has
full right to sell and assign the same hereunder;
(iv) The terms of each Mortgage Note and Mortgage have not been
impaired, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary to protect the interests
of the Certificateholders and the Certificate Insurer, and which has been
delivered to the Trustee. The substance of any such alteration or
modification is reflected on the Home Equity Loan Schedule;
(v) No instrument of release or waiver has been executed in
connection with any Home Equity Loan, and no Mortgagor has been released,
in whole or in part, except in connection with an assumption agreement
which has been approved by the primary mortgage guaranty insurer, if any,
and which has been delivered to the Trustee [carve-out for sale of one of
multiple parcels];
(vi) Except with respect to delinquencies described in clause (xiii)
hereof, to the best of the Originator's knowledge, no Mortgagor is in
default in complying with the terms of its Mortgage Note or Mortgage, and
no Originator has waived any default, breach, violation or event of
acceleration except that an Originator may have accepted late payments,
and all taxes, governmental assessments, insurance premiums or water,
sewer and municipal charges which previously became due and owing have
been paid. No Originator has advanced funds or induced, solicited or
knowingly received any advance of funds by a party other than the
Mortgagor, directly or indirectly, for the payment of any amount required
by the Mortgage, except for interest accruing from the date of the
Mortgage Note or date of disbursement of the Mortgage proceeds, whichever
is more
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recent, to the day which precedes by one month the Due Date of the first
installment of principal and interest;
(vii) To the best of the Originator's knowledge, there is no
proceeding pending or threatened for the total or partial condemnation of
any Mortgaged Property, nor is such a proceeding currently occurring, and
such property is undamaged by waste, fire, earthquake or earth movement,
windstorm, flood, tornado or otherwise, so as to affect adversely the
value of the Mortgaged Property as security for the Home Equity Loan or
the use for which the premises were intended;
(viii) To the best of the Originator's knowledge, there are no
mechanics' or similar liens or claims which have been filed for work,
labor or material (and no rights are outstanding that under law could give
rise to such lien) affecting any Mortgaged Property which are, or may be,
liens prior or equal to, or coordinate with, the lien of the Mortgage
except those that are stated in the title insurance policy and for which
related losses are affirmatively insured against by such policy;
(ix) To the best of the Originator's knowledge, all of the
improvements that were included for the purpose of determining the
Appraised Value of each Mortgaged Property lie wholly within the
boundaries and building restriction lines of such property, and no
improvements on adjoining properties encroach upon the Mortgaged Property
except those that are stated in the title insurance policy and for which
related losses are affirmatively insured against by such policy;
(x) To the best of the Originator's knowledge, there do not exist
any circumstances or conditions with respect to any Home Equity Loan, any
Mortgaged Property, any Mortgagor or any Mortgagor's credit standing that
can be reasonably expected to adversely affect the value or marketability
of the Home Equity Loan;
(xi) To the best of the Originator's knowledge, no improvement
located on or being part of any Mortgaged Property is in violation of any
applicable zoning law or regulation. All inspections, licenses and
certificates required to be made or issued with respect to all occupied
portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including, but not limited to, certificates of
occupancy and fire underwriting certificates, have been made or obtained
from the appropriate authorities and the Mortgaged Property is lawfully
occupied under applicable law;
(xii) To the best of the Originator's knowledge, all parties that
have had any interest in any Home Equity Loan, whether as mortgagee,
assignee, pledgee or otherwise, are (or, during the period in which they
held and disposed of such interest, were) (1) in compliance with any and
all licensing requirements of the United States and of the laws of the
state wherein the Mortgaged Property is located that are applicable to
such parties and (2)(A) organized under the laws of such state or (B)
qualified to do business in such state or exempt from such qualification
in a manner so as not to affect adversely the enforceability
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of such Home Equity Loan or (C) federal savings and loan associations or
national banks having principal offices in such state or (D) not doing
business in such state;
(xiii) With respect to the Home Equity Loans, as of the Cut-Off
Date, (i) all payments required to be made on each Initial Home Equity
Loan under the terms of the related Mortgage Note have been made [except
for ___% of the Home Equity Loans (by Cut-Off Date Pool Principal Balance)
are up to 60 days Delinquent and (ii) no payment required to be made on
any Home Equity Loan has been more than 60 days Delinquent more than once
during the twelve month period immediately preceding the Cut-Off Date];
(xiv) Each of the documents and instruments included in a Mortgage
File is duly executed and in due and proper form and each such document or
instrument is in a form generally acceptable to prudent institutional
mortgage lenders that regularly originate or purchase Home Equity Loans;
(xv) The Mortgage Notes and the related Mortgages are genuine, and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership,
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). All parties to the Mortgage Note and the Mortgage had legal capacity
to execute the Mortgage Note and the Mortgage, and each Mortgage Note and
Mortgage have been duly and properly executed by such parties. The
Mortgagor is a natural person who is a party to the Mortgage Note and the
Mortgage in an individual capacity, and not in the capacity of a trustee
or otherwise;
(xvi) Any and all requirements of any federal, state or local law,
including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit
opportunity or disclosure laws, applicable to the origination and
servicing of the Home Equity Loans or otherwise applicable to the Home
Equity Loans have been complied with, and the Representative has and shall
maintain, or shall cause the applicable Originator to maintain, in its
possession, available for the Trustee's inspection, and shall deliver to
the Trustee upon demand, evidence of compliance with all such
requirements;
(xvii) The proceeds of the Home Equity Loans have been fully
disbursed, there is no requirement for future advances thereunder and any
and all requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making,
closing or recording the Home Equity Loan have been paid;
(xviii) [Except for _____ Home Equity Loans with an aggregate
original principal balance of $__________ for which an attorney's opinion
of title has been obtained,] each Home Equity Loan with an original
principal balance greater than $10,000 is covered by an ALTA mortgage
title insurance policy or such other form of policy acceptable to FNMA or
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FHLMC, issued by and constituting the valid and binding obligation of a
title insurer approved by the applicable Originator and qualified to do
business in the jurisdiction where the Mortgaged Property is located,
insuring the applicable Originator, its successors and assigns, as to the
first priority lien of the Mortgage in the case of a Home Equity Loan
secured by a First Lien on the related Mortgaged Property and the second
priority lien of the Mortgage in the case of a Home Equity Loan secured by
a second lien on the related Mortgaged Property, in the original principal
amount of the Home Equity Loan. The applicable Originator is the sole
named insured of such mortgage title insurance policy. The assignment to
the Trustees, as assignee of the Seller, of the Originator's interest in
such mortgage title insurance policy does not require the consent of or
notification to the insurer or the same has been obtained, and such
mortgage title insurance policy is in full force and effect and will be in
full force and effect and inure to the benefit of the Trustee, as assignee
of the Seller, upon the consummation of the transactions contemplated by
this Agreement. No claims have been made under such mortgage title
insurance policy and no prior holder of the related Mortgage, including
the applicable Originator, has done, by act or omission, anything that
would impair the coverage of such mortgage title insurance policy;
(xix) The Mortgage obligates the Mortgagor thereunder to maintain
all hazard insurance at the Mortgagor's cost and expense;
(xx) No Home Equity Loan is subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, nor will
the operation of any of the terms of any Mortgage Note or the related
Mortgage, or the exercise of any right thereunder in accordance with the
terms thereof, render either the Mortgage Note or the Mortgage
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, and no
such right of rescission, set-off, counterclaim or defense has been
asserted with respect thereto;
(xxi) Each Home Equity Loan was originated or purchased and
reunderwritten by an Originator. No more than __% of the Home Equity
Loans, measured by outstanding principal balances as of the Cut-Off Date,
were originated by independent originators and acquired by an Originator;
(xxii) Except with respect to any Balloon Loan, each Home Equity
Loan is payable in substantially equal monthly installments of principal
and interest which would be sufficient, in the absence of late payments,
to fully amortize such loan within the term thereof, beginning no later
than 60 days after disbursement of the proceeds of the Home Equity Loan.
Each Home Equity Loan bears a fixed interest rate for the term of the Home
Equity Loan. Each Balloon Loan has an original term of not less than [five
(5)] years and provides for level monthly payments based on a thirty (30)
year amortization schedule and a final Monthly Payment substantially
greater than the preceding Monthly Payments;
(xxiii) Each Mortgage contains a provision for the acceleration of
the payment of the unpaid principal balance of the Home Equity Loan in the
event the related Mortgaged Property is sold without the prior consent of
the holder thereunder;
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(xxiv) No Home Equity Loan is a loan for which the disbursements are
made as construction proceeds;
(xxv) Reserved;
(xxvi) Each Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for
the realization against the Mortgaged Property of the benefits of the
security, including (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (ii) otherwise by judicial or nonjudicial
foreclosure. There is no homestead or other exemption available to the
Mortgagor that would interfere with the right to sell the Mortgaged
Property at a trustee's sale or the right to foreclose the Mortgage;
(xxvii) With respect to each Mortgage constituting a deed of trust,
a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the Trustee or the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor, which
fees and expenses shall constitute Servicing Advances;
(xxviii) Each Mortgaged Property is located in the state identified
in the Home Equity Loan Schedule and consists of at least one parcel of
real property with a one family residence erected thereon, or a two- to
four-family dwelling, or an individual condominium unit or townhome,
provided, however, that no residence or dwelling is a mobile home or a
manufactured dwelling. [No Mortgaged Properties are held under a ground
lease];
(xxix) The Home Equity Loans were underwritten in accordance with
the Originators' underwriting guidelines described in the Prospectus
Supplement under the heading "THE HOME EQUITY LOAN PROGRAM -- Underwriting
Standards;"
(xxx) There exist no deficiencies with respect to escrow deposits
and payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no other charges or payments due
an Originator have been capitalized under any Mortgage or the related
Mortgage Note;
(xxxi) No Home Equity Loan was originated under a buy-down plan;
(xxxii) Other than as provided by this Agreement, there is no
obligation on the part of an Originator or any other party to make
payments in addition to those made by the Mortgagors;
(xxxiii) With respect to each Home Equity Loan, the Trustee is in
possession of a complete Mortgage File, and there are no custodial
agreements in effect adversely affecting
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the right or ability of the applicable Person to make the document
deliveries required hereby;
(xxxiv) No Home Equity Loan was selected for inclusion under this
Agreement on any basis which was intended to have a material adverse
effect on the Certificateholders or the Certificate Insurer;
(xxxv) No Home Equity Loan has a shared appreciation or other
contingent interest feature;
(xxxvi) With respect to each Home Equity Loan secured by a second
lien on the related Mortgaged Property:
(a) if the Combined Loan-to-Value Ratio is higher than __%,
either the related First Lien does not provide for a balloon payment or,
if the related First Lien does provide for a balloon payment, the maturity
date of the second lien is prior to the maturity date of the First Lien;
(b) the related First Lien does not provide for negative
amortization; and
(c) either no consent for the Home Equity Loan secured by a
second lien on the related Mortgaged Property is required by the holder of
the related First Lien or such consent has been obtained and is contained
in the Mortgage File.
(xxxvii) Each Home Equity Loan conforms, and all the Home Equity
Loans in the aggregate conform, in all material respects to the
description thereof set forth in the Prospectus Supplement;
(xxxviii) A full appraisal on forms approved by the Originator was
performed in connection with the origination of each Home Equity Loan.
Each appraisal meets guidelines that would be generally acceptable to
prudent mortgage lenders that regularly originate or purchase Home Equity
Loans comparable to the Home Equity Loans for sale to prudent investors in
the secondary market that invest in Home Equity Loans such as the Home
Equity Loans;
(xxxix) To the best knowledge of the Representative and the
applicable Originator, no Mortgaged Property was, as of the related
Cut-Off Date, located within a one-mile radius of any site listed in the
National Priorities List as defined under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or on any
similar state list of hazardous waste sites which are known to contain any
hazardous substance or hazardous waste;
(xl) None of the Home Equity Loans are subject to a bankruptcy
proceeding;
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(xli) No more than __% of the aggregate Principal Balance of all the
Home Equity Loans as of Cut-Off Date relates to Home Equity Loans
originated or purchased under the Originators' limited documentation
program for self-employed borrowers;
(xlii) The range of points financed or "net funded" on Home Equity
Loans originated after ________________ is 0% to __%;
(xliii) Each Home Equity Loan constitutes a "qualified mortgage"
within the meaning of Section 860G(a)(3) of the Code;
(xliv) With respect to any Home Equity Loan that is not a
Cooperative Loan, each Mortgage is a valid and enforceable first or second
lien on the Mortgaged Property subject only to (a) the lien of
non-delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such
exceptions appearing of record being acceptable to mortgage lending
institutions generally or specifically reflected in the appraisal made in
connection with the origination of the related Home Equity Loan, (c) other
matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage and (d) the related First Lien, if any;
(xlv) Each Cooperative Loan is secured by a valid, subsisting and
enforceable perfected first or second lien and security interest in the
related Mortgaged Property, subject only to (i) the rights of the
Cooperative Corporation to collect Maintenance and assessments from the
Mortgagor, (ii) the lien of the Blanket Mortgage, if any, on the
Cooperative Property and of real property taxes, water and sewer charges,
rents and assessments on the Cooperative Property not yet due and payable,
(iii) the related First Lien, if any and (iv) other matters to which like
Cooperative Units are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by the Security
Agreement or the use, enjoyment, value or marketability of the Cooperative
Unit. Each original UCC financing statement, continuation statement or
other governmental filing or recordation necessary to create or preserve
the perfection and priority of the first or second, as applicable,
priority lien and security interest in the Cooperative Shares and
Proprietary Lease has been timely and properly made. Any security
agreement, chattel mortgage or equivalent document related to the
Cooperative Loan and delivered to the applicable Originator or any
designee of the applicable Originator establishes in such Person a valid
and subsisting perfected first or second, as applicable, lien on and
security interest in the property described therein, and such Person has
full right to sell and assign the same;
(xlvi) Each Cooperative Corporation qualifies as a "cooperative
housing corporation" as defined in Section 216 of the Code; and
(xlvii) Each Mortgaged Property is free of substantial damage and is
in reasonably good repair.
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(b) It is understood and agreed that the representations and warranties
set forth in Section 2.4(a) shall survive the sale, transfer and assignment of
the Home Equity Loans to the Issuer and the pledge thereof to the Trustee
pursuant to the Indenture. Upon discovery by the Seller, the Master Servicer,
the Representative, an Originator or the Owner Trustee of a breach of any of the
foregoing representations and warranties, without regard to any limitation set
forth therein concerning the knowledge of the Originators as to the facts stated
therein, which materially and adversely affects the interests of the Noteholders
or the Certificateholders in the related Home Equity Loan, the party discovering
such breach shall give prompt written notice to the other parties and the
Trustee. Within 60 days of its discovery or its receipt of notice of breach, the
Representative shall use all reasonable efforts to cure, or cause the applicable
Originator to cure, such breach in all material respects or shall purchase or
cause the applicable Originator to purchase from the Trust or substitute or
cause the applicable Originator to substitute an Eligible Substitute Home Equity
Loan as provided in Section 2.5 for such Home Equity Loan. Any such purchase by
the Representative or an Originator shall be at the Purchase Price, and in each
case shall be accomplished in the manner set forth in Section 2.2. It is
understood and agreed that the obligation of the Representative to cure,
substitute for or purchase or to cause the applicable Originator to cure,
substitute or purchase any Home Equity Loan as to which such a breach has
occurred and is continuing shall constitute the sole remedies against the
Representative and the applicable Originator, or another affiliate of the
Representative respecting such breach available to the Issuer, the Owner
Trustee, the Trustee, the Noteholders or Certificateholders. Neither the Owner
Trustee nor the Trustee shall have a duty to conduct any affirmative
investigation as to the occurrence of any conditions requiring the repurchase of
any Home Equity Loan pursuant to this Section.
SECTION 2.5. Substitution of Home Equity Loans. (a) On a Determination
Date within two years following the Closing Date and which is on or before the
date on which the Seller would otherwise be required to repurchase a Home Equity
Loan under Section 2.2 or 2.4, the Seller may deliver to the Trustee one or more
Eligible Substitute Home Equity Loans in substitution for any one or more of the
Defective Home Equity Loans which the Seller would otherwise be required to
repurchase pursuant to Sections 2.2 or 2.4.
(b) The Seller shall notify the Issuer, the Owner Trustee, the Master
Servicer, the Representative, the applicable Originator and the Trustee in
writing not less than five Business Days before the related Determination Date
which is on or before the date on which the Representative would otherwise be
required to repurchase or cause the repurchase of such Home Equity Loan pursuant
to Section 2.2 or 2.4 of its intention to effect a substitution under this
Section. On such Determination Date (the "Substitution Date"), the
Representative shall deliver or cause the applicable Originator to deliver to
the Issuer (1) the Eligible Substitute Home Equity Loans to be substituted for
the Original Home Equity Loans, (2) a list of the Original Home Equity Loans to
be substituted for by such Eligible Substitute Home Equity Loans, (3) an
Officers' Certificate (A) stating that no failure by the Master Servicer
described in Section 7.1 shall have occurred and be continuing, (B) stating that
all conditions precedent to such substitution specified in subsection (a) have
been satisfied and attaching as an exhibit a supplemental Home Equity Loan
schedule (the "Supplemental Home Equity Loan Schedule") setting forth the same
type of information as appears on the Home Equity Loan Schedule and
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representing as to the accuracy thereof and (C) confirming that the
representations and warranties contained in Section 2.4 are true and correct in
all material respects with respect to the Substitute Home Equity Loans on and as
of such Determination Date, provided that remedies for the inaccuracy of such
representations are limited as set forth in Sections 2.2, 2.4 and this Section
2.5 and (4) a certificate stating that cash in the amount of the related
Substitution Adjustment, if any, has been deposited to the Collection Account.
Upon receipt of the foregoing, the Issuer shall release such Original Home
Equity Loans to the Seller.
(c) Concurrently with the satisfaction of the conditions set forth in
Section 2.5(a) and (b) above and the grant of such Eligible Substitute Home
Equity Loans to the Trustee pursuant to Section 2.5(a) above, Exhibit A to this
Agreement shall be deemed to be amended to exclude all Home Equity Loans being
replaced by such Eligible Substitute Home Equity Loans and to include the
information set forth on the Supplemental Home Equity Loan Schedule with respect
to such Eligible Substitute Home Equity Loans, and all references in this
Agreement to Home Equity Loans shall include such Eligible Substitute Home
Equity Loans and be deemed to be made on or after the related Substitution Date,
as the case may be, as to such Eligible Substitute Home Equity Loans.
ARTICLE III
Administration and Servicing of Home Equity Loans
SECTION 3.1. Duties of Master Servicer. (a) The Master Servicer, as agent
for the Issuer (to the extent provided herein) shall supervise, or take such
actions as are necessary to ensure, the servicing and administration of the Home
Equity Loans and any REO Property in accordance with this Agreement and the
customary and usual standards of an institution prudently servicing mortgage
loans for its own account and shall have full authority to do anything it
reasonably deems appropriate in connection with such servicing and
administration. The Master Servicer shall maintain servicing standards
equivalent to those required for approval by FNMA or FHLMC. The Master Servicer
may perform its responsibilities relating to servicing through other agents or
independent contractors, but shall not thereby be released from any of its
responsibilities as hereinafter set forth. The authority of the Master Servicer,
in its capacity as servicer, shall include the power to (i) supervise the filing
and collection of insurance claims and take or cause to be taken such actions on
behalf of the insured person thereunder as shall be reasonably necessary to
prevent the denial of coverage thereunder, and (ii) effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing a related
Home Equity Loan, including the employment of attorneys, the institution of
legal proceedings, the collection of deficiency judgments, the acceptance of
compromise proposals, the filing of claims under any Primary Insurance Policy
and any other matter pertaining to a delinquent Home Equity Loan. The authority
of the Master Servicer shall include, in addition, the power to (i) execute and
deliver customary consents or waivers and other instruments and documents, (ii)
consent to transfers of any related Mortgaged Property and assumptions of the
related Mortgage Notes and Security Instruments (but only in the manner provided
in this Agreement) and (iii) collect any Insurance Proceeds and Liquidation
Proceeds. Without limiting the generality of the foregoing, the Master Servicer
is authorized and empowered to execute and deliver, on behalf of itself, the
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Issuer, the Owner Trustee, the Trustee, the Certificateholders and the
Noteholders or any of them, any and all instruments of satisfaction or
cancellation, or partial or full release or discharge, and all other comparable
instruments, with respect to such Home Equity Loans or to the Mortgaged
Properties securing such Home Equity Loans.
(b) Notwithstanding the provisions of Subsection 3.1(a), the Master
Servicer shall not take any action inconsistent with the interest of the
Noteholders or the Certificateholders in the Home Equity Loans or with the
rights and interests of the Owner Trustee, the Trustee, the Noteholders or the
Certificateholders under this Agreement.
(c) The Owner Trustee shall furnish the Master Servicer with any
powers of attorney and other documents in form as provided to it necessary or
appropriate (as certified to the Owner Trustee by the Master Servicer) to enable
the Master Servicer to service and administer the related Home Equity Loans and
REO Property.
SECTION 3.2. Collection and Allocation of Home Equity Loan Payments. (a)
The Master Servicer shall make reasonable efforts to collect all payments called
for under the terms and provisions of the Home Equity Loans as and when the same
shall become due and shall follow such collection procedures as it follows with
respect to all mortgage loans in its servicing portfolio comparable to the Home
Equity Loans that it services for itself or others.
(b) Consistent with the terms of this Agreement, the Master Servicer
may waive, modify or vary any term of any Home Equity Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Master Servicer's determination such
waiver, modification, postponement or indulgence is not materially adverse to
the interests of the Noteholders and the Certificateholders; provided, however,
that the Master Servicer may not permit any modification with respect to any
Home Equity Loan that would change the Mortgage Rate, defer or forgive the
payment of any principal or interest (unless in connection with the liquidation
of the related Home Equity Loan) or extend the Final Scheduled Maturity Date on
the Home Equity Loan. No costs incurred by the Master Servicer in respect of
Servicing Advances shall for the purposes of distributions to Noteholders or
Certificateholders be added to the amount owing under the related Home Equity
Loan.
(c) The Master Servicer, for the benefit of the Noteholders and the
Certificateholders, shall establish and maintain in the name of the Trustee an
Eligible Deposit Account (the "Collection Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the benefit of
the Noteholders and the Certificateholders. The Collection Account shall
initially be established with the Trustee. The Master Servicer shall on the
Closing Date deposit into the Collection Account any amounts representing
payments on and any collections in respect of the Home Equity Loans in received
on or after the Cutoff Date and prior to the Closing Date, and thereafter shall
use its best efforts to deposit within one Business Day, and shall in any event
deposit within two Business Days following receipt thereof the following
payments and collections received or made by it (without duplication) with
respect to the Home Equity Loans: (i) all payments received on and after the
Cutoff Date on account of principal on the Home Equity Loans and all full or
partial prepayments collected after the Cutoff
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Date; (ii) all payments received on and after the Cutoff Date on account of
interest on the Home Equity Loans; (iii) all Net Liquidation Proceeds net of
Foreclosure Profits; (iv) all Insurance Proceeds; (v) all Released Mortgaged
Property Proceeds; (vi) any amounts payable in connection with the repurchase of
any Home Equity Loan and the amount of any Substitution Adjustment pursuant to
Sections 2.2, 2.4, 2.6 and 3.16; and (vii) any amount required to be deposited
in the Collection Account pursuant to Sections 3.5, 3.7, 3.15, 3.16 or 8.1;
provided, however, that (x) with respect to each Due Period, the Master Servicer
shall be permitted to retain from payments in respect of interest on the Home
Equity Loans, the Servicing Fee for such Due Period and (y) the Master Servicer
shall be permitted to retain late collections, including Liquidation Proceeds,
Released Mortgaged Property Proceeds and Insurance Proceeds, to the extent of
any unpaid Servicing Fees, unreimbursed Monthly Advance and/or Servicing Advance
with respect to the related Home Equity Loan. The foregoing requirements
respecting deposits to the Collection Account are exclusive, it being understood
that, without limiting the generality of the foregoing, the Master Servicer need
not deposit in the Collection Account amounts representing Foreclosure Profits,
fees (including annual fees), late charges or penalties payable by Mortgagors,
or amounts received by the Master Servicer for the accounts of Mortgagors for
application towards the payment of taxes, insurance premiums, assessments and
similar items.
SECTION 3.3. Withdrawals from each Collection Account. The Trustee shall
withdraw or cause to be withdrawn funds from the Collection Account for the
following purposes with respect to the Home Equity Loans: (i) the deposits and
distributions required by Section 4.5(d); (ii) to the extent not retained by the
Master Servicer as provided in Section 3.2(c), to reimburse the Master Servicer
for any accrued unpaid Servicing Fees and for unreimbursed Monthly Advances and
Servicing Advances. The Master Servicer's right to reimbursement for unpaid
Servicing Fees and unreimbursed Servicing Advances shall be limited to late
collections on the related Home Equity 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 Home Equity Loan in respect of which such reimbursed
amounts are owed. If a Monthly Advance was made net of the Servicing Fee as
permitted by Section 3.15 hereof, no additional Servicing Fee for the related
Mortgage loan and Due Period shall be payable. The Master Servicer's right to
reimbursement from such Collection Account for unreimbursed Monthly Advances
shall be limited to late collections of interest on any Home Equity Loan and to
Liquidation Proceeds and Insurance Proceeds on related Home Equity Loans; (iii)
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; (iv) (a) to make investments in
Eligible Investments and (b) to pay to the Master Servicer, interest earned in
respect of Eligible Investments or on funds deposited in the Collection Account;
(v) to withdraw any funds deposited in such Collection Account that were not
required to be deposited therein (such as Servicing Compensation) or were
deposited therein in error and to pay such funds to the appropriate Person; (vi)
to pay the Master Servicer Servicing Compensation pursuant to Section 3.9 hereof
to the extent not retained or paid pursuant to Section 3.2(c); (vii) to withdraw
funds necessary for the conservation and disposition of REO Property pursuant to
Section 3.7; and (viii) to clear and terminate such Collection
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Account upon the termination of this Agreement and to pay any amounts remaining
therein in accordance with Section 8.1(b).
SECTION 3.4. Reserved.
SECTION 3.5. Reserved.
SECTION 3.6. Reserved.
SECTION 3.7. Management and Realization Upon Defaulted Home Equity Loans.
On behalf of the Issuer, the Master Servicer shall manage, conserve, protect and
operate each REO Property for the Noteholders and the Certificateholders solely
for the purpose of its prudent and prompt disposition and sale. The Master
Servicer shall, either itself or through an agent selected by the Master
Servicer, manage, conserve, protect and operate the REO Property in the same
manner that it manages, conserves, protects and operates other foreclosed
property for its own account, and in the same manner that similar property in
the same locality as the REO Property is managed. The Master Servicer shall
attempt to sell the same (and may temporarily rent the same) on such terms and
conditions as the Master Servicer deems to be in the best interests of the
Noteholders and the Certificateholders. The Master Servicer shall cause to be
deposited, no later than five Business Days after the receipt thereof, in the
Collection Account, all revenues received with respect to the related REO
Property and shall retain, or cause the Trustee to withdraw therefrom funds
necessary for the proper operation, management and maintenance of the REO
Property and the fees of any managing agent acting on behalf of the Master
Servicer. The disposition of REO Property shall be carried out by the Master
Servicer for cash at such price, and upon such terms and conditions, as the
Master Servicer deems to be in the best interests of the Noteholders and the
Certificateholders and, as soon as practicable thereafter, the expenses of such
sale shall be paid. The cash proceeds of sale of the REO Property shall be
promptly deposited in the Collection Account, net of Foreclosure Profits and of
any related unreimbursed Servicing Advances, accrued and unpaid Servicing Fees
and unreimbursed Monthly Advances payable to the Master Servicer in accordance
with Section 3.3, for distribution to the Noteholders and the Certificateholders
in accordance with Section 4.5 hereof. The Master Servicer shall foreclose upon
or otherwise comparably convert to ownership Mortgaged Properties securing such
of the Home Equity Loans as come into and continue in default when no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.2 subject to the provisions contained in the last
paragraph of this Section 3.7. In the event that title to any Mortgaged Property
is acquired in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale shall be issued to the Owner Trustee, or to its nominee on
behalf of the Noteholders and the Certificateholders.
SECTION 3.8. Trustee to Cooperate. Upon payment in full of any Home Equity
Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.1, if the related Assignment of Mortgage
has been recorded as required hereunder, an instrument of satisfaction regarding
the related Mortgage, which instrument of satisfaction shall be recorded by the
Master Servicer if required by applicable law and be delivered to the Person
entitled thereto. It is understood and agreed that no expenses incurred in
connection with such
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instrument of satisfaction or transfer shall be reimbursed from amounts
deposited in the Collection Account. If the Trustee is holding the Mortgage
Files, from time to time and as appropriate for the servicing or foreclosure of
any Home Equity Loan, the Trustee shall, upon request of the Master Servicer and
delivery to the Trustee of a Request for Release, in the form annexed hereto as
Exhibit E, signed by a Servicing Officer, release the related Mortgage File to
the Master Servicer, and the Trustee shall execute such documents, in the forms
provided by the Master Servicer, as shall be necessary to the prosecution of any
such proceedings or the taking of other servicing actions. Such Request for
Release shall obligate the Master Servicer to return the Mortgage File to the
Trustee when the need therefor by the Master Servicer no longer exists unless
the Home Equity Loan shall be liquidated, in which case, upon receipt of a
certificate of a Servicing Officer similar to that hereinabove specified, the
Request for Release shall be released by the Trustee to the Master Servicer. In
order to facilitate the foreclosure of the Mortgage securing any Home Equity
Loan that is in default following recordation of the related Assignment of
Mortgage in accordance with the provisions hereof, the Trustee shall, if so
requested in writing by the Master Servicer, execute an appropriate assignment
in the form provided to the Trustee by the Master Servicer to assign such Home
Equity Loan for the purpose of collection to the Master Servicer (any such
assignment shall unambiguously indicate that the assignment is for the purpose
of collection only), and, upon such assignment, such assignee for collection
will thereupon bring all required actions in its own name and otherwise enforce
the terms of the Home Equity Loan and deposit or credit the Net Liquidation
Proceeds, exclusive of Foreclosure Profits, received with respect thereto in the
Collection Account. In the event that all delinquent payments due under any such
Home Equity Loan are paid by the Mortgagor and any other defaults are cured then
the assignee for collection shall promptly reassign such Home Equity Loan to the
Trustee and return it to the place where the related Mortgage File was being
maintained.
SECTION 3.9. Servicing Fee. The servicing fee for a Distribution Date
shall equal the product of (a) one-twelfth, (b) the Servicing Fee Rate and (c)
the Pool Balance as of the first day of the preceding Due Period (the "Servicing
Fee"). The Master Servicer shall also be entitled to all late payment charges
and other administrative fees or similar charges, including without limitation,
Foreclosure Profits, allowed by applicable law with respect to Home Equity
Loans, collected (from whatever source) on the Home Equity Loans (the
"Supplemental Servicing Fee"). The Master Servicer also shall be entitled to and
may retain from Collections the Servicing Fee, as provided herein. The Master
Servicer, in its discretion at its election, may defer receipt of all or any
portion of the Servicing Fee or Supplemental Servicing Fee for any Due Period to
and until a later Due Period for any reason, including in order to avoid a
shortfall in any payments due on any Notes or Certificates. Any such deferred
amount shall be payable to (or may be retained from subsequent collections by)
the Master Servicer on demand.
SECTION 3.10. Master Servicer's Certificate. On each Determination Date,
the Master Servicer shall deliver to the Owner Trustee, the Trustee and the
Seller, with a copy to the Rating Agencies, a Master Servicer's Certificate
containing all information necessary to make the distributions pursuant to
Sections 4.5 and 4.6 for the Due Period preceding the date of such Master
Servicer's Certificate. Home Equity Loans to be purchased by the Master Servicer
or to
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be repurchased by the Seller shall be identified by the Master Servicer by
account number with respect to such Home Equity Loan (as specified in
Exhibit A).
SECTION 3.11 Annual Statement as to Compliance; Notice of Default. (a) The
Master Servicer shall deliver to the Owner Trustee and the Trustee, on or before
of each year beginning , 199__, an Officers' Certificate, dated as of December
31 of the preceding year, stating that (i) a review of the activities of the
Master Servicer during the preceding twelve-month period (or, in the case of the
first such report, during the period from the Closing Date to December 31,
199__) and of its performance under this Agreement has been made under such
officers' supervision and (ii) to the best of such officers' knowledge, based on
such review, the Master 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
officers and the nature and status thereof. The Trustee shall send a copy of
such certificate and the report referred to in Section 3.10 to the Rating
Agencies. A copy of such certificate and the report referred to in Section 3.10
may be obtained by any Certificateholder by a request in writing to the Owner
Trustee addressed to the Corporate Trust Office (as defined in the Trust
Agreement) or by any Noteholder by a request in writing to the Trustee addressed
to the Corporate Trust Office. Upon the telephone request of the Owner Trustee,
the Trustee will promptly furnish the Owner Trustee a list of Noteholders as of
the date specified by the Owner Trustee.
(b) The Master Servicer shall deliver to the Owner Trustee, the Trustee
and the Rating Agencies, promptly after having obtained knowledge thereof, but
in no event later than five Business Days thereafter, written notice in an
Officers' Certificate of any event which with the giving of notice or lapse of
time, or both, would become a Master Servicer Default under Section 7.1(a) or
(b).
SECTION 3.12. Annual Independent Certified Public Accountants' Report. The
Master Servicer shall cause a firm of independent certified public accountants,
which may also render other services to the Master Servicer or the Seller, to
deliver to the Seller, the Owner Trustee and the Trustee on or before of each
year beginning , 199__, an letter addressed to the Master Servicer, the Seller,
the Owner Trustee and the Trustee and each Rating Agency, to the effect that
such firm has with respect to the Master Servicer's overall servicing operations
examined such operations in accordance with the requirements of the Uniform
Single Audit Program for Mortgage Bankers during the preceding calendar year
(or, in the case of the first such report, during the period from the Closing
Date to December 31, 199__), and stating such firm's conclusions relating
thereto. Such report will also indicate that the firm is independent of the
Master Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
SECTION 3.13. Access to Certain Documentation and Information Regarding
Home Equity Loans. The Master Servicer shall provide to the Certificateholders
and Noteholders access to the Mortgage Files in such cases where the
Certificateholders or Noteholders shall be required by applicable statutes or
regulations to review such documentation as demonstrated by evidence
satisfactory to the Master Servicer in its reasonable judgment. Access shall be
afforded
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without charge, but only upon reasonable request and during the normal business
hours at the respective offices of the Master Servicer. Nothing in this Section
3.13 shall affect the obligation of the Master Servicer to observe any
applicable law prohibiting disclosure of information regarding the Mortgagors
and the failure of the Master Servicer to provide access to information as
provided in this Section 3.13 as a result of such obligation shall not
constitute a breach of this Section 3.13.
SECTION 3.14. Master Servicer Expenses. The Master Servicer shall be
required to pay all expenses incurred by it in connection with its activities
hereunder, including fees and disbursements of independent accountants, taxes
imposed on the Master Servicer and expenses incurred in connection with
distributions and reports to Certificateholders and Noteholders.
SECTION 3.15. Advances by the Master Servicer. (a) Not later than the
close of business on the second Business Day preceding each Distribution Date,
the Master Servicer shall remit to the Trustee for deposit in the Collection
Account an amount, to be distributed on the related Distribution Date pursuant
to Section 4.5(d), equal to the sum of (a) the interest accrued on each Home
Equity Loan at the Mortgage Rate (or at such lower rate as may be in effect for
such Home Equity Loan pursuant to application of the Civil Relief Act and/or any
Debt Service Reduction) through the related Due Date, but not received as of the
close of business on the Determination Date for such Distribution Date (net of
the Servicing Fee) and (b) with respect to each REO Property which was acquired
during or prior to the related Due Period and as to which a final disposition
did not occur during the related Due Period, an amount equal to the excess, if
any, of interest on the Principal Balance of such REO Property at the Net Rate
for the most recently ended Due Period prior to the related Determination Date
for the related Home Equity Loan over the net income from the REO Property
transferred to the Collection Account for such Distribution Date pursuant to
Section 3.4; such sum being defined herein as the "Monthly Advance." The Master
Servicer may fund all or a portion of the Monthly Advance with respect to the
Home Equity Loans by instructing the Trustee on such Determination Date to use
funds deposited in the Collection Account which are not part of the Total
Distribution Amount for the related Distribution Date; provided that if such
funds are so used the Master Servicer shall replace such funds on or before any
subsequent Determination Date on which such funds are required to be part of the
Total Distribution Amount.
(b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the Master
Servicer determines that such Servicing Advance or Monthly Advance would, if
made, constitute a Nonrecoverable Advance.
SECTION 3.16. Optional Purchase of Defaulted Home Equity Loans. The Master
Servicer, in its sole discretion, shall have the right to elect (by written
notice sent to the Seller, the Owner Trustee and the Trustee) to purchase for
its own account from the Issuer any Home Equity Loan which is 90 days or more
delinquent in the manner and at the price specified in Section 2.2. The Purchase
Price for any Home Equity 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 Master Servicer or its designee the related
Mortgage File and shall
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execute and deliver such instruments of transfer or assignment prepared by the
purchaser of such Home Equity Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Home Equity Loan any Home Equity Loan
released pursuant hereto and the purchaser of such Home Equity Loan shall
succeed to all the Issuer's right, title and interest in and to such Home Equity
Loan and all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Home Equity Loan
shall thereupon own such Home Equity Loan, and all security and documents, free
of any further obligation to the Owner Trustee, the Trustee, the Noteholders or
the Certificateholders with respect thereto.
SECTION 3.16. Superior Liens. If required in order to receive notice, the
Master Servicer shall file (or cause to be filed) of record a request for notice
of any action by a superior lienholder under a First Lien for the protection of
the Issuer's interest, where permitted by local law and whenever applicable
state law does not require that a junior lienholder be named as a party
defendant in foreclosure proceedings in order to foreclose such junior
lienholder's equity of redemption.
If the Master Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations secured by the First Lien,
or has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the Mortgaged Property sold or foreclosed, the Master Servicer shall take,
on behalf of the Trust, actions in accordance with the Master Servicer's
policies and procedures to protect the interests of the Noteholders and the
Certificateholders, and/or to preserve the security of the related Home Equity
Loan. The Master Servicer shall advance the necessary funds to cure the default
or reinstate the superior lien, if the Master Servicer reasonably believes such
advance is in the best interests of the Noteholders and the Certificateholders.
The Master Servicer shall not make such an advance except to the extent that it
determines in its reasonable good faith judgment that the advance would be
recoverable from Liquidation Proceeds on the related Home Equity Loan. The
Master Servicer shall thereafter take such action as is necessary to recover the
amount so advanced. Any expenses incurred by the Master Servicer pursuant to
this Section 3.16 shall constitute Servicing Advances.
SECTION 3.17. Reserved.
SECTION 3.18. Appointment of Subservicer. The Master Servicer hereby
appoints each Originator to initially act as subservicer with respect to the
Home Equity Loans sold by such Originator to the Seller. The Originators, as
subservicers shall service the Home Equity Loans in accordance with the terms of
this Agreement. The Master Servicer may at any time appoint any other entity to
serve as a subservicer to perform all or any portion of its obligations as
Master Servicer hereunder; provided, however, that the Rating Agency Condition
shall have been satisfied in connection therewith. In connection with the
appointment of any subservicer, the Master Servicer shall remain obligated and
be liable to the Issuer, the Owner Trustee, the Trustee, the Certificateholders
and the Noteholders for the servicing and administering of the Home Equity Loans
in accordance with the provisions hereof without diminution of such obligation
and liability by virtue of the appointment of such subservicer and to the same
extent
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and under the same terms and conditions as if the Master Servicer alone were
servicing and administering the Home Equity Loans. The fees and expenses of each
subservicer shall be as agreed between the Master Servicer and the subservicer
from time to time and none of the Issuer, the Owner Trustee, the Trustee, the
Certificateholders or the Noteholders shall have any responsibility therefor.
ARTICLE IV
Distributions; Reserve Account; Statements to
Certificateholders and Noteholders
SECTION 4.1. Establishment of Trust Accounts. (a) (i) The Master Servicer,
for the benefit of the Noteholders, shall establish and maintain in the name of
the Trustee an Eligible Deposit Account (the "Note Distribution Account"),
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Noteholders. The Note Distribution Account shall
initially be established with the Trustee.
(ii) The Master Servicer, for the benefit of the Noteholders
and the Certificateholders, shall establish and maintain in the name of the
Trustee an Eligible Deposit Account (the "Reserve Account"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Noteholders and the Certificateholders. The Reserve Account shall
be maintained with the Trustee as long as the Trustee is an Eligible
Institution.
(b) Funds on deposit in the Collection Account, the Note
Distribution Account and the Reserve Account (collectively, the "Trust
Accounts") and the Certificate Distribution Account shall be invested by the
Trustee with respect to Trust Accounts and by the Owner Trustee with respect to
the Certificate Distribution Account (or any custodian with respect to funds on
deposit in any such account) in Eligible Investments selected in writing by the
Master Servicer (pursuant to standing instructions or otherwise); provided,
however, it is understood and agreed that neither the Trustee nor the Owner
Trustee shall be liable for any loss arising from such investment in Eligible
Investments. All such Eligible Investments shall be held by or on behalf of the
Trustee or the Owner Trustee, as applicable, for the benefit of the Noteholders
and the Certificateholders, the Noteholders or the Certificateholders, as
applicable; provided that on each Distribution Date all interest and other
investment income (net of losses and investment expenses) on funds on deposit
therein shall be deposited into the Collection Account and shall be deemed to
constitute a portion of the Interest Distribution Amount. Other than as
permitted by the Rating Agencies, funds on deposit in the Collection Account,
the Note Distribution Account, the Certificate Distribution Account and the
Reserve Account shall be invested in Eligible Investments that will mature so
that such funds will be available at the close of business on the Transfer Date
preceding the following Distribution Date. Funds deposited in a Trust Account or
the Certificate Distribution Account on a Transfer Date which immediately
precedes a Distribution Date upon the maturity of any Eligible Investments are
not required to be invested overnight.
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(c) (i) The Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Trust Accounts and in all proceeds
thereof (including all income thereon) and all such funds, investments, proceeds
and income shall be part of the Owner Trust Estate. Except as otherwise provided
herein, the Trust Accounts shall be under the sole dominion and control of the
Trustee for the benefit of the Noteholders and the Certificateholders, or the
Noteholders, as the case may be. If, at any time, any of the Trust Accounts or
the Certificate Distribution Account ceases to be an Eligible Deposit Account,
the Trustee (or the Master Servicer on its behalf) or the Owner Trustee, as
applicable, shall within 10 Business Days (or such longer period as to which
each Rating Agency may consent) establish a new Trust Account or a new
Certificate Distribution Account, as applicable, as an Eligible Deposit Account
and shall transfer any cash and/or any investments to such new Trust Account or
a new Certificate Distribution Account, as applicable. In connection with the
foregoing, the Master Servicer agrees that, in the event that any of the Trust
Accounts are not accounts with the Trustee, the Master Servicer shall notify the
Trustee in writing promptly upon any of such Trust Accounts ceasing to be an
Eligible Deposit Account.
(ii) With respect to the Trust Account Property, the Trustee,
and with respect to the Certificate Distribution Account, the Owner Trustee,
agrees, by its respective acceptance hereof, that: (A) any Trust Account
Property or any property in the Certificate Distribution Account that is held in
deposit accounts shall be held solely in the Eligible Deposit Accounts subject
to the penultimate sentence of Section 4.1(c)(i); and, except as otherwise
provided herein, each such Eligible Deposit Account shall be subject to the
exclusive custody and control of the Trustee with respect to the Trust Accounts
and the Owner Trustee with respect to the Certificate Distribution Account, and
the Trustee or the Owner Trustee, as applicable, shall have sole signature
authority with respect thereto; (B) any Trust Account Property that constitutes
Physical Property shall be delivered to the Trustee in accordance with paragraph
(a) of the definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Trustee or a financial intermediary (as such term is
defined in Section 8-313(4) of the UCC) acting solely for the Trustee; (C) any
Trust Account Property that is a book-entry security held through the Federal
Reserve System pursuant to Federal book-entry regulations shall be delivered in
accordance with paragraph (b) of the definition of "Delivery" and shall be
maintained by the Trustee, pending maturity or disposition, through continued
book-entry registration of such Trust Account Property as described in such
paragraph; and (D) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause (C)
above shall be delivered to the Trustee in accordance with paragraph (c) of the
definition of "Delivery" and shall be maintained by the Trustee, pending
maturity or disposition, through continued registration of the Trustee's (or its
nominee's) ownership of such security.
(iii) The Master Servicer shall have the power, revocable by
the Trustee or by the Owner Trustee with the consent of the Trustee, to instruct
the Trustee to make withdrawals and payments from the Trust Accounts for the
purpose of permitting the Master Servicer or the Owner Trustee to carry out its
respective duties hereunder or permitting the Trustee to carry out its duties
under the Indenture.
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(d) (i) The Master Servicer shall establish and maintain with the
Trustee an Eligible Deposit Account (the "Payahead Account"). The Payahead
Account shall not be property of the Issuer.
(ii) The Master Servicer shall on or prior to each
Distribution Date (and prior to deposits to the Note Distribution Account or the
Certificate Distribution Account) transfer from the Collection Account to the
Payahead Account all Payaheads as described in Section 4.3 received by the
Master Servicer during the Due Period. Notwithstanding the foregoing, for so
long as the Master Servicer is permitted to make monthly remittances to the
Collection Account pursuant to Section 3.2(c), Payaheads need not be remitted to
and deposited in the Payahead Account but instead may be remitted to and held by
the Master Servicer. So long as such condition is met, the Master Servicer shall
not be required to segregate or otherwise hold separate any Payaheads remitted
to the Master Servicer as aforesaid but shall be required to remit Payaheads to
the Collection Account in accordance with the first sentence of the third
paragraph of Section 4.5(a).
SECTION 4.2. Reserved.
SECTION 4.3. Application of Collections. (a) All collections for the Due
Period shall be applied by the Master Servicer as follows: With respect to each
Home Equity Loan (other than a Purchased Home Equity Loan), payments by or on
behalf of the Mortgagor shall be applied, in the case of Actuarial Home Equity
Loans, to the Scheduled Payment and, in the case of Simple Interest Home Equity
Loans, to interest and principal in accordance with the Simple Interest Method.
With respect to Actuarial Home Equity Loans, any remaining excess shall be added
to the Payahead Balance, and shall be applied to prepay the Actuarial Home
Equity Loan, but only if the sum of such excess and the previous Payahead
Balance shall be sufficient to prepay the Home Equity Loan in full. Otherwise,
any such remaining excess payments shall constitute a Payahead and shall
increase the Payahead Balance.
(b) All Liquidation Proceeds shall be applied to the related Home
Equity Loan in accordance with the Master Servicer's customary servicing
procedures.
SECTION 4.4. Additional Deposits. The Master Servicer and the Seller shall
deposit or cause to be deposited in the Collection Account the aggregate
Purchase Price with respect to Purchased Home Equity Loans and the Seller shall
deposit therein all amounts to be paid under Section 8.1. The Master Servicer
will deposit the aggregate Purchase Price with respect to Purchased Home Equity
Loans within two Business Days after such obligations become due, unless the
Master Servicer shall not be required to make deposits within two Business Days
of receipt pursuant to Section 3.2(c) (in which case such deposit will be made
by the related Transfer Date). All such other deposits shall be made on the
Transfer Date following the end of the related Due Period. Notwithstanding the
foregoing, for so long as (i) the Master Servicer is Avco Financial Services
Management Company, (ii) no Event of Default shall have occurred and be
continuing, (iii) if the Master Servicer does not have a short term debt rating
or deposit rating as applicable, of at least A-1 from Standard & Poor's and P-1
from Moody's, a guaranty, letter of credit, surety bond or other similar
instrument is issued covering the amounts
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described in the definition of Available Funds, which is acceptable to the
Rating Agencies and issued by an entity, which has a short-term debt or deposit
rating, as applicable, of at least A-1 from Standard & Poor's and P-1 from
Moody's; and (iv) the Rating Agency Condition shall have been satisfied (and any
conditions or limitations imposed by the Rating Agencies in connection therewith
are complied with), the Servicer shall remit such collections to the Collection
Account on or before the second Business Day preceding the related Distribution
Date. The Rating Agency Condition with respect to this Section 3.2 and the
Closing Date shall be deemed to be satisfied upon the issuance to the Seller of
the rating letters on the Closing Date.
SECTION 4.5. Distributions. (a) On each Distribution Date, the Trustee
shall cause to be transferred from the Payahead Account, or from the Master
Servicer in the event the provisions of Section 4.1(d)(ii) are applicable, to
the Collection Account, in immediately available funds, the aggregate previous
Payaheads to be applied to Scheduled Payments on Actuarial Home Equity Loans for
the related Due Period or prepayments for the related Due Period, pursuant to
Sections 4.3 and 4.4, in the amounts set forth in the Master Servicer's
Certificate for such Distribution Date. A single, net transfer may be made.
(b) On each Determination Date, the Master Servicer shall calculate
all amounts required to determine the amounts to be deposited from the Reserve
Account into the Collection Account and from the Collection Account into the
Note Distribution Account and the Certificate Distribution Account.
(c) On or before each Distribution Date, the Master Servicer shall
instruct the Trustee (based on the information contained in the Master
Servicer's Certificate delivered on the related Determination Date pursuant to
Section 3.10) to withdraw from the Reserve Account and deposit in the Collection
Account and the Trustee shall so withdraw and deposit the Reserve Account
Transfer Amount for such Distribution Date.
(d) Subject to the last paragraph of this Section 4.5(c), on each
Distribution Date, the Master Servicer shall instruct the Trustee (based on the
information contained in the Master Servicer's Certificate delivered on the
related Determination Date pursuant to Section 3.10) to make, and the Trustee
shall make, the following deposits and distributions from the Collection Account
for deposit in the applicable Account by TIME , to the extent of the Total
Distribution Amount, in the following order of priority: (i) to the Master
Servicer, from the Total Distribution Amount, the Total Servicing Fee; (ii) to
the Note Distribution Account, from the Total Distribution Amount remaining
after the application of clause (i), the Noteholders' Interest Distributable
Amount; (iii) to the Owner Trustee for deposit in the Certificate Distribution
Account, from the Total Distribution Amount remaining after the application of
clause (i) and clause (ii), the Certificateholders' Interest Distributable
Amount; (iv) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) through (iii), the
Noteholders' Principal Distributable Amount; and (v) to the Owner Trustee for
deposit in the Certificate Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) through (iv), the
Certificateholders' Principal Distributable Amount; provided, however, that
following the occurrence of an Event of Default pursuant to Section 5.1(i),
5.1(ii), 5.1(iv) or 5.1(v) of the Indenture, an acceleration of the Notes
pursuant to
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Section 5.2 of the Indenture, amounts on deposit in the Collection Account will
be deposited in the Note Distribution Account to the extent necessary to pay
accrued and unpaid interest on the Notes and then, to the extent funds are
available therefore, principal on the Notes until the principal balance of each
class of Notes has been reduced to zero, before any amounts are deposited in the
Certificate Distribution Account. Following the payment in full of the Notes,
amounts on deposit in the Collection Account will be deposited in the
Certificate Distribution Account to the extent necessary to pay accrued and
unpaid interest on the Certificates and then, to the extent funds are available
therefore, principal on the Certificates until the principal balance thereof has
been reduced to zero. In the event that the Collection Account is maintained
with an institution other than the Trustee, the Master Servicer shall instruct
and cause such institution to make all deposits and distributions pursuant to
this Section 4.5(c) on the related Transfer Date.
SECTION 4.6. Reserve Account. (a) On the Closing Date, the Seller shall
deposit the Reserve Account Initial Deposit into the Reserve Account.
(b) If the amount on deposit in the Reserve Account on any
Distribution Date (after giving effect to any withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, the Master Servicer shall instruct the Trustee to
distribute, and the Trustee shall distribute, the amount of the excess to the
Seller. Amounts properly distributed to the Seller pursuant to Section 4.6(b)
shall be deemed released from the Trust and the security interest therein
granted to the Trustee and the Seller shall in no event thereafter be required
to refund any such distributed amounts.
SECTION 4.7. Reserved.
SECTION 4.8. Statements to Certificateholders and Noteholders. On each
Determination Date, the Master Servicer shall provide to the Trustee (with a
copy to the Rating Agencies) for the Trustee to forward to each Noteholder of
record, to each Paying Agent, if any, and to the Owner Trustee for the Owner
Trustee to forward to each Certificateholder of record, a statement
substantially in the form of Exhibit B and Exhibit C, respectively, setting
forth at least the following information as to the Notes and the Certificates to
the extent applicable: (i) the amount of such distribution allocable to
principal of each class of Notes and to the Certificate Balance of the
Certificates; (ii) the amount of such distribution allocable to interest on or
with respect to each class of Notes and to the Certificates; (iii) the aggregate
outstanding principal balance of each class of the Notes and the Certificate
Balance after giving effect to payments allocated to principal reported under
(i) above; (iv) the amount of the Total Servicing Fee paid to the Master
Servicer with respect to the related Due Period; (v) The amount of the Monthly
Advances payment to be made on the Determination Date; (vi) the amount of the
aggregate Realized Losses, if any, for such Due Period; (vii) the Reserve
Account Transfer Amount, if any, for such Distribution Date, the average of the
Charge-off Rates and the Delinquency Percentages for the three preceding Due
Periods, the Specified Reserve Account Balance for such Distribution Date, the
amount distributed to the Seller from the Reserve Account on such Distribution
Date, and the balance of the Reserve Account (if any) on such Distribution Date,
after giving effect to changes therein on such Distribution Date; (viii) the
Noteholders' Interest Carryover Shortfall, the Certificateholders' Interest
Carryover Shortfall, the Noteholders'
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Principal Carryover Shortfall, and the Certificateholders' Principal Carryover
Shortfall; (ix) the amounts which are reimbursable to the Master Servicer for
Reimbursable Amounts and Nonrecoverable Advances; (x) the amount of Servicing
Advances for the preceding Due Period; and (xi) the aggregate Purchase Price
paid by the Seller or the Master Servicer with respect to the related Due
Period. Each amount set forth pursuant to paragraph (i), (ii), (vi) or (xi)
above shall be expressed as a dollar amount per $1,000 of the initial principal
balance of the Notes (or class thereof) or the initial Certificate Balance, as
applicable.
SECTION 4.9. Net Deposits. As an administrative convenience, unless the
Master Servicer is required to remit collections within two Business Days of
receipt thereof, the Master Servicer will be permitted to make the deposit of
collections on the Home Equity Loans and Purchase Prices for or with respect to
the Due Period net of distributions to be made to the Master Servicer with
respect to the Due Period. The Master Servicer, however, will account to the
Owner Trustee, the Trustee, the Noteholders and the Certificateholders as if all
deposits, distributions and transfers were made individually.
ARTICLE V
The Seller, the Representative and the Originators
SECTION 5.1. Representations of Seller. The Seller represents and warrants
to the Issuer as follows:
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws governing its creation and
existence and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business, or the properties owned
or leased by it make such qualification necessary. The Seller has all
requisite corporate power and authority to own and operate its properties,
to carry out its business as presently conducted and as proposed to be
conducted and to enter into and discharge its obligations under this
Agreement;
(ii) This Agreement constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance
with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect affecting the enforcement of creditors' rights
in general and except as such enforcement may be limited by general
principles of equity (whether considered in a proceeding at law or in
equity);
(iii) Immediately prior to the sale and assignment by the
Seller to the Trustee of each Home Equity Loan, the Seller was the sole
beneficial owner of each Home Equity Loan (insofar as such title was
conveyed to it by the applicable Originator) subject to no prior lien,
claim, participation interest, mortgage, security interest, pledge, charge
or other encumbrance or other interest of any nature;
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(iv) As of the Closing Date, the Seller has transferred all
right, title and interest in the Home Equity Loans to the Trustee; and
(v) The Seller has not transferred the Home Equity Loans to
the Trustee with any intent to hinder, delay or defraud any of its
creditors.
SECTION 5.2. Corporate Existence. (a) During the term of this Agreement,
the Seller will keep in full force and effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
incorporation 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 Agreement, the Basic Documents
and each other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby.
(b) During the term of this Agreement, the Seller shall observe the
applicable legal requirements for the recognition of the Seller as a legal
entity separate and apart from its Affiliates, including as follows: (i) the
Seller shall maintain corporate records and books of account separate from those
of its Affiliates; (ii) except as otherwise provided in this Agreement, the
Seller shall not commingle its assets and funds with those of its Affiliates;
(iii) the Seller shall hold such appropriate meetings of its Board of Directors
as are necessary to authorize all the Seller's corporate actions required by law
to be authorized by the Board of Directors, shall keep minutes of such meetings
and of meetings of its stockholder(s) and observe all other customary corporate
formalities (and any successor Seller not a corporation shall observe similar
procedures in accordance with its governing documents and applicable law); (iv)
the Seller shall at all times hold itself out to the public under the Seller's
own name as a legal entity separate and distinct from its Affiliates; and (v)
all transactions and dealings between the Seller and its Affiliates will be
conducted on an arm's-length basis.
SECTION 5.3 Liability of Seller; Indemnities. The Seller shall be liable
in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the Issuer,
the Owner Trustee and the Trustee and their respective officers, directors,
employees and agents from and against any taxes that may at any time be asserted
against any such Person with respect to the transactions contemplated in this
Agreement and any of the Basic Documents (except any income taxes arising out of
fees paid to the Owner Trustee or the Trustee and except any taxes to which the
Owner Trustee or the Trustee may otherwise be subject to), including any sales,
gross receipts, general corporation, tangible personal property, privilege or
license taxes (but, in the case of the Issuer, not including any taxes asserted
with respect to, and as of the date of, the sale of the Home Equity Loans to the
Owner Trustee on behalf of the Issuer or the issuance and original sale of the
Certificates and the Notes, or asserted with respect to ownership of the Home
Equity Loans or Federal or other income taxes arising out of distributions on
the Certificates and
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the Notes) and costs and expenses in defending against the same or in connection
with any application relating to the Notes or Certificates under any state
securities laws.
(b) The Seller shall indemnify, defend and hold harmless the Issuer,
the Owner Trustee, the Trustee, the Certificateholders and the Noteholders and
the officers, directors, employees and agents of the Issuer, the Owner Trustee
and the Trustee from and against any and all costs, expenses, losses, claims,
damages and liabilities to the extent arising out of, or imposed upon such
Person through (i) the Seller's willful misfeasance, bad faith or negligence in
the performance of its duties under this Agreement, or by reason of reckless
disregard of its obligations and duties under this Agreement and (ii) the
Seller's or the Issuer's violation of Federal or state securities laws in
connection with the offering and sale of the Notes and the Certificates or in
connection with any application relating to the Notes or Certificates under any
state securities laws.
(c) The Seller shall be liable as primary obligor for, and shall
indemnify, defend and hold harmless the Owner Trustee and its officers,
directors, employees and agents from and against any and all costs, expenses,
losses, claims, damages and liabilities arising out of, or incurred in
connection with, this Agreement or any of the Basic Documents, the Owner Trust
Estate, the acceptance or performance of the trusts and duties set forth herein
and in the Trust Agreement or the action or the inaction of the Owner Trustee
hereunder and under the Trust Agreement, except to the extent that such cost,
expense, loss, claim, damage or liability: (i) shall be due to the willful
misfeasance, bad faith or negligence of the Owner Trustee, (ii) shall arise from
any breach by the Owner Trustee of its covenants under this Agreement or any of
the Basic Documents; or (iii) shall arise from the breach by the Owner Trustee
of any of its representations or warranties set forth in Section 7.3 of the
Trust Agreement. Such liability shall survive the termination of the Trust. In
the event of any claim, action or proceeding for which indemnity will be sought
pursuant to this paragraph, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Seller, which approval shall not be unreasonably
withheld.
(d) The Seller shall pay any and all taxes levied or assessed upon
all or any part of the Trust Estate (other than those taxes expressly excluded
from the Seller's responsibilities pursuant to the parentheticals in paragraph
(a) above). Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee or the Trustee and the termination of this
Agreement or the Indenture or the Trust Agreement, as applicable, and shall
include reasonable fees and expenses of counsel and other expenses of
litigation. If the Seller shall have made any indemnity payments pursuant to
this Section and the Person to or on behalf of whom such payments are made
thereafter shall collect any of such amounts from others, such Person shall
promptly repay such amounts to the Seller, without interest.
SECTION 5.4. Merger or Consolidation of, or Assumption of the Obligations
of, Seller. Any Person (a) into which the Seller may be merged or consolidated,
(b) which may result from any merger or consolidation to which the Seller shall
be a party or (c) which may succeed to the properties and assets of the Seller
substantially as a whole, shall be the successor to the Seller without the
execution or filing of any document or any further act by any of the parties to
this Agreement; provided, however, that the Seller hereby covenants that it will
not
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consummate any of the foregoing transactions except upon satisfaction of the
following: (i) the surviving Seller if other than Avco ABS Receivables Corp.,
executes an agreement of assumption to perform every obligation of the Seller
under this Agreement, (ii) immediately after giving effect to such transaction,
no representation or warranty made pursuant to Section 2.4 or 5.1 shall have
been breached, (iii) the Seller shall have delivered to the Owner Trustee and
the Trustee an Officers' Certificate and an Opinion of Counsel each stating that
such consolidation, merger or succession and such agreement of assumption comply
with this Section and that all conditions precedent, if any, provided for in
this Agreement relating to such transaction have been complied with, and that
the Rating Agency Condition shall have been satisfied with respect to such
transaction, (iv) the surviving Seller shall have a consolidated net worth at
least equal to that of the predecessor Seller, (v) such transaction will not
result in a material adverse federal or state tax consequence to the Issuer, the
Noteholders or the Certificateholders and (vi) unless Avco ABS Receivables
Corp., is the surviving entity, the Seller shall have delivered to the Owner
Trustee and the Trustee an Opinion of Counsel either (A) stating that, in the
opinion of such counsel, all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary fully to
preserve and protect the interest of the Owner Trustee and Trustee,
respectively, in the Home Equity Loans and reciting the details of such filings,
or (B) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interests.
SECTION 5.5. Limitation on Liability of Seller and Others. The Seller and
any director or officer or employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
under any Basic Document (provided that such reliance shall not limit in any way
the Seller's obligations under Section 2.4(b)). The Seller shall not be under
any obligation to appear in, prosecute or defend any legal action that shall not
be incidental to its obligations under this Agreement, and that in its opinion
may involve it in any expense or liability.
SECTION 5.6. Seller May Own Certificates or Notes. The Seller and any
Affiliate thereof may in its individual or any other capacity become the owner
or pledgee of Certificates or Notes with the same rights as it would have if it
were not the Seller or an Affiliate thereof, except as expressly provided herein
or in any Basic Document.
SECTION 5.7. Representations and Warranties Regarding the Representative
and the Originators. (a) The Representative represents and warrants that, as of
the Closing Date:
(i) The Representative is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware 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 hereunder and is in good standing in each jurisdiction in
which the nature of its business, or the property owned or leased by it
make such a qualification necessary. The Representative has, and had at
all relevant times, full corporate power to own its property, to carry on
its business as presently conducted and to enter into and perform its
obligations under this Agreement;
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(ii) The execution and delivery of this Agreement by the
Representative and the performance by the Representative and compliance
with the terms of this Agreement will not violate the Representative's
articles of incorporation or by-laws or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the breach or acceleration of, any material contract,
agreement or other instrument to which the Representative is a party or
which may be applicable to the Representative or any of its assets;
(iii) The Representative has the full power and authority to enter
into and consummate all transactions contemplated by this Agreement to be
consummated by it, has duly authorized the execution, delivery and
performance of this Agreement, and has duly executed and delivered this
Agreement. This Agreement, assuming due authorization, execution and
delivery by the other parties hereto, constitutes a valid, legal and
binding obligation of the Representative enforceable against it in
accordance with the terms hereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership,
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);
(iv) The Representative is not in violation of, and the execution
and delivery of this Agreement by the Representative and the performance
by the Representative and compliance with the terms of this Agreement will
not constitute a violation with respect to, any order or decree of any
court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would materially
and adversely affect the condition (financial or otherwise) or operations
of the Representative or any of its properties or materially and adversely
affect the performance of any of its duties hereunder;
(v) There are no actions or proceedings against, or investigations
of, the Representative pending or, to the knowledge of the Representative,
threatened, before any court, administrative agency or other tribunal (A)
that, if determined adversely, would prohibit its entering into this
Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or (C) that, if determined
adversely, would prohibit or materially and adversely affect the
performance by the Representative of any of its obligations under, or the
validity or enforceability of, this Agreement;
(vi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Representative of, or compliance by the Representative
with, this Agreement, or for the consummation of the transactions
contemplated by this Agreement, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to the
Closing Date;
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(vii) No Officer's Certificate, statement, report or other document
prepared by the Representative and furnished or to be furnished by it
pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading;
(viii) The transactions contemplated by this Agreement are in the
ordinary course of business of the Representative;
(ix) The statements contained in the Registration Statement which
describe the Representative or matters or activities for which the
Representative is responsible in accordance with the Registration
Statement, this Agreement and all documents referred to therein or
delivered in connection therewith, or which are attributable to the
Representative therein are true and correct in all material respects, and
the Registration Statement does not contain any untrue statement of a
material fact with respect to the Representative and does not omit to
state a material fact necessary to make the statements contained therein
with respect to the Representative not misleading. The Representative is
not aware that the Registration Statement contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements contained therein not misleading. There is no fact peculiar to
the Representative or the Home Equity Loans and known to the
Representative that materially adversely affects or in the future may (so
far as the Representative can now reasonably foresee) materially adversely
affect the Representative or the Home Equity Loans or the ownership
interests therein represented by the Certificates that has not been set
forth in the Registration Statement;
(x) Each Originator received fair consideration and reasonably
equivalent value in exchange for the sale of the interest in the Home
Equity Loans;
(xi) No Originator sold any interest in any Home Equity Loan,
evidenced by the Certificates, as provided in the Agreement, with any
intent to hinder, delay or defraud any of its respective creditors; and
(xii) The Originators are solvent and the Originators will not be
rendered insolvent as a result of the sale of the Home Equity Loans to the
Seller or the sale of the Certificates.
(b) Each Originator represents and warrants that, as of the Closing
Date:
(i) Such Originator is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and is licensed by and in compliance with the laws of each
state in which any Mortgaged Property relating to a Home Equity Loan
originated by it and/or to be serviced by it to the extent necessary to
enable it to perform its obligations under this Agreement and the
subservicing agreement to which it is a party and is in good standing in
each jurisdiction in which the nature of its business, or the property
owned or leased by it make such qualification necessary. Such Originator
has,
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and had at all relevant times, full corporate power to originate the Home
Equity Loans originated by it, to own its property, to carry on its
business as presently conducted and to enter into and perform its
obligations under this Agreement and the subservicing agreement to which
it is a party;
(ii) The execution and delivery of this Agreement and the
subservicing agreement to which it is a party by such Originator and the
performance by such Originator of and compliance with the terms of this
Agreement and the subservicing agreement to which it is a party will not
violate such Originator's articles of incorporation or by-laws or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to
which such Originator is a party or which may be applicable to the such
Originator or any of its assets;
(iii) Such Originator has the full power and authority to enter into
and consummate all transactions contemplated by this Agreement and the
subservicing agreement to which it is a party to be consummated by it, has
duly authorized the execution, delivery and performance of this Agreement
and the subservicing agreement to which it is a party, and has duly
executed and delivered this Agreement and the subservicing agreement to
which it is a party. Each of this Agreement and the subservicing agreement
to which it is a party, assuming due authorization, execution and delivery
by the other parties hereto and thereto, constitutes a valid, legal and
binding obligation of such Originator, enforceable against it in
accordance with the terms hereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership,
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);
(iv) Such Originator is not in violation of, and the execution and
delivery of this Agreement and the subservicing agreement to which it is a
party by such Originator and the performance by such Originator and
compliance with the terms of this Agreement and the subservicing agreement
to which it is a party will not constitute a violation with respect to,
any order or decree of any court or any order or regulation of any
federal, state, municipal or governmental agency having jurisdiction,
which violation would materially and adversely affect the condition
(financial or otherwise) or operations of such Originator or any of its
properties or materially and adversely affect the performance of any of
its duties hereunder or thereunder;
(v) There are no actions or proceedings against, or investigations
of, such Originator pending or, to the knowledge of such Originator,
threatened, before any court, administrative agency or other tribunal (A)
that, if determined adversely, would prohibit its entering into this
Agreement or the subservicing agreement to which it is a party, (B)
seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or the subservicing agreement to which it
is a party or (C) that, if determined adversely, would prohibit or
materially and adversely affect the performance such
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Originator of any of its obligations under, or the validity or
enforceability of, this Agreement or the subservicing agreement to which
it is a party;
(vi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by such Originator of, or compliance by such Originator with,
this Agreement or the subservicing agreement to which it is a party, or
for the consummation of the transactions contemplated by this Agreement or
the subservicing agreement to which it is a party, except for such
consents, approvals, authorizations and orders, if any, that have been
obtained prior to the Closing Date;
(vii) No Officer's Certificate, statement, report or other document
prepared by such Originator and furnished or to be furnished by it
pursuant to this Agreement or the subservicing agreement to which it is a
party or in connection with the transactions contemplated hereby or
thereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein
not misleading;
(viii) The statements contained in the Registration Statement which
describe such Originator or matters or activities for which such
Originator is responsible in accordance with the Registration Statement,
this Agreement and all documents referred to therein or delivered in
connection therewith, or which are attributable to such Originator therein
are true and correct in all material respects, and the Registration
Statement does not contain any untrue statement of a material fact with
respect to such Originator or the Home Equity Loans and does not omit to
state a material fact necessary to make the statements contained therein
with respect to such Originator or the Home Equity Loans not misleading.
Such Originator is not aware that the Registration Statement contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements contained therein not misleading. There
is no fact peculiar to such Originator or the Home Equity Loans and known
to such Originator that materially and adversely affects or in the future
may (so far as such Originator can now reasonably foresee) materially and
adversely affect such Originator or the Home Equity Loans or the ownership
interests therein represented by the Certificates that has not been set
forth in the Registration Statement;
(ix) Upon the receipt of each Mortgage File by the Trustee, the
Trustee will have good and marketable title on behalf of the Trust to each
Home Equity Loan and such other items comprising the corpus of the Trust
free and clear of any lien (other than liens which will be simultaneously
released);
(x) The transfer, assignment and conveyance of the Mortgage Notes
and the Mortgages by such Originator pursuant to this Agreement are not
subject to the bulk transfer laws or any similar statutory provisions in
effect in any applicable jurisdiction;
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(xi) The origination and collection practices used by such
Originator with respect to each Mortgage Note and Mortgage relating to the
Home Equity Loans have been, in all material respects, legal, and in
accordance with the Originator's policies and procedures in effect at the
time;
(xii) Each Home Equity Loan was randomly selected from among the
existing Home Equity Loans in the respective Originator's portfolio at the
date hereof;
(xiii) Such Originator received fair consideration and reasonably
equivalent value in exchange for the sale of its interest in the Home
Equity Loans evidenced by the Certificates;
(xiv) Such Originator did not sell any interest in any Home Equity
Loan evidenced by the Certificates with any intent to hinder, delay or
defraud any of its respective creditors; and
(xv) Such Originator is solvent, and such Originator will not be
rendered insolvent as a result of the sale of the Home Equity Loans to the
Seller or the sale of the Certificates.
The representations and warranties set forth in this Section 2.04 shall survive
the sale and assignment of the Home Equity Loans to the Issuer. Upon discovery
of a breach of any representations and warranties which materially and adversely
affects the interests of the Certificateholders or the Noteholders, the Person
discovering such breach shall give prompt written notice to the other parties.
Within 60 days of its discovery or its receipt of notice of such breach, or,
with the prior written consent of a Responsible Officer of the Trustee, such
longer period specified in such consent, the Representative or the applicable
Originator shall cure such breach in all material respects.
ARTICLE VI
The Master Servicer
SECTION 6.1. Representations of Master Servicer. The Master Servicer
represents and warrants to the Issuer as follows:
(i) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is in compliance with the laws of each state in which any Mortgaged
Property is located and is in good standing in each jurisdiction in which
the nature of its business, or the properties owned or leased by it make
such qualification necessary. The Master Servicer has, and had at all
relevant times, full corporate power, to own its property, to carry on its
business as presently conducted and to enter into and perform its
obligations under this Agreement and each subservicing agreement.
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(ii) The execution and delivery of this Agreement and each
subservicing agreement by the Master Servicer and the performance by the
Master Servicer of and compliance with the terms of this Agreement and
each subservicing agreement will not violate the Master Servicer's
articles of incorporation or by-laws or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the breach or acceleration of, any material contract,
agreement or other instrument to which the Master Servicer is a party or
which may be applicable to the Master Servicer or any of its assets;
(iii) The Master Servicer has the full power and authority to enter
into and consummate all transactions contemplated by this Agreement and
each subservicing agreement to be consummated by it, has duly authorized
the execution, delivery and performance of this Agreement and each
subservicing agreement, and has duly executed and delivered this Agreement
and each subservicing agreement. This Agreement and each subservicing
agreement, assuming due authorization, execution and delivery by the other
parties hereto and thereto, constitutes a valid, legal and binding
obligation of the Master Servicer, enforceable against it in accordance
with the terms hereof and thereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership,
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);
(iv) The Master Servicer is not in violation of, and the execution
and delivery of this Agreement and each subservicing agreement by the
Master Servicer and the performance by the Master Servicer and compliance
with the terms of this Agreement and each subservicing agreement will not
constitute a violation with respect to, any order or decree of any court
or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would materially
and adversely affect the condition (financial or otherwise) or operations
of the Master Servicer or any of its properties or materially and
adversely affect the performance of any of its duties hereunder or
thereunder;
(v) There are no actions or proceedings against, or investigations
of, the Master Servicer pending or, to the knowledge of the Master
Servicer, threatened, before any court, administrative agency or other
tribunal (A) that, if determined adversely, would prohibit its entering
into this Agreement or any subservicing agreement, (B) seeking to prevent
the consummation of any of the transactions contemplated by this Agreement
or any subservicing agreement or (C) that, if determined adversely, would
prohibit or materially and adversely affect the performance by the Master
Servicer of any of its obligations under, or the validity or
enforceability of, this Agreement or any subservicing agreement;
(vi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Master Servicer of, or compliance by the Master
Servicer with, this Agreement and each subservicing agreement, or for the
consummation of the transactions contemplated by this
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Agreement and each subservicing agreement, except for such consents,
approvals, authorizations and orders, if any, that have been obtained
prior to the Closing Date;
(vii) The collection practices used by the Master Servicer with
respect to the Home Equity Loans have been, in all material respects,
legal, proper, prudent and customary in the non-conforming mortgage
servicing business;
(viii) No Officer's Certificate, statement, report or other document
prepared by the Master Servicer and furnished or to be furnished by it
pursuant to this Agreement or any subservicing agreement or in connection
with the transactions contemplated hereby or thereby contains any untrue
statement of material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading;
(ix) The Master Servicer believes that the Servicing Fee Rate
provides a reasonable level of base compensation to the Master Servicer
for master servicing the Home Equity Loans on the terms set forth herein;
(x) The transactions contemplated by this Agreement and each
subservicing Agreement are in the ordinary course of business of the
Master Servicer; and
(xi) The statements contained in the Registration Statement which
describe the Master Servicer or matters or activities for which the Master
Servicer is responsible in accordance with the Registration Statement,
this Agreement and all documents referred to therein or delivered in
connection therewith, or which are attributable to the Master Servicer
therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material
fact with respect to the Master Servicer and does not omit to state a
material fact necessary to make the statements contained therein with
respect to the Master Servicer not misleading. The Master Servicer is not
aware that the Registration Statement contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements contained therein not misleading. There is no fact peculiar to
the Master Servicer or the Home Equity Loans and known to the Master
Servicer that materially adversely affects or in the future may (so far as
the Master Servicer can now reasonably foresee) materially adversely
affect the Master Servicer or the Home Equity Loans or the ownership
interests therein represented by the Certificates that has not been set
forth in the Registration Statement; and
(xii) The Master Servicer has caused or hereby agrees to cause to be
performed any and all acts required to be performed to preserve the rights
and remedies of the Trustee in any insurance policies applicable to the
Home Equity Loans, including, without limitation, any necessary
notifications of insurers, assignments of policies or interests therein,
and establishments of co-insured, joint loss payee and mortgagee rights in
favor of the Trustee.
The representations and warranties set forth in this Section 6.1 shall survive
the sale and assignment of the Home Equity Loans to the Issuer. Upon discovery
of a breach of any representations and
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warranties which materially and adversely affects the interests of the
Certificateholders or the Noteholders, the Person discovering such breach shall
give prompt written notice to the other parties. Within 60 days of its discovery
or its receipt of notice of such breach, or, with the prior written consent of a
Responsible Officer of the Trustee, such longer period specified in such
consent, the Master Servicer shall cure such breach in all material respects.
SECTION 6.2. Indemnities of Master Servicer. (a) The Master Servicer shall
be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Master Servicer under this Agreement. The Master
Servicer shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee, the Trustee, the Representative, the Seller, the Certificateholders and
the Noteholders and any of the officers, directors, employees and agents of the
Issuer, the Owner Trustee, the Trustee or the Seller from any and all costs,
expenses, losses, claims, damages and liabilities (including reasonable
attorneys' fees and expenses) to the extent arising out of, or imposed upon any
such Person through, the negligence, willful misfeasance or bad faith of the
Master Servicer in the performance of its obligations and duties under this
Agreement or in the performance of the obligations and duties of any subservicer
under any subservicing agreement or by reason of the reckless disregard of its
obligations and duties under this Agreement or by reason of the reckless
disregard of the obligations of any subservicer under any subservicing
agreement, where the final determination that any such cost, expense, loss,
claim, damage or liability arose out of, or was imposed upon any such Person
through, any such negligence, willful misfeasance, bad faith or recklessness on
the part of the Master Servicer or any subservicer, is established by a court of
law, by an arbitrator or by way of settlement agreed to by the Master Servicer.
Notwithstanding the foregoing, if the Master Servicer is rendered unable, in
whole or in part, by virtue of an act of God, act of war, fires, earthquake or
other natural disasters, to satisfy its obligations under this Agreement, the
Master Servicer shall not be deemed to have breached any such obligation upon
the sending of written notice of such event to the other parties hereto, for so
long as the Master Servicer remains unable to perform such obligation as a
result of such event. This provision shall not be construed to limit the Master
Servicer's or any other party's rights, obligations, liabilities, claims or
defenses which arise as a matter of law or pursuant to any other provision of
this Agreement. The Master Servicer shall indemnify, defend and hold harmless
the Issuer, the Owner Trustee, the Trustee, the Seller, the Certificateholders
and the Noteholders or any of the officers, directors, employees and agents of
the Issuer, the Owner Trustee, the Trustee or the Seller from any and all costs,
expenses, losses, claims, damages and liabilities (including reasonable
attorneys' fees and expenses) to the extent arising out of or imposed upon any
such Person as a result of any compensation payable to any subservicer
(including any fees payable in connection with the termination of the servicing
activities of such subservicer with respect to any Home Equity Loan) whether
pursuant to the terms of any subservicing agreement or otherwise.
SECTION 6.3. Merger or Consolidation of, or Assumption of the Obligations
of, Master Servicer. Any Person (a) into which the Master Servicer may be merged
or consolidated, (b) which may result from any merger or consolidation to which
the Master Servicer shall be a party or (c) which may succeed to the properties
and assets of the Master Servicer, substantially as a whole, shall be the
successor to the Master Servicer without the execution or filing of any document
or any further act by any of the parties to this Agreement; provided, however,
that the
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Master Servicer hereby covenants that it will not consummate any of the
foregoing transactions except upon satisfaction of the following: (i) the
surviving Master Servicer if other than Avco Financial Services Management
Company, executes an agreement of assumption to perform every obligation of the
Master Servicer under this Agreement, (ii) immediately after giving effect to
such transaction, no representation or warranty made pursuant to Section 6.1
shall have been breached and no Master Servicer Default, and no event that,
after notice or lapse of time, or both, would become a Master Servicer Default
shall have occurred and be continuing, (iii) the Master Servicer shall have
delivered to the Owner Trustee and the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section and that all
conditions precedent, if any, provided for in this Agreement relating to such
transaction have been complied with, and that the Rating Agency Condition shall
have been satisfied with respect to such transaction, (iv) the surviving Master
Servicer shall have a consolidated net worth at least equal to that of the
predecessor Master Servicer, and (v) such transaction will not result in a
material adverse Federal or state tax consequence to the Issuer, the Noteholders
or the Certificateholders.
SECTION 6.4. Limitation on Liability of Master Servicer and Others.
Neither the Master Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Issuer, the Noteholders or the
Certificateholders, except as provided under this Agreement, for any action
taken or for refraining from the taking of any action by the Master Servicer or
any subservicer pursuant to this Agreement or for errors in judgment; provided,
however, that this provision shall not protect the Master Servicer or any such
person against any liability that 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 under this Agreement. The
Master Servicer or any subservicer and any of their respective directors,
officers, employees or agents may rely in good faith on any document of any kind
prima facie properly executed and submitted by any Person respecting any matters
arising under this Agreement Except as provided in this Agreement the Master
Servicer shall not be under any obligation to appear in, prosecute or defend any
legal action that shall be incidental to its duties to service the Home Equity
Loans in accordance with this Agreement, and that in its opinion may involve it
in any expense or liability; provided, however, that the Master Servicer, may
(but shall not be required to) undertake any reasonable action that it may deem
necessary or desirable in respect of the Basic Documents to protect the
interests of the Certificateholders under this Agreement and the Noteholders
under the Indenture.
SECTION 6.5. Avco Financial Services Management Company Not To Resign as
Master Servicer. Subject to the provisions of Section 6.3, Avco Financial
Services Management Company, hereby agrees not to resign from the obligations
and duties hereby imposed on it as Master Servicer under this Agreement except
upon determination that the performance of its duties hereunder shall no longer
be permissible under applicable law or if such resignation is required by
regulatory authorities. Notice of any such determination permitting the
resignation of Avco Financial Services Management Company, as Master Servicer
shall be communicated to the Owner Trustee and the Trustee at the earliest
practicable time (and, if such communication is not in writing, shall be
confirmed in writing at the earliest practicable time) and any such
determination shall be evidenced by an Opinion of Counsel to such effect
delivered to the Owner
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Trustee and the Trustee concurrently with or promptly after such notice. No such
resignation shall become effective until the earlier of the Trustee or a
Successor Master Servicer having assumed the responsibilities and obligations of
the resigning Master Servicer in accordance with Section 7.2 or the date upon
which any regulatory authority requires such resignation.
ARTICLE VII
Default
SECTION 7.1. Master Servicer Default. If any one of the following events
(a "Master Servicer Default") shall occur and be continuing:
(a) any failure by the Master Servicer to deliver to the Trustee for
deposit in any of the Trust Accounts or the Certificate Distribution
Account any required payment or to direct the Trustee to make any required
distributions therefrom (other than a Monthly Advance required to be made
from its own funds) that shall continue unremedied for a period of five
Business Days after written notice of such failure is received by the
Master Servicer from the Owner Trustee or the Trustee or after discovery
of such failure by an Authorized Officer of the Master Servicer; or
(b) failure by the Master Servicer to make any required Servicing
Advance which failure continues unremedied for a period of 30 days, or
failure on the part of the Master Servicer duly to observe or to perform
in any material respect any other covenants or agreements of the Master
Servicer set forth in this Agreement or any other Basic Document, which
failure shall (i) materially and adversely affect the rights of either the
Certificateholders or Noteholders and (ii) continue unremedied for a
period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given (A) to the Master
Servicer by the Owner Trustee or the Trustee or (B) to the Master Servicer
and to the Owner Trustee and the Trustee by the Holders of Notes
evidencing not less than 25% of the Outstanding Amount of the Notes or
Holders of Certificates evidencing not less than 25% of the outstanding
Certificate Balance, as applicable (or for such longer period, not in
excess of 120 days, as may be reasonably necessary to remedy such default;
provided that such default is capable of remedy within 120 days and the
Master Servicer delivers an Officers' Certificate to the Owner Trustee and
the Trustee to such effect and to the effect that the Master Servicer has
commenced or will promptly commence, and will diligently pursue, all
reasonable efforts to remedy such default); or
(c) any failure of the Master Servicer to pay any Monthly Advance
required to be made from its own funds pursuant to Section 3.15 that
continues unremedied for a period of one Business Day; or
(d) an Insolvency Event occurs with respect to the Master Servicer
or any successor; then, and in each and every case, so long as the Master
Servicer Default shall not have been remedied, either the Trustee, or the
Holders of Notes evidencing not less
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than 25% of the Outstanding Amount of the Notes, by notice then given in
writing to the Master Servicer and the Owner Trustee (and to the Trustee
if given by the Noteholders) may terminate all the rights and obligations
(other than the obligations set forth in Section 6.2) of the Master
Servicer under this Agreement.
On or after the receipt by the Master Servicer of such written notice, all
authority and power of the Master Servicer under this Agreement, whether with
respect to the Notes, the Certificates or the Home Equity Loans or otherwise,
shall, without further action, pass to and be vested in the Trustee or such
successor Master Servicer as may be appointed under Section 7.2; and, without
limitation, the Trustee and the Owner Trustee are hereby authorized and
empowered to execute and deliver, on behalf of the predecessor Master Servicer,
as attorney-in-fact or otherwise, any and all documents and other instruments,
and to do or accomplish all other acts or things necessary or appropriate to
effect the purposes of such notice of termination, whether to complete the
transfer and endorsement of the Home Equity Loans and related documents, or
otherwise. The predecessor Master Servicer shall cooperate with the successor
Master Servicer, the Trustee and the Owner Trustee in effecting the termination
of the responsibilities and rights of the predecessor Master Servicer under this
Agreement, including the transfer to the successor Master Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Master Servicer for deposit, or shall thereafter be received by it
with respect to a Home Equity Loan. All reasonable costs and expenses (including
attorneys' fees) incurred in connection with transferring the Mortgage Files to
the successor Master Servicer and amending this Agreement to reflect such
succession as Master Servicer pursuant to this Section shall be paid by the
predecessor Master Servicer upon presentation of reasonable documentation of
such costs and expenses. Upon receipt of notice of the occurrence of a Master
Servicer Default, the Owner Trustee shall give notice thereof to the Rating
Agencies.
SECTION 7.2. Appointment of Successor. (a) Upon the Master Servicer's
receipt of notice of termination, pursuant to Section 7.1 or the Master
Servicer's resignation in accordance with the terms of this Agreement, the
predecessor Master Servicer shall continue to perform its functions as Master
Servicer under this Agreement, in the case of termination, only until the date
specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
resignation, until the earlier of (x) the date 45 days from the delivery to the
Owner Trustee and the Trustee of written notice of such resignation (or written
confirmation of such notice) in accordance with the terms of this Agreement and
(y) the date upon which the predecessor Master Servicer shall become unable to
act as Master Servicer, as specified in the notice of resignation and
accompanying Opinion of Counsel. In the event of the Master Servicer's
termination hereunder, the Trustee shall appoint a successor Master Servicer,
and the successor Master Servicer shall accept its appointment by a written
assumption in form acceptable to the Owner Trustee and the Trustee. In the event
that a successor Master Servicer has not been appointed at the time when the
predecessor Master Servicer has ceased to act as Master Servicer in accordance
with this Section, the Trustee without further action shall automatically be
appointed the successor Master Servicer and the Trustee shall be entitled to the
Servicing Fee. Notwithstanding the above, the Trustee shall, if it shall be
unwilling or unable so to act, appoint or petition a court of competent
jurisdiction to appoint, any established institution, having a net worth of not
less than $50,000,000 and whose regular business shall include the
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servicing of Home Equity Loans and REO Property, as the successor to the Master
Servicer under this Agreement.
(b) Upon appointment, the successor Master Servicer (including the
Trustee acting as successor servicer) shall be the successor in all respects to
the predecessor Master Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Master Servicer and shall be entitled to the Servicing
Fee and all the rights granted to the predecessor Master Servicer by the terms
and provisions of this Agreement. No successor Master Servicer shall be liable
for any acts or omissions of any predecessor Master Servicer.
(c) The Master Servicer may not resign unless it is prohibited from
serving as such by law or by requirement of any regulatory authority.
SECTION 7.3. Payment of Servicing Fee. If the Master Servicer shall
change, the predecessor Master Servicer shall be entitled to receive any accrued
and unpaid Servicing Fees through the date of the successor Master Servicer's
acceptance hereunder in accordance with Section 3.9.
SECTION 7.4. Notification to Noteholders and Certificateholders. Upon any
termination of, or appointment of a successor to, the Master Servicer pursuant
to this Article VII, the Owner Trustee shall give prompt written notice thereof
to Certificateholders and the Trustee shall give prompt written notice thereof
to Noteholders subject to the Rating Agency Condition.
SECTION 7.5. Waiver of Past Defaults. The Holders of Notes evidencing not
less than a majority of the Outstanding Amount of the Notes (or the Holders (as
defined in the Trust Agreement) of Certificates evidencing not less than a
majority of the outstanding Certificate Balance, as applicable, in the case of
any default which does not adversely affect the Trustee or the Noteholders) may,
on behalf of all Noteholders and Certificateholders, waive in writing any
default by the Master Servicer in the performance of its obligations hereunder
and its consequences, except a default in making any required deposits to or
payments from any of the Trust Accounts in accordance with this Agreement. Upon
any such waiver of a past default, such default shall cease to exist, and any
Master Servicer 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.
ARTICLE VIII
Termination
SECTION 8.1. Optional Purchase of All Home Equity Loans. (a) On the last
day of any Due Period immediately preceding a Determination Date as of which the
then outstanding Pool Balance is __% or less of the Original Pool Balance, the
Seller shall have the option to purchase the Owner Trust Estate, other than the
Trust Accounts and the Certificate Distribution Account. To exercise such
option, the Seller shall deposit pursuant to Section 4.4 in the
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Collection Account an amount which, when added to the amounts on deposit in the
Collection Account for such Distribution Date, equals the sum of (a) the unpaid
principal amount of the then outstanding Class A-__ Notes, plus accrued and
unpaid interest thereon, plus (b) the Certificate Balance plus accrued and
unpaid interest thereon. The Class A-__ Notes and the Certificates will be
redeemed concurrently therewith.
(b) Upon any sale of the assets of the Trust pursuant to Section 9.2
of the Trust Agreement, the Master Servicer shall instruct the Trustee to
deposit the proceeds from such sale after all payments and reserves therefrom
(including the expenses of such sale) have been made (the "Insolvency Proceeds")
in the Collection Account. On the Distribution Date on which the Insolvency
Proceeds are deposited in the Collection Account (or, if such proceeds are not
so deposited on a Distribution Date, on the Distribution Date immediately
following such deposit), the Master Servicer shall instruct the Trustee to make,
and the Trustee shall make, the following deposits and distributions (after the
application on such Distribution Date of the Total Distribution Amount pursuant
to Section 4.5) from the Insolvency Proceeds and any funds remaining on deposit
in the Reserve Account (including the proceeds of any sale of investments
therein): (i) to the Note Distribution Account, any portion of the Noteholders'
Interest Distributable Amount not otherwise deposited into the Note Distribution
Account on such Distribution Date; (ii) to the Note Distribution Account, the
outstanding principal balance of the Notes (after giving effect to the reduction
in the outstanding principal balance of the Notes to result from the deposits
made in the Note Distribution Account on such Distribution Date); (iii) to the
Owner Trustee for deposit in the Certificate Distribution Account, any portion
of the Certificateholders' Interest Distributable Amount not otherwise deposited
into the Certificate Distribution Account on such Distribution Date; and (iv) to
the Owner Trustee for deposit in the Certificate Distribution Account, the
Certificate Balance and any Certificateholders' Principal Carryover Shortfall
Amount (after giving effect to the reduction in the Certificate Balance to
result from the deposits made in the Certificate Distribution Account on such
Distribution Date). Any Insolvency Proceeds remaining after the deposits
described above shall be paid to the GP Holder.
(c) Notice of any termination of the Trust shall be given by the
Master Servicer to the Owner Trustee, the Trustee and the Rating Agencies as
soon as practicable after the Master Servicer has received notice thereof.
(d) Following the satisfaction and discharge of the Indenture and
the payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the Noteholders hereunder and
the Owner Trustee will succeed to the rights of, and assume the obligations of,
the Trustee pursuant to this Agreement.
ARTICLE IX
Administrative Duties of the Master Servicer
SECTION 9.1. Administrative Duties. (a) The Master Servicer shall perform
all its duties and the duties of the Issuer under the Depository Agreements. In
addition, the Master
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Servicer shall consult with the Owner Trustee as the Master Servicer deems
appropriate regarding the duties of the Issuer under the Indenture and the
Depository Agreements. The Master Servicer shall monitor the performance of the
Issuer and shall advise the Owner Trustee when action is necessary to comply
with the Issuer's duties under the Indenture and the Depository Agreements. The
Master Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture and the Depository
Agreements. In furtherance of the foregoing, the Master Servicer shall take all
appropriate action that is the duty of the Issuer to take pursuant to the
Indenture.
(b) (i) In addition to the duties of the Master Servicer set forth
in this Agreement or any of the Basic Documents, the Master Servicer shall
perform such calculations and shall prepare for execution by the Issuer or the
Owner Trustee or shall cause the preparation by other appropriate Persons of all
such documents, reports, filings, instruments, certificates and opinions as it
shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver
pursuant to this Agreement or any of the Basic Documents, and at the request of
the Owner Trustee shall take all appropriate action that it is the duty of the
Issuer to take pursuant to this Agreement or any of the Basic Documents. Subject
to Section 9.4, and in accordance with the directions of the Owner Trustee, the
Master Servicer shall administer, perform or supervise the performance of such
other activities in connection with the Collateral (including the Basic
Documents) as are not covered by any of the foregoing provisions and as are
expressly requested by the Owner Trustee and are reasonably within the
capability of the Master Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Basic Documents to the contrary, the Master Servicer shall be responsible for
promptly notifying the Owner Trustee in the event that any withholding tax is
imposed on the Issuer's payments (or allocations of income) to an Owner (as
defined in the Trust Agreement) as contemplated in Section 5.2(c) of the Trust
Agreement. Any such notice shall specify the amount of any withholding tax
required to be withheld by the Owner Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Master Servicer shall be responsible for
performance of the duties of the Owner Trustee set forth in Section 5.6(a), (b),
(c) and (d) of the Trust Agreement with respect to, among other things,
accounting and reports to Owners (as defined in the Trust Agreement); provided,
however, that the Owner Trustee shall retain responsibility for the distribution
of the Schedule K is necessary to enable each Certificateholder to prepare its
federal and state income tax returns.
(iv) The Master Servicer shall perform the duties of the
Master Servicer specified in Section 10.2 of the Trust Agreement required to be
performed in connection with the resignation or removal of the Owner Trustee,
and any other duties expressly required to be performed by the Master Servicer
under this Agreement or any of the Basic Documents.
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(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Master Servicer may enter into
transactions with or otherwise deal with any of its Affiliates; provided,
however, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in the
Master Servicer's opinion, no less favorable to the Issuer in any material
respect.
(c) The Master Servicer shall prepare and file, on behalf of the
Seller, all tax returns, tax elections, financial statements and such annual or
other reports of the Issuer as are necessary for preparation of tax reports as
provided in Article V of the Trust Agreement, including without limitation forms
1099 and 1066. All tax returns will be signed by the Seller.
(d) With respect to matters that in the reasonable judgment of the
Master Servicer are non-ministerial, the Master Servicer shall not take any
action pursuant to this Article X unless within a reasonable time before the
taking of such action, the Master Servicer shall have notified the Owner Trustee
and the Trustee of the proposed action and the Owner Trustee and, with respect
to items (A), (B), (C) and (D) below, the Trustee shall not have withheld
consent or provided an alternative direction. For the purpose of the preceding
sentence, "non-ministerial matters" shall include: (A) the amendment of or any
supplement to the Indenture; (B) the initiation of any claim or lawsuit by the
Issuer and the compromise of any action, claim or lawsuit brought by or against
the Issuer (other than in connection with the collection of the Home Equity
Loans); (C) the amendment, change or modification of this Agreement or any of
the Basic Documents; (D) the appointment of successor Note Registrars, successor
Paying Agents and successor Trustees pursuant to the Indenture or the
appointment of Successor Master Servicers or the consent to the assignment by
the Note Registrar, Paying Agent or Trustee of its obligations under the
Indenture; and (E) the removal of the Trustee.
(e) Notwithstanding anything to the contrary in this Agreement,
except as expressly provided herein or in the other Basic Documents, the Master
Servicer, in its capacity hereunder, shall not be obligated to, and shall not,
(1) make any payments to the Noteholders or Certificateholders under the Basic
Documents, (2) sell the Indenture Trust Estate pursuant to Section 5.4 of the
Indenture, (3) take any other action that the Issuer directs the Master Servicer
not to take on its behalf or (4) in connection with its duties hereunder assume
any indemnification obligation of any other Person.
SECTION 9.2. Records. The Master Servicer shall maintain appropriate books
of account and records relating to services performed under this Agreement,
which books of account and records shall be accessible for inspection by the
Issuer at any time during normal business hours.
SECTION 9.3. Additional Information To Be Furnished to the Issuer. The
Master Servicer shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
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ARTICLE X
Miscellaneous Provisions
SECTION 10.1. Amendment. This Agreement may be amended by the Seller, the
Originators, the Representative, the Master Servicer and the Owner Trustee, with
the consent of the Trustee (which consent may not be unreasonably withheld), but
without the consent of any of the Noteholders or the Certificateholders, to cure
any ambiguity or defect, to correct or supplement any provisions in this
Agreement or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions in this Agreement or of modifying in
any manner the rights of the Noteholders or the Certificateholders; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel
delivered to the Owner Trustee and the Trustee, adversely affect in any material
respect the interests of any Noteholder or Certificateholder. This Agreement may
also be amended from time to time by the Seller, the Originators, the
Representative, the Master Servicer and the Owner Trustee, with the consent of
the Trustee, the consent of the Holders of Notes evidencing not less than a
majority of the Outstanding Amount of the Notes and the consent of the Holders
(as defined in the Trust Agreement) of Certificates evidencing not less than a
majority of the Certificate Balance for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Home Equity Loans or distributions that shall be
required to be made for the benefit of the Noteholders or the Certificateholders
or (b) reduce the aforesaid percentage of the Outstanding Amount of the Notes
and the Certificate Balance, the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all the outstanding Notes
and the Holders (as defined in the Trust Agreement) of all the outstanding
Certificates of each class affected thereby. Prior to the execution of any such
amendment or consent, the Owner Trustee shall furnish written notification of
the substance of such amendment or consent to the Rating Agencies. Promptly
after the execution of any such amendment or consent, the Owner Trustee shall
furnish written notification of the substance of such amendment or consent to
each Certificateholder and the Trustee. It shall not be necessary for the
consent of Certificateholders or Noteholders pursuant to this Section to approve
the particular form of any proposed amendment or consent, but it shall be
sufficient if such consent shall approve the substance thereof. Prior to the
execution of any amendment to this Agreement, the Owner Trustee and the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement and
that all conditions precedent to the execution and delivery of such amendment
have been satisfied and the Opinion of Counsel referred to in Section 10.2(i)(1)
has been delivered. The Owner Trustee and the Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Owner Trustee's or
the Trustee's, as applicable, own rights, duties or immunities under this
Agreement or otherwise.
SECTION 10.2. Protection of Title to Trust. (a) The Seller shall execute
and file such financing statements and cause to be executed and filed such
continuation statements, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Issuer and the interests of the Trustee in the Home Equity Loans and in the
proceeds thereof. The Seller shall deliver (or cause to be delivered) to the
Owner Trustee and the
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Trustee file-stamped copies of, or filing receipts for, any document filed as
provided above, as soon as available following such filing.
(b) None of the Originators, the Seller nor the Master Servicer
shall change its name, identity or corporate structure in any manner that would,
could or might make any financing statement or continuation statement filed in
accordance with paragraph (a) above seriously misleading within the meaning of
Section 9-402(7) of the UCC, unless it shall have given the Owner Trustee and
the Trustee at least five days' prior written notice thereof and shall have
promptly filed appropriate amendments to all previously filed financing
statements or continuation statements.
(c) Each of the Originators, the Seller and the Master Servicer
shall have an obligation to give the Owner Trustee and the Trustee at least 60
days' prior written notice of any relocation of its principal executive office
if, as a result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and shall promptly file
any such amendment. The Master Servicer shall at all times maintain each office
from which it shall service Home Equity Loans, and its principal executive
office, within the United States of America.
(d) The Master Servicer shall maintain accounts and records as to
each Home Equity Loan accurately and in sufficient detail to permit (i) the
reader thereof to know at any time the status of such Home Equity Loan,
including payments and recoveries made and payments owing (and the nature of
each) and (ii) reconciliation between payments or recoveries on (or with respect
to) each Home Equity Loan and the amounts from time to time deposited in the
Collection Account in respect of such Home Equity Loan.
(e) The Master Servicer shall maintain its computer systems so that,
from and after the time of sale under this Agreement of the Home Equity Loans,
the Master Servicer's master computer records (including any backup archives)
that refer to a Home Equity Loan shall indicate clearly the interest of the
Issuer and the Trustee in such Home Equity Loan and that such Home Equity Loan
is owned by the Issuer and has been pledged to the Trustee. Indication of the
Issuer's and the Trustee's interest in a Home Equity Loan shall be deleted from
or modified on the Master Servicer's computer systems when, and only when, the
related Home Equity Loan shall have been paid in full or repurchased by the
Seller or purchased by the Master Servicer.
(f) If at any time the Seller or the Master Servicer shall propose
to sell, grant a security interest in or otherwise transfer any interest in
mortgage loans to any prospective purchaser, lender or other transferee, the
Master Servicer shall give to such prospective purchaser, lender or other
transferee computer tapes, records or printouts (including any restored from
backup archives) that, if they shall refer in any manner whatsoever to any Home
Equity Loan, shall indicate clearly that such Home Equity Loan has been sold and
is owned by the Issuer and has been pledged to the Trustee.
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(g) The Master Servicer shall permit the Trustee and its agents at
any time during normal business hours to inspect, audit and make copies of and
abstracts from the Master Servicer's records regarding any Home Equity Loan.
(h) Upon request at any time the Owner Trustee or the Trustee shall
have reasonable grounds to believe that such request is necessary in connection
with the performance of its duties under this Agreement or any of the Basic
Documents, the Master Servicer shall furnish to the Owner Trustee or to the
Trustee, within five Business Days, a list of all Home Equity Loans (by contract
number and name of Mortgagor) then held as part of the Trust, together with a
reconciliation of such list to the Home Equity Loan Schedule and to each of the
Master Servicer's Certificates furnished before such request indicating removal
of Home Equity Loans from the Trust.
(i) The Master Servicer shall deliver to the Owner Trustee and
the Trustee: (1) promptly after the execution and delivery of this Agreement and
of each amendment thereto, an Opinion of Counsel either (A) stating that, in the
opinion of such counsel, all financing statements and continuation statements
have been executed and filed that are necessary fully to preserve and protect
the interest of the Owner Trustee and the Trustee in the Home Equity Loans, and
reciting the details of such filings or referring to prior Opinions of Counsel
in which such details are given, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interest; and (2) within 120 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months after
the Cutoff Date, an Opinion of Counsel, dated as of a date during such 120-day
period, either (A) stating that, in the opinion of such counsel, all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Owner Trustee and
the Trustee in the Home Equity Loans, and reciting the details of such filings
or referring to prior Opinions of Counsel in which such details are given, or
(B) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest. Each Opinion of Counsel
referred to in clause (l) or (2) above shall specify any action necessary (as of
the date of such opinion) to be taken in the following year to preserve and
protect such interest.
(i) The Seller shall, to the extent required by applicable law,
cause the Certificates and the Notes to be registered with the Commission
pursuant to Section 12(b) or Section 12(g) of the Exchange Act within the time
periods specified in such sections.
SECTION 10.3. Notices. All demands, notices and communications upon or to
the Seller, the Master Servicer, the Owner Trustee, the Trustee or the Rating
Agencies under this Agreement shall be in writing, personally delivered, sent by
overnight courier or mailed by certified mail, return receipt requested, and
shall be deemed to have been duly given upon receipt (a) in the case of the
Seller to Avco ABS Receivables Corp., ___________________________, Attention:
__________________________________, (b) in the case of the Master Servicer to
Avco Financial Services Management Company., (c) ___________________________,
Attention: _____________, in the case of the Originators or the Representative
to Avco Financial Services, Inc. ., ___________________________, Attention:
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____________________,(b) in the case of the Issuer or the Owner Trustee, at the
Corporate Trust Office (as defined in the Trust Agreement), (c) in the case of
the Trustee, at the Corporate Trust Office, (d) in the case of Moody's, to
Moody's Investors Service, Inc., to 99 Church Street, New York, New York 10004,
Attention of Asset Backed Securities Group, (e) in the case of Standard &
Poor's, to Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York,
New York 10004, Attention of Asset Backed Surveillance Department and (f) in the
case of Fitch, to Fitch Investors Service, L.P., One State Street Plaza, New
York, New York 10004 Attention of ___________________.
SECTION 10.4. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 5.4 and 6.3 and as provided in
the provisions of this Agreement concerning the resignation of the Master
Servicer, this Agreement may not be assigned by the Seller or the Master
Servicer.
SECTION 10.5. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Seller, the Master Servicer, the
Issuer, the Owner Trustee and for the benefit of the Certificateholders, the
Trustee and the Noteholders, as third-party beneficiaries, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Owner Trust Estate
or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 10.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.7. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 10.8. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 10.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK , WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.10. Assignment to Trustee. The Seller hereby acknowledges and
consents to any mortgage, pledge, assignment and grant of a security interest by
the Issuer to the Trustee pursuant to the Indenture for the benefit of the
Noteholders of all right, title and interest of the
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Issuer in, to and under the Home Equity Loans and/or the assignment of any or
all of the Issuer's rights and obligations hereunder to the Trustee.
SECTION 10.11. Nonpetition Covenant. Notwithstanding any prior termination
of this Agreement, the Master Servicer and the Seller shall not, prior to the
date which is one year and one day after the termination of this Agreement with
respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to 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, sequestrator 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.
SECTION 10.12. Limitation of Liability of Owner Trustee and Trustee. (a)
Notwithstanding anything contained herein to the contrary, this Agreement has
been countersigned by Name of Owner Trustee not in its individual capacity but
solely in its capacity as Owner Trustee of the Issuer and in no event shall Name
of Owner Trustee in its individual capacity or, except as expressly provided in
the Trust Agreement, as Owner Trustee have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Issuer. For all purposes of this Agreement, in the performance of its
duties or obligations hereunder or in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Articles VI, VII and
VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been accepted by not in its individual capacity but solely as
Trustee and in no event shall have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Issuer.
SECTION 10.13. Independence of the Master Servicer. For all purposes of
this Agreement, the Master Servicer shall be an independent contractor and shall
not be subject to the supervision of the Issuer or the Owner Trustee with
respect to the manner in which it accomplishes the performance of its
obligations hereunder. Unless expressly authorized by the Issuer, the Master
Servicer shall have no authority to act for or represent the Issuer or the Owner
Trustee in any way and shall not otherwise be deemed an agent of the Issuer or
the Owner Trustee.
SECTION 10.14. No Joint Venture. Nothing contained in this Agreement (i)
shall constitute the Master Servicer and either of the Issuer or the Owner
Trustee as members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
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WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
AVCO HOME EQUITY LOAN TRUST 199_-_
By: ______________________, not in its
individual capacity but solely as Owner
Trustee on behalf of the Trust,
By:
-----------------------------------------
Name:
Title:
AVCO FINANCIAL SERVICES MANAGEMENT
COMPANY, Master Servicer
By:
-----------------------------------------
Name:
Title:
AVCO FINANCIAL SERVICES, INC.,
Representative
By:
-----------------------------------------
Name:
Title:
AVCO ABS RECEIVABLES CORP.
By:
-----------------------------------------
Name:
Title:
EACH OF THE ORIGINATORS LISTED ON EXHIBIT
__ HERETO
By:
-----------------------------------------
Name:
Title:
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<PAGE> 73
Acknowledged and Accepted:
_______________ , not in its individual
capacity but solely as Trustee,
By:
------------------------------------
Name:
Title:
Acknowledged and Accepted:
_______________, not in its individual
capacity but solely as Owner Trustee,
By:
------------------------------------
Name:
Title:
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