SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):January 27, 1998
TRUST CREATED BY BLOCK MORTGAGE FINANCE, INC.
(under Pooling and Servicing Agreement dated as of January 1, 1998,
which Trust is the Issuer of Block Mortgage Finance
Asset Backed Certificates, Series 1998-1)
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation)
333-14041 Applied For
(Commission File Number) (IRS Employer Identification No.)
3 Park Plaza, 16th Floor
Irvine, California
Attention: Block Mortgage Finance
Asset Backed Certificates, Series 1998-1 92614
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 253-7575
Not applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
Exhibit 1 Underwriting Agreement Relating to Block Mortgage Asset Backed
Certificates, Series 1998-1
Exhibit 4 Pooling and Servicing Agreement Relating to Block Mortgage
Finance Asset Backed Certificates, Series 1998-1
Exhibit 99.1 Certificate Guaranty Insurance Policy, Policy Number 25621,
Relating to Block Mortgage Finance Asset Backed Certificates,
Series 1998-1, Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates
Exhibit 99.2 Certificate Guaranty Insurance Policy, Policy Number
25622, Relating to Block Mortgage Finance Asset Backed
Certificates, Series 1998-1, Class A-6 Certificates
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
BLOCK MORTGAGE FINANCE, INC., as
Registrant
Date: February 10, 1998 By: /s/ Bret G. Wilson
Bret G. Wilson, President
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
1 Underwriting Agreement
Relating to Block Mortgage
Asset Backed Certificates,
Series 1998-1
4 Pooling and Servicing
Agreement Relating to Block
Mortgage Finance Asset
Backed Certificates, Series
1998-1
99.1 Certificate Guaranty
Insurance Policy, Policy
Number 25621, Relating to
Block Mortgage Finance Asset
Backed Certificates, Series
1998-1, Class A-1, Class
A-2, Class A-3, Class A-4
and Class A-5 Certificates
99.2 Certificate Guaranty
Insurance Policy, Policy
Number 25622, Relating to
Block Mortgage Finance Asset
Backed Certificates, Series
1998-1, Class A-6
Certificates
BLOCK MORTGAGE FINANCE, INC.
Block Mortgage Finance
Asset Backed Certificates, Series 1998-1,
Class A-1
Class A-2
Class A-3
Class A-4
Class A-5
Class A-6
UNDERWRITING AGREEMENT
January 23, 1998
Morgan Stanley & Co. Incorporated
as Representative of the Several
Underwriters listed herein
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs:
Block Mortgage Finance, Inc. (the "Depositor"), a wholly-owned, limited
purpose subsidiary of Companion Mortgage Corporation ("Companion"), has
authorized the issuance and sale of Block Mortgage Finance Asset Backed
Certificates, Series 1998-1, Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates (collectively, the "Fixed Rate Certificates") and Class
A-6 Certificates (the "Adjustable Rate Certificates" and, together with the
Fixed Rate Certificates, the "Class A Certificates"), and the Class R
Certificates (the "Class R Certificates"). The Class A Certificates and Class R
Certificates are herein collectively referred to as the "Certificates". The
Certificates evidence in the aggregate the beneficial interest in a pool of
fixed and adjustable rate mortgage loans (the "Mortgage Loans"). The Fixed Rate
Certificates will represent an undivided ownership interest in the group of
Mortgage Loans (the "Fixed Rate Group") which are secured by fixed-rate first
and second mortgages primarily on one- to four-family residential dwellings. The
Adjustable Rate Certificates will represent an undivided ownership interest in
the group of Mortgage Loans (the "Adjustable Rate Group" and, together with the
Fixed Rate Group, the "Loan Groups") which are secured by adjustable-rate first
mortgages primarily on one- to four-family residential dwellings.
<PAGE>
Only the Class A Certificates are being purchased by the several
underwriters named in Schedule A hereto (collectively, the "Underwriters"), at
the price set forth in Schedule A.
The Certificates will be issued under a pooling and servicing agreement
(the "Pooling and Servicing Agreement"), dated as of January 1, 1998 among the
Depositor, Companion, as seller (in such capacity, the "Seller"), Block
Financial Corporation, as master servicer (the "Master Servicer"), and Bankers
Trust Company of California, N.A., as trustee (the "Trustee"). The Master
Servicer will enter into a subservicing agreement, dated as of January 1, 1998
(the "Sub-Servicing Agreement"), with Companion Servicing Company, L.L.C. (the
"Sub-Servicer") to provide for the sub- servicing of the Mortgage Loans. The
Seller, pursuant to the terms of the Pooling and Servicing Agreement, will
transfer to the Depositor and the Depositor, pursuant to the Pooling and
Servicing Agreement, will transfer to the Trustee, all of its right, title and
interest in and to the Mortgage Loans as of the Cut-Off Date (except for (i)
principal (including Prepayments) and interest collected on each Mortgage Loan
on or prior to the Cut-Off Date (other than, with respect to Actuarial Loans,
scheduled monthly payments collected on or prior to the Cut-Off Date and due
after the Cut-Off Date) and (ii) with respect to Actuarial Loans, scheduled
monthly payments due on or prior to the Cut-Off Date) and the collateral
securing each Mortgage Loan. The Certificates will evidence fractional undivided
interests in the property held in trust for the holders of such Certificates
(the "Trust"). The assets of the Trust will include, among other things: the
Mortgage Loans to be conveyed by the Depositor to the Trust on the Closing Date;
such amounts as may be held by the Master Servicer in the Collection Account
(other than investment earnings thereon) and any other accounts held by or
maintained by the Master Servicer with respect to the servicing of the Mortgage
Loans and the other assets of the Trust; and such amounts as may be held by the
Trustee in the Distribution Account (other than investment earnings thereon) and
any other accounts held by the Trustee for the Trust. The aggre- gate undivided
interest in the Trust represented by the Class A Certificates initially will be
equal to $184,325,817.06 of principal (subject to a variance of plus or minus
5%), which will represent 100% of the outstanding principal balances of the
Mortgage Loans as of January 1, 1998 (the "Cut-Off Date"). The Class A
Certificates will have the benefit of two certificate guaranty insurance
policies (each, a "Policy") issued by MBIA Insurance Corporation (the
"Certificate Insurer"), the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company, pursuant to an Insurance Agreement (the
"Insurance Agreement") dated as of January 1, 1998 among the Seller, the Master
Servicer, the Depositor, the Trustee and the Certificate Insurer. In addition to
the Insurance Agreement, the Seller, the Master Servicer, the Underwriters and
the Certificate Insurer will enter into an Indemnification Agreement (the
"Indemnification Agreement") dated as of January 28, 1998. A form of the Pooling
and Servicing Agreement has been filed as an exhibit to the Registration
Statement (hereinafter defined).
BWNY03/123624
<PAGE>
An election will be made to treat the assets of the Trust as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes. The
Class A Certificates will represent beneficial ownership of "regular interests"
in the REMIC and the Class R Certificates will represent beneficial ownership of
"residual interests" in the REMIC.
Capitalized terms used but not defined herein shall have the meanings given
to them in the Pooling and Servicing Agreement.
This Underwriting Agreement, the Pooling and Servicing Agreement, the
Sub-Servicing Agreement, the Insurance Agreement and the Indemnification
Agreement are referred to collectively herein as the "Agreements". The Master
Servicer, the Seller and the Depositor are referred to collectively herein as
the "Transaction Parties".
The Depositor filed with the Securities and Exchange Commission (the
"Commission") on October 15, 1996, a registration statement on Form S-3 (No.
333-14041), including a form of prospectus and prospectus supplement relating to
the Class A Certificates, and filed with the Commission amendment No. 1 to such
registration statement on December 31, 1996 and amendment No. 2 to such
registration statement on January 21, 1997, and pursuant to the provisions
hereof shall file such post-effective amendments thereto as may hereafter be
required pursuant to the Securities Act of 1933, as amended (the "1933 Act"),
and the rules and regulations of the Commission thereunder (the "Rules and
Regulations"). Such registration statement (as amended) is referred to herein as
the "Registration Statement"; the prospectus and prospectus supplement relating
to the offering of the Class A Certificates constituting a part of the
Registration Statement filed or to be filed by the Depositor are collectively
referred to herein as the "Prospectus" and each of the prospectus and prospectus
supplement is referred to as the "Base Prospectus" and the "Prospectus
Supplement," respectively; "Amendment No. 1" and "Amendment No. 2" referred to
herein mean the amendment No. 1 to such Registration Statement filed with the
Commission on December 31, 1996 and the amendment No. 2 to such Registration
Statement filed with the Commission on January 21, 1997, respectively; and any
reference herein to any amendment or supplement with respect to the Registration
Statement or the Prospectus shall be deemed to refer to and include any
information deemed to be a part thereof pursuant to Rule 430A under the 1933
Act.
SECTION 1. Representations and Warranties of the Master Servicer, the
Seller and the Depositor. Each of the Master Servicer, the Seller and the
Depositor, as to itself, and the Master Servicer, individually, with respect to
(a), (b), (o), (q), (r) and (s) below, represents and warrants to, and agrees
with the Underwriters that:
(a) The Registration Statement, as amended by Amendment No. 1 and Amendment
No. 2, has become effective under the 1933 Act. The
BWNY03/123624
<PAGE>
Registration Statement complies, and all amendments to the Registration
Statement at the time such amended Registration Statement becomes effective will
comply, in all material respects with the requirements of the 1933 Act and the
Rules and Regulations. The Registration Statement at the time such Registration
Statement became effective did not, and any amendment to the Registration
Statement at the time such amended Registration Statement becomes effective will
not, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus as of the date hereof does, and the
Prospectus as amended or supplemented as of the Closing Date will, comply in all
material respects with the requirements of the 1933 Act and the Rules and
Regulations. The Prospectus as of the date hereof did not, and the Prospectus as
amended or supplemented as of the Closing Date will not, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Depositor in writing by the
Underwriters or the Certificate Insurer expressly for use in the Registration
Statement or Prospectus. The Seller and the Depositor acknowledge that the
statements set forth in the last paragraph of the first cover page of the
Prospectus Supplement, in the next to last paragraph of page S-iii of the
Prospectus Supplement and under the caption "UNDERWRITING" in the Prospectus
Supplement constitute the only information furnished in writing by the
Underwriters for inclusion in the Prospectus. The conditions to the use by the
Depositor of a registration statement on Form S-3 under the 1933 Act, as set
forth in the General Instructions to Form S-3, have been satisfied with respect
to the Registration Statement and the Prospectus. There are no contracts or
documents of the Depositor or its affiliates that are required to be filed as
exhibits to the Registration Statement pursuant to the 1933 Act or the Rules and
Regulations that have not been so filed on or prior to the effective date of the
Registration Statement.
(b) Since the respective dates as of which information is given in the
Prospectus, or the Prospectus as amended and supplemented at the Closing Date,
there has not been any material adverse change in the general affairs,
management, financial condition or results of operations of any of the
Transaction Parties or of their subsidiaries or affiliates, otherwise than as
set forth in the Prospectus or the Prospectus as amended and supplemented at the
Closing Date.
(c) Such Transaction Party has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its respective
jurisdiction of incorporation, with the full right, power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the
BWNY03/123624
<PAGE>
Prospectus and to enter into and perform its obligations under the Agreements to
which it is a signatory, and, with respect to the Depositor, to cause the
Certificates to be issued; such Transaction Party is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction
which requires such qualification, except where failure to be so qualified would
not have a material adverse effect on (A) its business or financial condition,
(B) its obligations under the Agreements to which it is a signatory or (C) the
Owners of the Certificates; such Transaction Party is duly authorized and
licensed under applicable law, including, without limitation, those that
regulate the business of originating, purchasing, selling or servicing first and
second lien mortgage loans, to conduct, in the various jurisdictions in which it
does business, the business it currently conducts therein and to perform its
obligations as contemplated by the Agreements, except where failure to be so
qualified or licensed would not have a material adverse effect on (A) its
business or financial condition, (B) its obligations under the Agreements to
which it is a signatory or (C) the Owners of the Certificates.
(d) There are no legal or governmental proceedings pending to which such
Transaction Party is a party, or of which any property of such Transaction Party
is the subject, which could reasonably be expected to materially and adversely
affect (A) its financial position, shareholders' equity or results of
operations, (B) its obligations under the Agreements to which it is a signatory
or (C) the Owners of the Certificates; and to the best knowledge of such
Transaction Party, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(e) This Underwriting Agreement has been and, prior to the Closing Date,
the Agreements (other than this Underwriting Agreement) will have been, duly
authorized, executed and delivered by each Transaction Party which is a party to
such Agreements and, when duly executed and delivered by the other parties
thereto, will constitute legal, valid and binding instruments enforceable
against such Transaction Party, in accordance with their respective terms,
subject as to enforceability (i) to applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights
generally, (ii) to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and (iii) with
respect to rights of indemnity under this Underwriting Agreement and the
Indemnification Agreement, to limitations of public policy under applicable
securities laws.
(f) The issuance and delivery of the Certificates, the consummation of any
other of the transactions contemplated in the Agreements and the fulfillment of
the terms of the Agreements do not and will not conflict with or violate any
term or provision of the Certificate or Articles of Incorporation or Bylaws of
such Transaction Party; any statute, order or regulation applicable to such
Transaction Party of any court, regulatory body,
BWNY03/123624
<PAGE>
administrative agency or governmental body having jurisdiction over such
Transaction Party; and do not and will not conflict with, or result in a breach
or violation or the acceleration of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of such Transaction Party pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which such Transaction Party is a party or by which such
Transaction Party may be bound or to which any of the property or assets of such
Transaction Party may be subject, except for conflicts, violations, breaches,
accelerations and defaults which would not be, individually or in the aggregate,
materially adverse to such Transaction Party or the Owners of the Certificates
or materially adverse to the transactions contemplated by the Agreements.
(g) Deloitte & Touche LLP is an independent public accountant with respect
to the Master Servicer, the Seller and the Depositor as required by the 1933 Act
and the Rules and Regulations.
(h) The direction by the Depositor to the Trustee to execute, countersign,
issue and deliver the Certificates will, as of the Closing Date, be duly
authorized by the Depositor, and assuming the Trustee has been duly authorized
to do so, when executed, countersigned, issued and delivered by the Trustee in
accordance with the Pooling and Servicing Agreement, the Certificates will be
validly issued and outstanding and will be entitled to the benefits provided by
the Pooling and Servicing Agreement.
(i) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is required
for the issuance or sale of the Class A Certificates, or the consummation by
such Transaction Party of the other transactions contemplated by the Agreements,
except the registration under the 1933 Act of the Class A Certificates and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or "blue sky" laws in connection with the
issuance of the Class A Certificates and the purchase and distribution of the
Class A Certificates by the Underwriters.
(j) Such Transaction Party possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted by
it and as described in the Prospectus, and such Transaction Party has not
received any notice of proceedings relating to the revocation or modification of
any such license, certificate, authority or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the conduct of its business, operations or
financial condition.
(k) At the time of execution and delivery of the Pooling and Servicing
Agreement, the Seller (i) will have good and marketable
BWNY03/123624
<PAGE>
title to each Mortgage Loan being transferred by it to the Depositor, free and
clear of any liens, (ii) will not have assigned to any person, other than the
Depositor, any of its right, title or interest in or to such Mortgage Loans and
(iii) will have the power and authority to sell such Mortgage Loans to the
Depositor.
(l) At the time of execution and delivery of the Pooling and Servicing
Agreement, after giving effect to the sale of the Mortgage Loans from the Seller
to the Depositor pursuant to the Pooling and Servicing Agreement, the Depositor
(i) will have good and marketable title to each Mortgage Loan being transferred
by it to the Trustee pursuant to the Pooling and Servicing Agreement, free and
clear of any liens, (ii) will not have assigned to any person, other than the
Trustee, any of its right, title or interest in or to such Mortgage Loans and
(iii) will have the power and authority to sell such Mortgage Loans to the
Trustee.
(m) Upon execution and delivery of the Pooling and Servicing Agreement by
all of the parties thereto, the Depositor will have acquired beneficial
ownership of all of the Seller's right, title and interest in and to the
Mortgage Loans (except for (i) principal (including Prepayments) and interest
collected on each Mortgage Loan on or prior to the Cut-Off Date (other than,
with respect to Actuarial Loans, scheduled monthly payments collected on or
prior to the Cut-Off Date and due after the Cut-Off Date) and (ii) with respect
to Actuarial Loans, scheduled monthly payments due on or prior to the Cut-Off
Date), free of all liens.
(n) Upon execution and delivery of the Pooling and Servicing Agreement by
all of the parties thereto, the Trustee will have acquired beneficial ownership
of all of the Depositor's right, title and interest in and to the Mortgage
Loans, and upon delivery to the Underwriters of the Class A Certificates and
payment of the purchase price therefor, the Underwriters will have good and
marketable title to the Class A Certificates, in each case free of all liens.
(o) As of the Closing Date, each of the Mortgage Loans will meet the
eligibility criteria described in the Prospectus and set forth in the Pooling
and Servicing Agreement.
(p) Such Transaction Party will not conduct its operations while any of the
Class A Certificates are outstanding in a manner that would require such
Transaction Party or the Trust to be registered as an "investment company" under
the Investment Company Act of 1940, as amended (the "1940 Act"), as in effect on
the date hereof or require the Trust to be registered under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), as in effect on the date
hereof.
(q) On the Closing Date, the Certificates and the Pooling and Servicing
Agreement will conform in all material respects to the descriptions thereof
contained in the Prospectus.
BWNY03/123624
<PAGE>
(r) On the Closing Date, the Class A Certificates shall have been rated
"AAA" by Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's), and "Aaa" by Moody's Investors Service,
Inc. ("Moody's").
(s) Any taxes, fees and other governmental charges in connection with the
execution, delivery and issuance of the Agreements and the Certificates have
been paid or will be paid at or prior to the Closing Date.
(t) On the Closing Date, each of the representations and warranties of the
Master Servicer, the Seller and the Depositor set forth in the Pooling and
Servicing Agreement and the Insurance Agreement will be true and correct in all
material respects.
SECTION 2. Purchase and Sale. The commitment of the Underwriters to
purchase the Class A Certificates pursuant to this Underwriting Agreement shall
be deemed to have been made on the basis of the representations and warranties
of the Master Servicer, the Seller and the Depositor herein contained and shall
be subject to the terms and conditions herein set forth. The Depositor agrees to
instruct the Trustee to issue, and agrees to sell to the Underwriters, and the
Underwriters agree, severally and not jointly (except as provided in Section 12
hereof), to purchase from the Depositor, at the purchase price for each Class A
Certificate set forth on Schedule A hereto, the respective principal amount of
Class A Certificates set forth opposite the name of such Underwriter on Schedule
A hereto.
SECTION 3. Delivery and Payment. Payment of the purchase price for, and
delivery of, any Class A Certificates to be purchased by the Underwriters shall
be made at the office of Brown & Wood LLP, One World Trade Center, New York, New
York, or at such other place as shall be agreed upon by you and the Depositor,
at 10:00 a.m. (New York City time) on January 28, 1998 or at such other time or
date as shall be agreed upon in writing by you and the Depositor (the "Closing
Date"). The Class A Certificates will be delivered in book-entry form through
the facilities of The Depository Trust Company, Cedel Bank, societe anonyme, and
the Euroclear System. Payment shall be made to the Depositor by wire transfer of
same day funds payable to the account of the Depositor. Delivery of the Class A
Certificates shall be made to you for the respective accounts of the
Underwriters against payment of the purchase price thereof. Such Class A
Certificates shall be in such denominations and registered in such names as you
may request in writing at least one Business Day prior to the Closing Date. Such
Class A Certificates, which may be in temporary form, will be made available for
examination and packaging by you no later than 3:00 p.m. (New York City time) on
the first Business Day prior to the Closing Date.
SECTION 4. Offering by the Underwriters. It is understood that the
Underwriters propose to offer the Class A Certificates for sale to the public as
set forth in the Prospectus.
BWNY03/123624
<PAGE>
SECTION 5. Covenants of the Seller, the Depositor and the Master Servicer.
Each of the Master Servicer, the Seller and the Depositor covenants, as to
itself, with each of the Underwriters for so long as the Class A Certificates
are outstanding as follows:
(a) If, at any time when the Prospectus, as amended or supplemented, is
required by the 1933 Act to be delivered in connection with sales of the Class A
Certificates by the Underwriters, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel to the Underwriters
or counsel for the Depositor, to further amend or supplement the Prospectus as
then amended or supplemented in order that the Prospectus as amended or
supplemented will not include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if it shall be
necessary, in the opinion of any such counsel at any such time, to amend or
supplement the Registration Statement or the Prospectus as then amended or
supplemented in order to comply with the requirements of the 1933 Act or the
Rules and Regulations thereunder, or if required by such Rules and Regulations,
including Rule 430A thereunder, to file a post-effective amendment to such
Registration Statement (including an amended Prospectus), the Depositor will
promptly prepare and file with the Commission such amendment or supplement as
may be necessary to correct such untrue statement or omission or to make the
Registration Statement or Prospectus comply with such requirements, and within
two Business Days will furnish to the Underwriters as many copies of the
Prospectus, as amended or supplemented, as reasonably requested.
(b) The Depositor will give you reasonable notice of its intention to file
any amendment to the Registration Statement or the Prospectus, as amended or
supplemented, pursuant to the 1933 Act relating to the Class A Certificates,
will furnish you with copies of any such amendment or supplement proposed to be
filed a reasonable time in advance of filing, and will not file any such
amendment or supplement to which you or your counsel shall reasonably object.
(c) The Depositor will notify you immediately, and confirm the notice in
writing, (i) of the effectiveness of any amendment to the Registration
Statement, (ii) of the mailing or the delivery to the Commission for filing of
any supplement to the Prospectus or the Prospectus as amended or supplemented,
(iii) of the receipt of any comments from the Commission with respect to the
Registration Statement or the Prospectus or the Prospectus as amended or
supplemented, (iv) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information and (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Depositor will make every
reasonable effort to prevent the issuance of any stop order and, if
BWNY03/123624
<PAGE>
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(d) The Depositor will deliver to you as many signed and as many conformed
copies of the Registration Statement (as originally filed) and of each amendment
thereto (including exhibits filed therewith or incorporated by reference therein
and documents incorporated by reference in the Prospectus) as you may reasonably
request.
(e) The Depositor will make generally available to holders of the Class A
Certificates as soon as practicable, but in any event not later than 120 days
after the close of the period covered thereby, an earnings statement of the
Trust (which need not be audited) complying with Section 11(a) of the 1933 Act
and the Rules and Regulations (including, at the option of the Seller, Rule 158)
and covering a period of at least twelve consecutive months beginning not later
than the first day of the first fiscal quarter following the Closing Date.
(f) The Depositor will endeavor, in cooperation with you, to qualify the
Class A Certificates for offering and sale under the applicable securities laws
of such states and other jurisdictions of the United States as you may
designate, and will maintain or cause to be maintained such qualifications in
effect for as long as may be required for the distribution of the Class A
Certificates.
The Depositor will file or cause the filing of such statements and reports as
may be reasonably required by the laws of each jurisdiction in which the Class A
Certificates have been qualified as above provided.
(g) None of the Master Servicer, the Seller or the Depositor will, without
your prior written consent, publicly offer or sell or contract to sell any
mortgage pass-through certificates, mortgage pass-through notes or
collateralized mortgage obligations or other similar securities representing
interests in or secured by other mortgage-related assets originated or owned by
any of them for a period of 30 days following the commencement of the offering
of the Class A Certificates to the public.
(h) So long as the Class A Certificates shall be outstanding, the Depositor
will deliver to the Underwriters the annual statement as to compliance delivered
to the Trustee pursuant to the Pooling and Servicing Agreement and the annual
statement of a firm of independent public accountants furnished to the Trustee
pursuant to the Pooling and Servicing Agreement, as soon as such statements are
furnished to the Trustee.
(i) The Depositor will apply the net proceeds from the sale of the Class A
Certificates in the manner set forth in the Prospectus.
(j) If, between the date hereof and the Closing Date, to the knowledge of
the Master Servicer, the Seller or the Depositor, there are any legal or
governmental proceedings instituted or
BWNY03/123624
<PAGE>
threatened against such Transaction Party which could reasonably be expected to
materially and adversely affect the financial condition, shareholders' equity or
results of operations of such Transaction Party, or its ability to perform its
obligations under the Agreements, the Master Servicer, the Seller or the
Depositor, as applicable, will give prompt written notice thereof to the
Underwriters.
SECTION 6. Conditions to the Underwriters' Obligations. The obligations of
the Underwriters to purchase the Class A Certificates pursuant to this
Underwriting Agreement are subject to the accuracy, on and as of the Closing
Date, of the representations and warranties on the part of the Master Servicer,
the Seller and the Depositor herein contained, to the material accuracy of the
statements of officers of the Master Servicer, the Seller and the Depositor,
respectively, made pursuant hereto, to the performance by the Master Servicer,
the Seller and the Depositor of all of their respective obligations hereunder
and to the following conditions at the Closing Date:
(a) (i) The Registration Statement shall have been declared effective under
the 1933 Act and no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission; any price-related information
previously omitted from the effective Registration Statement pursuant to Rule
430A under the 1933 Act shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) under the 1933 Act within the prescribed time period,
and the Depositor shall have provided evidence satisfactory to the Underwriters
of such timely filing, or a post-effective amendment to the Registration
Statement providing such information shall have been promptly filed with the
Commission and declared effective in accordance with the requirements of Rule
430A under the 1933 Act, and prior to the Closing Date the Depositor shall have
provided evidence satisfactory to the Underwriters of such effectiveness; and
(ii) there shall not have come to your attention any facts that would cause you
to believe that the Prospectus, at the time it was required to be delivered to a
purchaser of the Class A Certificates, contained any untrue statement of a
material fact or omitted 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.
(b) The Underwriters shall have received the favorable opinion or opinions,
dated the Closing Date, of Morrison & Hecker L.L.P., as special counsel to the
Master Servicer, the Seller and the Depositor (collectively, the "Block
Transaction Parties"), in form and substance satisfactory to the Underwriters,
to the effect that:
(i) The Depositor is a duly incorporated, validly existing corporation
and in good standing under the laws of the State of Delaware. The Master
Servicer is a duly incorporated, validly existing corporation and in good
standing under the laws of the State of Delaware. The Seller
BWNY03/123624
<PAGE>
is a duly incorporated, validly existing corporation and in good standing
under the laws of the State of Delaware.
(ii) The Depositor has all requisite power and authority under the
General Corporation Law of the State of Delaware to execute, deliver and
perform its obligations under each of the Pooling and Servicing Agreement,
the Insurance Agreement and the Underwriting Agreement. The Master Servicer
has all requisite power and authority under the General Corporation Law of
the State of Delaware to execute, deliver and perform its obligations under
each of the Agreements. The Seller has all requisite power and authority
under the General Corporation Law of the State of Delaware to execute,
deliver and perform its obligations under the Agreements to which it is a
party.
(iii) The execution, delivery and performance of the Underwriting
Agreement have been duly authorized by all requisite corporate action on
the part of the Depositor, and the Underwriting Agreement has been duly
executed and delivered by the Depositor. The execution, delivery and
performance of the Pooling and Servicing Agreement and the Insurance
Agreement have been duly authorized by all requisite corporate action on
the part of the Depositor, and each of the Pooling and Servicing Agreement
and the Insurance Agreement has been duly executed and delivered by the
Depositor and is the legal, valid and binding obligation of the Depositor
enforceable against the Depositor in accordance with its terms. The
execution, delivery and performance of each of the Underwriting Agreement
and the Indemnification Agreement have been duly authorized by all
requisite corporate action on the part of the Master Servicer, and the
Underwriting Agreement and the Indemnification Agreement have been duly
executed and delivered by the Master Servicer. The execution, delivery and
performance of the Pooling and Servicing Agreement, the Insurance Agreement
and the Sub-Servicing Agreement have been duly authorized by all requisite
corporate action on the part of the Master Servicer, and each of the
Pooling and Servicing Agreement, the Insurance Agreement and the
Sub-Servicing Agreement has been duly executed and delivered by the Master
Servicer and is the legal, valid and binding obligation of the Master
Servicer enforceable against the Master Servicer in accordance with its
terms. The execution, delivery and performance of each of the Underwriting
Agreement and the Indemnification Agreement have been duly authorized by
all requisite corporate action on the part of the Seller, and each of the
Underwriting Agreement and the Indemnification Agreement has been duly
executed and delivered by the Seller. The execution, delivery and
performance of the Pooling and Servicing Agreement and the Insurance
Agreement have been duly authorized by all requisite corporate action on
the part of the Seller and each of the Pooling and Servicing Agreement and
the Insurance Agreement has been duly executed and delivered by the Seller
and is the legal, valid and binding obligation
BWNY03/123624
<PAGE>
of the Seller enforceable against the Seller in accordance with its terms.
Such opinions with respect to the enforceability of such agreements will be
subject to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights generally, to
general principles of equity and to the qualifications previously provided
by Morrison & Hecker L.L.P. and approved by the counsel to the
Underwriters.
(iv) The Depositor's execution, delivery and performance of its
obligations under the Pooling and Servicing Agreement, the Insurance
Agreement and the Underwriting Agreement will not (A) conflict with the
Certificate of Incorporation or By- laws of the Depositor or (B) violate
applicable provisions of federal, Missouri or New York statutory law or
regulation or the General Corporation Law of the State of Delaware, the
violation of which would have a material adverse effect on the ability of
the Depositor to perform its obligations under any of such agreements. The
Master Servicer's execution, delivery and performance of its obligations
under the Agreements will not (A) conflict with the Certificate of
Incorporation or Bylaws of the Master Servicer or (B) violate applicable
provisions of federal, Missouri or New York statutory law or regulation or
the General Corporation Law of the State of Delaware, the violation of
which would have a material adverse effect on the ability of the Master
Servicer to perform its obligations under the Agreements. The Seller's
execution, delivery and performance of its obligations under the Pooling
and Servicing Agreement, the Insurance Agreement or the Underwriting
Agreement will not (A) conflict with the Certificate of Incorporation or
Bylaws of the Seller or (B) violate applicable provisions of federal,
Missouri or New York statutory law or regulation or the General Corporation
Law of the State of Delaware, the violation of which would have a material
adverse effect on the ability of the Seller to perform its obligations
under the Pooling and Servicing Agreement, the Insurance Agreement or the
Underwriting Agreement.
(v) To such counsel's knowledge, and based in part upon the Depositor's
written representations to such counsel, the Depositor's execution and
delivery of, and its performance of its obligations under, the Pooling and
Servicing Agreement, the Insurance Agreement and the Underwriting Agreement
will not conflict with, result in a breach or violation of, constitute a
default or an event of acceleration under, or result in the creation or
imposition of any lien, charge or encumbrance upon the property or assets
of the Depositor pursuant to the terms of, (A) any indenture, mortgage,
deed of trust, loan agreement or other material agreement or instrument
known to such counsel to which the Depositor is a party or by which it or
its property is bound or (B) any order, judgment or decree of any State of
Delaware, State of Missouri, State of New York or United States court,
BWNY03/123624
<PAGE>
administrative agency or governmental instrumentality applicable to the
Depositor which is known to such counsel, the conflict with which, or the
breach, violation, default, acceleration or creation or imposition of
which, would have a material adverse effect on the ability of the Depositor
to perform its obligations under any of such agreements. To such counsel's
knowledge, and based in part upon the Master Servicer's written
representations to such counsel, the Master Servicer's execution and
delivery of, and its performance of its obligations under, the Agreements
will not conflict with, result in a breach or violation of, constitute a
default or an event of acceleration under, or result in the creation or
imposition of any lien, charge or encumbrance upon the property or assets
of the Master Servicer pursuant to the terms of, (A) any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument known to such counsel to which the Master Servicer is a party or
by which it or its property is bound or (B) any order, judgment or decree
of any State of Delaware, State of Missouri, State of New York or United
States court, administrative agency or governmental instrumentality
applicable to the Master Servicer which is known to such counsel, the
conflict with which, or the breach, violation, default, acceleration or
creation or imposition of which, would have a material adverse effect on
the ability of the Master Servicer to perform its obligations under the
Agreements. To such counsel's knowledge, and based in part upon the
Seller's representations to such counsel, the Seller's execution and
delivery of, and its performance of its obligations under, the Pooling and
Servicing Agreement, the Insurance Agreement and the Underwriting Agreement
will not conflict with, result in a breach or violation of, constitute a
default or an event of acceleration under, or result in the creation or
imposition of any lien, charge or encumbrance upon the property or assets
of the Seller pursuant to the terms of, (A) any indenture, mortgage, deed
of trust, loan agreement or other material agreement or instrument known to
such counsel to which the Seller is a party or by which it or its property
is bound or (B) any order, judgment or decree of any State of Delaware,
State of Missouri, State of New York or United States court, administrative
agency or governmental instrumentality applicable to the Seller which is
known to such counsel, the conflict with which, or the breach, violation,
default, acceleration or creation or imposition of which, would have a
material adverse effect on the ability of the Seller to perform its
obligations under the Pooling and Servicing Agreement, the Insurance
Agreement or the Underwriting Agreement.
(vi) The direction by the Depositor to the Trustee to authenticate,
issue and deliver the Certificates has been duly authorized by the
Depositor, and the Certificates, when duly authorized, authenticated,
issued and delivered by the Trustee and paid for by the Underwriters in
accordance with the Pooling and Servicing Agreement and the Underwriting
BWNY03/123624
<PAGE>
Agreement, will be validly issued and outstanding and will be entitled to
the benefits provided by the Pooling and Servicing Agreement.
(vii) To such counsel's knowledge, and based in part upon the
Depositor's written representations to such counsel, the Depositor is not
required to obtain the consent, approval, authorization or order of, or to
register or file with, or to give notice to, any court or governmental
agency or body of the State of Delaware (under the General Corporation Law
thereof), the State of Missouri, the State of New York or the United States
of America in order to execute, deliver, perform and comply with the terms
of, or for the consummation of the transactions of the Depositor
contemplated by, the Pooling and Servicing Agreement, the Insurance
Agreement or the Underwriting Agreement except any consent, approval,
authorization, order, registration, filing or notice (A) as may be required
under state securities, real estate syndication or "blue sky" laws in
connection with the offering and sale of the Class A Certificates (as to
which such counsel need express no opinion whatsoever) or (B) which is a
future obligation of the Depositor pursuant to the terms of the Pooling and
Servicing Agreement, the Insurance Agreement or the Underwriting Agreement,
such as, by way of illustration, but not in limitation of the generality of
the foregoing, filing or recording a Uniform Commercial Code assignment of
a financing statement or an assignment of Mortgage with respect to a
Mortgage Loan; or if any such consent, approval, authorization, order,
registration, filing or notice (not described in the exception to the
immediately preceding clause) is required, the Depositor has obtained, made
or given the same. To such counsel's knowledge, and based in part upon the
Master Servicer's written representations to such counsel, the Master
Servicer is not required to obtain the consent, approval, authorization or
order of, to register or file with, or to give notice to, any court or
governmental agency or body of the State of Delaware (under the General
Corporation Law thereof), the State of Missouri, the State of New York or
the United States of America in order to execute, deliver, perform and
comply with the terms of, or for the consummation of the transactions of
the Master Servicer contemplated by, the Agreements except any consent,
approval, authorization, order, registration, filing or notice (A) as may
be required under state securities, real estate syndication or "blue sky"
laws in connection with the offering and sale of the Class A Certificates
(as to which such counsel need express no opinion whatsoever) or (B) which
is a future obligation of the Master Servicer pursuant to the terms of an
Agreement, such as, by way of illustration, but not in limitation of the
generality of the foregoing, filing or recording a Uniform Commercial Code
assignment of a financing statement or an assignment of Mortgage with
respect to a Mortgage Loan or obtaining a consent, approval or order in
connection with a foreclosure; or if any such consent, approval,
authorization, order,
BWNY03/123624
<PAGE>
registration, filing or notice (not described in the exception to the
immediately preceding clause) is required, the Master Servicer has
obtained, made or given the same. To such counsel's knowledge, and based in
part upon the Seller's written representations to such counsel, the Seller
is not required to obtain the consent, approval, authorization or order of,
to register or file with, or to give notice to, any court or governmental
agency or body of the State of Delaware (under the General Corporation Law
thereof), the State of Missouri, the State of New York or the United States
of America in order to execute, deliver, perform and comply with the terms
of, or for the consummation of the transactions of the Seller contemplated
by, the Pooling and Servicing Agreement, the Insurance Agreement or the
Underwriting Agreement except any consent, approval, authorization, order,
registration, filing or notice (A) as may be required under state
securities, real estate syndication or "blue sky" laws in connection with
the offering and sale of the Class A Certificates (as to which such counsel
need express no opinion whatsoever) or (B) which is a future obligation of
the Seller pursuant to the terms of Pooling and Servicing Agreement, the
Insurance Agreement or the Underwriting Agreement, such as, by way of
illustration, but not in limitation of the generality of the foregoing,
filing or recording a Uniform Commercial Code assignment of a financing
statement or an assignment of Mortgage with respect to a Mortgage Loan; or
if any such consent, approval, authorization, order, registration, filing
or notice (not described in the exception to the immediately preceding
clause) is required, the Seller has obtained, made or given the same.
(viii) The Registration Statement is effective under the 1933 Act, and
to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission.
(ix) The conditions to the use by the Depositor of a registration
statement on Form S-3 under the 1933 Act, as set forth in the General
Instructions to Form S-3, have been satisfied with respect to the
Registration Statement. To such counsel's knowledge, and based in part upon
the Depositor's representations to such counsel, there are no contracts or
documents of any of the Transaction Parties which are required to be filed
as exhibits to the Registration Statement pursuant to the 1933 Act or the
Rules and Regulations thereunder which have not been so filed. The
statements set forth in each of the Base Prospectus and the Prospectus
Supplement under the captions "RISK FACTORS -- Legal Considerations" and
"ERISA CONSIDERATIONS" and the statements set forth in the Base Prospectus
under the caption "CERTAIN LEGAL ASPECTS OF THE PRIMARY ASSETS", in each
case insofar as such statements purport to summarize matters of state or
federal law or legal conclusions with respect thereto, have been prepared
or
BWNY03/123624
<PAGE>
reviewed by such counsel and provide a fair summary of such law or
conclusions.
(x) To such counsel's knowledge, and based in part upon the Depositor's
representations to such counsel, there are no actions, suits or proceedings
against the Depositor (or to which the property of the Depositor is
subject) pending or overtly threatened in writing before any court,
governmental agency or arbitrator which (A) question, directly or
indirectly, the validity or enforceability of any of the Pooling and
Servicing Agreement, the Insurance Agreement or the Underwriting Agreement,
(B) could reasonably be expected to materially and adversely affect the
Depositor's financial condition, business or properties taken as a whole or
the validity or enforceability of any of such agreements or the
Certificates or (C) could reasonably be expected to materially and
adversely affect the ability of the Depositor to perform its obligations
under any of such agreements. To such counsel's knowledge, and based in
part upon the Master Servicer's representations to such counsel, there are
no actions, suits or proceedings against the Master Servicer (or to which
the property of the Master Servicer is subject) pending or overtly
threatened in writing before any court, governmental agency or arbitrator
which (A) question, directly or indirectly, the validity or enforceability
of any of the Agreements, (B) could reasonably be expected to materially
and adversely affect the Master Servicer's financial condition, business or
properties taken as a whole or the validity or enforceability of any of the
Agreements or the Certificates or (C) could reasonably be expected to
materially and adversely affect the ability of the Master Servicer to
perform its obligations under the Agreements. To such counsel's knowledge,
and based in part upon the Seller's representations to such counsel, there
are no actions, suits or proceedings against the Seller (or to which the
property of the Seller is subject) pending or overtly threatened in writing
before any court, governmental agency or arbitrator which (A) question,
directly or indirectly, the validity or enforceability of any of the
Pooling and Servicing Agreement, the Insurance Agreement or the
Underwriting Agreement, (B) could reasonably be expected to materially and
adversely affect the Seller's financial condition, business or properties
taken as a whole or the validity or enforceability of any of such
agreements or the Certificates or (C) could reasonably be expected to
materially and adversely affect the ability of the Seller to perform its
obligations under such agreements.
(xi) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act, and neither the Depositor nor the
Trust is required to be registered under the 1940 Act.
(xii) In connection with such counsel's participation in the
preparation of the Registration Statement and the
BWNY03/123624
<PAGE>
Prospectus, such counsel need not independently verify the accuracy,
completeness or fairness of the statements contained therein, and, without
limiting the generality of the foregoing, such counsel need not, with the
opinion recipients' consent, review any loan files relating to the Mortgage
Loans. The limitations inherent in such counsel's participation in the
preparation of the Registration Statement and the Prospectus and the
knowledge available to such counsel are such that such counsel need not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus. On
the basis of such counsel's participation in the preparation of the
Registration Statement and the Prospectus as described above and such
counsel's participation in conferences and telephone conversations with
representatives of the Depositor, the Seller, the Master Servicer, the
Underwriters and others at which the contents of the Registration Statement
and the Prospectus were discussed, and relying as to facts necessary to the
determination of materiality, to the extent such counsel may do so in the
exercise of such counsel's professional responsibility, upon the
certificates and statements of officers and other representatives of the
Depositor, the Seller, the Master Servicer and others, such opinion letter
will state that no facts have come to such counsel's attention that lead
such counsel to believe that, as of the date of the Prospectus and the
Closing Date, either the Registration Statement or the Prospectus
(excluding any financial or statistical data contained therein, the
sections of the Base Prospectus and the Prospectus Supplement captioned
"FEDERAL INCOME TAX CONSEQUENCES", the section of the Base Prospectus
captioned "PLAN OF DISTRIBUTION" and the sections of the Prospectus
Supplement captioned "COMPANION SERVICING COMPANY, L.L.C.", "CREDIT
ENHANCEMENT -- Certificate Insurance Policies", "CREDIT ENHANCEMENT -- The
Certificate Insurer", "UNDERWRITING" and "REPORT OF EXPERTS", as to which
such counsel need not comment) contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Such counsel's opinion letters may express their reliance as to factual
matters upon the representations and warranties made by the Block Transaction
Parties and on certificates or other documents furnished by officers of the
Block Transaction Parties. In addition to the qualifications with respect to the
enforceability opinions under paragraph (iii) above, the other opinions set
forth in such opinion letters will be subject to such qualifications as Morrison
& Hecker L.L.P. customarily makes with respect to such opinions in the manner
that Morrison & Hecker L.L.P. customarily makes such qualifications.
(c) The Underwriters shall have received the favorable opinion, dated the
Closing Date, of Perrie, Buker, Jones & Morton,
BWNY03/123624
<PAGE>
P.C., counsel to the Sub-Servicer, addressed to the Underwriters and in form and
scope satisfactory to counsel to the Underwriters, to the effect that:
(i) The Sub-Servicer has been organized and is subsisting and in good
standing as a limited liability company under the laws of the State of
Georgia, with the corporate power to conduct its business as described in
the Prospectus.
(ii) The Sub-Servicer has the corporate power to enter into the
Sub-Servicing Agreement with the Master Servicer.
(iii) The Sub-Servicer is duly authorized under relevant statutes, laws
and court decisions to conduct business in the various jurisdictions in
which management has certified that it currently conducts business, except
where failure to be so permitted or failure to be so authorized will not
have a material adverse effect on its business or financial condition.
(iv) The Sub-Servicing Agreement has been duly authorized and, when
duly executed and delivered by the Sub- Servicer and the other parties
thereto and when the other parties thereto have duly authorized and
executed the Sub- Servicing Agreement, will be enforceable against the Sub-
Servicer in accordance with its terms.
(v) Except as may be disclosed in the Sub-Servicing Agreement, the
execution and delivery of the Sub-Servicing Agreement by the Sub-Servicer
will not violate any provision of its governing documents, or to such
counsel's knowledge, any statute, order or regulation applicable to the
Sub- Servicer of any court or regulatory body, administrative agency or
governmental body having jurisdiction over the Sub- Servicer.
(vi) To such counsel's knowledge, there are no actions, proceedings or
investigations pending before, or threatened by, any court, administrative
agency or other tribunal to which the Sub-Servicer is a party or of which
any of its property is the subject which, if determined adversely to the
Sub-Servicer, (A) would have a material adverse effect on the business or
financial condition of the Sub-Servicer, (B) asserts the invalidity of the
Sub-Servicing Agreement, (C) seeks to prevent the consummation by the
Sub-Servicer of any of the transactions contemplated by the Sub-Servicing
Agreement, or (D) might materially and adversely affect the performance by
the Sub-Servicer of its obligations under, or the validity or
enforceability of, the Sub-Servicing Agreement.
Such counsel's opinion letter may express their reliance as to factual
matters upon the representations and warranties made by the
BWNY03/123624
<PAGE>
Sub-Servicer and on certificates or other documents furnished by officers of the
Sub-Servicer.
(d) The Underwriters shall have received the favorable opinion, dated the
Closing Date, of Dewey Ballantine, as counsel to the Trustee, addressed to the
Underwriters and in form and scope satisfactory to counsel to the Underwriters,
to the effect that:
(i) The Trustee has duly authorized, executed and delivered the Pooling
and Servicing Agreement and the Insurance Agreement, which constitute the
valid and legally binding agreements of the Trustee and are enforceable
against the Trustee in accordance with their terms, subject, as to
enforcement of remedies, (A) to applicable bankruptcy, insolvency,
reorganization and other similar laws affecting the rights of creditors
generally and (B) to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(ii) The Trustee has duly executed and countersigned the Certificates
issued on the date thereof on behalf of the Trust.
(iii) The execution and delivery by the Trustee of the Pooling and
Servicing Agreement and the Insurance Agreement and the performance by the
Trustee of its obligations thereunder do not conflict with or result in a
violation of the Articles of Association or Bylaws of the Trustee.
(iv) The Trustee has full power and authority to execute and deliver
the Pooling and Servicing Agreement and the Insurance Agreement and to
perform its obligations thereunder.
(v) To the best of such counsel's knowledge, there are no actions,
proceedings or investigations pending or threatened against or affecting
the Trustee before or by any court, arbitrator, administrative agency or
other governmental authority which, if adversely decided, would materially
and adversely affect the ability of the Trustee to carry out the
transactions contemplated in the Pooling and Servicing Agreement and the
Insurance Agreement.
(vi) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of the
United States of America or any state thereof is required for the
execution, delivery or performance by the Trustee of the Pooling and
Servicing Agreement and the Insurance Agreement.
(e) The Underwriters shall have received the favorable opinion or opinions,
dated the Closing Date, of Brown & Wood LLP, as counsel for the Underwriters,
with respect to the issuance of the Class A Certificates and the sale of the
Class A Certificates to the
BWNY03/123624
<PAGE>
Underwriters, the Registration Statement, this Underwriting Agreement, the
Prospectus and such other related matters as the Underwriters may require.
(f) The Underwriters shall have received the favorable opinion, dated the
Closing Date, of Kutak Rock, special counsel for the Certificate Insurer, in
form and scope satisfactory to counsel for the Underwriters, to the effect that:
(i) The Certificate Insurer is a stock insurance corporation, duly
incorporated and validly existing under the laws of the State of New York.
The Certificate Insurer is validly licensed and authorized to issue each of
the Policies and perform its obligations under each of the Policies in
accordance with the terms thereof, under the laws of the State of New York.
(ii) The execution and delivery by the Certificate Insurer of each of
the Policies, the Insurance Agreement and the Insurance Indemnification
Agreement are within the corporate powers of the Certificate Insurer and
have been authorized by all necessary corporate action on the part of the
Certificate Insurer; each of the Policies has been duly executed and is the
valid and binding obligation of the Certificate Insurer enforceable in
accordance with its terms except that the enforcement of the Policies may
be limited by laws relating to bankruptcy, insolvency, reorganization,
moratorium, receivership and other similar laws affecting creditors' rights
generally and by general principles of equity.
(iii) The Certificate Insurer is authorized to deliver the Insurance
Agreement and the Insurance Indemnification Agreement and each of the
Insurance Agreement and the Insurance Indemnification Agreement has been
duly executed and is a valid and binding obligation of the Certificate
Insurer enforceable in accordance with its terms except that the
enforcement of the Insurance Agreement and the Insurance Indemnification
Agreement may be limited by laws relating to bankruptcy, insolvency,
reorganization, moratorium, receivership and other similar laws affecting
creditors' rights generally and by general principles of equity and, in the
case of the Insurance Indemnification Agreement, public policy
considerations as to rights of indemnification for violations of federal
and state securities laws.
(iv) No consent, approval, authorization or order of any state or
federal court or governmental agency or body is required on the part of the
Certificate Insurer, the lack of which would adversely affect the validity
or enforceability of any of the Policies, the Insurance Agreement or the
Insurance Indemnification Agreement; to the extent required by applicable
legal requirements that would adversely affect the validity or
enforceability of either of the Policies, the form
BWNY03/123624
<PAGE>
of each of the Policies has been filed with, and approved by, all
governmental authorities having jurisdiction over the Certificate Insurer
in connection with the Policies.
(v) To the extent that either of the Policies constitutes a security
within the meaning of Section 2(1) of the 1933 Act, it is a security that
is exempt from the registration requirements of the 1933 Act.
(vi) The information set forth under the caption "CREDIT
ENHANCEMENT--Certificate Insurance Policies" in the Prospectus Supplement,
insofar as such statements constitute a description of the Policies,
accurately summarizes the Policies.
(g) The Underwriters shall have received an opinion, dated the Closing
Date, of Morrison & Hecker L.L.P. as counsel to the Master Servicer, the Seller
and the Depositor, addressed to the Certificate Insurer, the Trustee, Standard &
Poor's, Moody's and the Underwriters, relating to the true sale of the Mortgage
Loans (i) by the Seller to the Depositor and (ii) by the Depositor to the
Trustee.
(h) Each of the Transaction Parties shall have furnished to the
Underwriters a certificate signed on behalf of such Transaction Party by an
accounting or financial officer thereof, dated the Closing Date, as to (i) the
accuracy of the representations and warranties herein of such Transaction Party
at and as of the Closing Date; (ii) there being no legal or governmental
proceedings pending, other than those, if any, referred to in the Prospectus or
the Prospectus as amended or supplemented, as the case may be, to which such
Transaction Party is a party or of which any property of such Transaction Party
is the subject, which, in the judgment of such Transaction Party, have a
reasonable likelihood of resulting in a material adverse change in the financial
condition, shareholders' equity or results of operations of such Transaction
Party or having a material adverse effect on the ability to perform its
obligations under the Agreements; and to the best knowledge of each such
Transaction Party, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; (iii) the performance by such
Transaction Party of all of its respective obligations hereunder to be performed
at or prior to the Closing Date; and (iv) such other matters as you may
reasonably request.
(i) The Trustee shall have furnished to the Underwriters a certificate of
the Trustee, signed by one or more duly authorized officers of the Trustee,
dated the Closing Date, as to the due authorization, execution and delivery of
the Pooling and Servicing Agreement by the Trustee and the acceptance by the
Trustee of the trust created by the Pooling and Servicing Agreement and the due
execution and delivery of the Certificates by the Trustee thereunder and such
other matters as you shall reasonably request.
BWNY03/123624
<PAGE>
(j) The Indemnification Agreement shall have been entered into by the
Certificate Insurer, the Seller, the Master Servicer and the Underwriters, in
which the Certificate Insurer will represent to the Underwriters, among other
representations, that (i) the information under the captions "CREDIT
ENHANCEMENT--Certificate Insurance Policies" and "CREDIT ENHANCEMENT--The
Certificate Insurer" (the "Insurer Information") in the Prospectus Supplement
was approved by the Certificate Insurer and is limited and does not purport to
provide the scope of disclosure required to be included in a prospectus for a
registrant under the 1933 Act, in connection with the public offer and sale of
securities of such registrant. Within such limited scope of disclosure, the
Insurer Information does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; and (ii) there
has been no change in the financial condition of the Certificate Insurer since
September 30, 1997 which would have a material adverse effect on the Certificate
Insurer's ability to meet its obligations under the Policies; and the
Indemnification Agreement shall contain provisions, reasonably satisfactory to
the Underwriters, for the indemnification of the Underwriters.
(k) The Policies shall have been issued by the Certificate Insurer pursuant
to the Insurance Agreement and shall have been duly countersigned by an
authorized agent of the Certificate Insurer, if so required under
applicable state law or regulation.
(l) The Class A Certificates shall have been rated "AAA" by Standard &
Poor's and "Aaa" by Moody's.
(m) Counsel to the Transaction Parties shall have furnished to the
Underwriters any opinions supplied to Standard & Poor's, Moody's or the
Certificate Insurer relating to the Class A Certificates and such opinions shall
state that the Underwriters may rely thereon.
(n) The Underwriters shall have received from each of Deloitte & Touche LLP
and Ernst & Young LLP, certified public accountants, a letter, dated as of the
date of the Prospectus Supplement in the form heretofore agreed to.
(o) Prior to the Closing Date, Brown & Wood LLP, as counsel for the
Underwriters, shall have been furnished with such documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance of the Class A Certificates and the sale of the Class A Certificates to
the Underwriters as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions, herein contained; and
all proceedings taken by the Transaction Parties in connection with the issuance
of the Class A Certificates and the sale of the Class A Certificates to the
Underwriters as herein
BWNY03/123624
<PAGE>
contemplated shall be satisfactory in form and substance to the Underwriters and
Brown & Wood LLP.
(p) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
condition, stockholders' equity or results of operations of any of the
Transaction Parties or the Certificate Insurer otherwise than as set forth or
contemplated in the Prospectus, the effect of which is, in the judgment of the
Underwriters, so material and adverse as to make it impracticable or inadvisable
to proceed with the public offering or the delivery of the Class A Certificates
on the terms and in the manner contemplated in the Prospectus.
(q) Subsequent to the execution and delivery of this Underwriting
Agreement, there shall not have occurred any downgrading in the rating of any
securities of the Transaction Parties or the Certificate Insurer, or any public
announcement that any rating organization has under surveillance or review its
rating of any securities of any of the Transaction Parties or the Certificate
Insurer (other than an announcement with positive implications of a possible
upgrade, and no implication of a possible downgrade, of such rating).
(r) Prior to the Closing Date, each of the Transaction Parties shall have
furnished to you such further information, certificates and documents as you may
reasonably request.
If any condition specified in this Section 6 shall not have been fulfilled
when and as required to be fulfilled, this Underwriting Agreement may be
terminated by you by notice to the Depositor at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section 7.
SECTION 7. Payment of Expenses. Block Financial Corporation agrees to pay
all expenses incident to the performance of its obligations under this
Agreement, including without limitation those related to (i) the filing of the
Registration Statement and all amendments thereto, (ii) the preparation,
issuance and delivery of the Certificates, (iii) the fees and disbursements of
Morrison & Hecker L.L.P., as special counsel for the Transaction Parties, of
Deloitte & Touche LLP, accountants of the Master Servicer, the Seller and the
Depositor, and of Ernst & Young LLP, accountants of the Sub-Servicer, (iv) the
first $10,000 of fees and expenses, of Brown and Wood LLP, as special tax
counsel for the Depositor, (v) the qualification of the Class A Certificates
under state securities and "blue sky" laws and the determination of the
eligibility of the Class A Certificates for investment in accordance with the
provisions of subsection 5(f) of this Underwriting Agreement, including filing
fees, (vi) the printing and delivery to the Underwriters, in such quantities as
you may reasonably request, of copies of the Registration Statement and the
BWNY03/123624
<PAGE>
Prospectus and all amendments and supplements thereto, and of any Blue Sky
Survey, (vii) the delivery to the Underwriters, in such quantities as you may
reasonably request, of copies of the Agreements, (viii) the fees charged by
nationally recognized statistical rating agencies for rating the Class A
Certificates, (ix) the reasonable fees and expenses of the Trustee and its
counsel and (x) the reasonable fees and expenses of the Certificate Insurer and
its counsel.
If this Underwriting Agreement is terminated by you in accordance with the
provisions of Section 6, the Master Servicer, the Seller and the Depositor shall
reimburse you for all reasonable out-of-pocket expenses, including the fees and
disbursements of Brown & Wood LLP, as counsel for the Underwriters.
SECTION 8. Indemnification. (a) Block Financial Corporation and the
Depositor jointly and severally agree to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the information deemed to be a part
of the Registration Statement pursuant to Rule 430A under the 1933 Act, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, unless (a) such untrue statement or omission or alleged untrue
statement or omission was made in reliance upon and in conformity with
written information furnished to the Depositor by the Underwriters or the
Certificate Insurer expressly for use in the Registration Statement (or any
amendment thereto), or (b) such untrue statement or omission or alleged
untrue statement or omission was made in any preliminary prospectus and
corrected in the Prospectus and (A) any such loss, claim, damage or
liability suffered or incurred by an Underwriter resulted from an action,
claim or suit by any person who purchased the Class A Certificates from
such Underwriter in the offering and (B) such Underwriter failed to deliver
or provide a copy of the Prospectus dated January 27, 1998 to such person
at or prior to the confirmation of the sale of such Class A Certificates in
any case where such delivery is required by the 1933 Act;
BWNY03/123624
<PAGE>
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Depositor; and
(iii) against any and all reasonable expense whatsoever (including the
reasonable fees and disbursements of counsel chosen by you) as reasonably
incurred in investigating, preparing to defend or defending against or
appearing as a third party witness with respect to any litigation or
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, as such
expense is incurred and to the extent that any such expense is not paid
under (i) or (ii) above.
This indemnity will be in addition to any liability which any of the Master
Servicer, the Seller or the Depositor may otherwise have.
(b) (i) Each of the Underwriters severally and not jointly agrees to
indemnify and hold harmless Block Financial Corporation and the Depositor, each
of their directors, each of their officers who signed the Registration
Statement, and each person, if any, who controls Block Financial Corporation
and/or the Depositor within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act (each, an "Indemnified Party") against any and all loss,
liability, claim, damage and expense, as incurred, described in the indemnity
contained in subsection (a)(i) of this Section 8, arising out of any untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Seller and/or to the Depositor by such Underwriter
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto). The parties acknowledge
that the statements set forth in the last paragraph of the first cover page of
the Prospectus Supplement, in the next to last paragraph of page S-iii of the
Prospectus Supplement and under the caption "UNDERWRITING" in the Prospectus
Supplement constitute the only information furnished in writing by the
Underwriters for inclusion in the Registration Statement or the Prospectus.
(ii) Each Underwriter individually agrees to indemnify and hold
harmless each Indemnified Party against any and all loss, liability, claim,
damage and expense, as incurred, described in the indemnity contained in
subsection (a)(ii) of this Section 8, arising out of any untrue statements or
omissions, or alleged
BWNY03/123624
<PAGE>
untrue statements or omissions, made in the Computational Materials (as defined
below) prepared and used by such Underwriter; provided, however, that such
Computational Materials shall not include any Mortgage Loan Information (as
defined below) or any errors in the mathematical calculations reflected in such
Computational Materials to the extent such errors result from such Mortgage Loan
Information; and provided, further, that any such omission or alleged omission
relating to the Computational Materials shall be determined by reading such
Computational Materials in conjunction with the Prospectus as an integral
document and in light of the circumstances under which such statements in the
Computational Materials and the Prospectus were made. "Computational Materials"
shall mean the "Computational Materials" as defined in 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,
the No-Action Letter of May 27, 1994 issued by the Commission to the Public
Securities Association and the No-Action Letter of March 9, 1995 issued by the
Commission to the Public Securities Association (the "SEC No-Action Letters").
"Computational Materials" shall include only those Computational Materials that
have been prepared or delivered to prospective investors by or at the direction
of the Underwriters. In connection with the use of Computational Materials, the
Underwriters shall comply with all applicable requirements of the SEC No-Action
Letters. "Mortgage Loan Information" shall mean information relating to the
Mortgage Loans furnished by Block Financial Corporation, the Depositor, the
Master Servicer or the Seller to either of the Underwriters upon which the
mathematical calculations reflected in the Computational Materials of the
Underwriters are based. All information included in the Computational Materials
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 may include
information based on alternative methodologies or assumptions if specified
therein. The Depositor will timely file with the Commission in current reports
on Form 8-K under the 1934 Act all information with respect to the Certificates
which constitutes Computational Materials, in accordance with and in the time
frames set forth in the SEC No-Action Letters; and provided, further, that the
Depositor shall not be obligated to file any Computational Materials with the
Commission that (i) in the reasonable determination of the Depositor and the
Underwriters are not required to be filed pursuant to the SEC No-Action Letters
or (ii) have been determined to contain any material error or omission, provided
that, at the request of an Underwriter, the Depositor will file Computational
Materials that contain a material error or omission if clearly marked
"superseded by materials dated [________]" and accompanied by corrected
Computational Materials that are marked "material previously dated [_________],
as corrected".
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it with respect
BWNY03/123624
<PAGE>
to which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
hereunder unless it has been materially prejudiced by such failure to notify or
from any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of such action. In no event shall the indemnifying parties be liable for
the fees and expenses of more than one counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
unless (i) if the defendants in any such action include one or more of the
indemnified parties and the indemnifying party, and one or more of the
indemnified parties shall have employed separate counsel after having reasonably
concluded that there may be legal defenses available to it or them that are
different from or additional to those available to the indemnifying party or to
one or more of the other indemnified parties or (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 the
commencement of the action.
SECTION 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, Block Financial Corporation
and the Depositor, on the one hand, and the Underwriters, on the other, shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by Block Financial
Corporation and/or the Depositor and one or more of the Underwriters (i) in such
proportion as shall be appropriate to reflect the relative benefits to Block
Financial Corporation and the Depositor, on the one hand, and the Underwriters,
on the other, in connection with the matter to which the indemnification
relates, which relative benefits shall be deemed to be such that the
Underwriters shall be responsible for that portion represented by the percentage
that the underwriting discount on the cover of the Prospectus on the Closing
Date bears to the initial public offering price for the Class A Certificates as
set forth thereon, and Block Financial Corporation and the Depositor shall be
jointly and severally responsible for the balance or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law or otherwise
prohibited hereby, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
Block Financial Corporation and the Depositor, on the one hand, and the
Underwriters or Underwriter, as applicable, on the other, in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person
BWNY03/123624
<PAGE>
who was not guilty of such fraudulent misrepresentation. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by Block Financial Corporation
or the Depositor, on the one hand, or the Underwriters, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. Block Financial
Corporation, the Depositor and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 9 were to be determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the first sentence of this
Section 9. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
the first sentence of this Section 9 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending against any action or claim that
is the subject of this Section 9. Notwithstanding the provisions of this Section
9, no Underwriter shall be required to contribute any amount in excess of the
amount by which the total underwriting commission received by such Underwriter
for the sale of the Class A Certificates underwritten by such Underwriter and
distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay in respect of such losses,
liabilities, claims, damages and expenses. The Underwriters' obligations in this
Section 9 to contribute are several in proportion to their respective
underwriting obligations and not joint. Each party entitled to contribution
agrees that upon the service of a summons or other initial legal process upon it
in any action instituted against it in respect to which contribution may be
sought, it shall promptly give written notice of such service to the party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties of any such service shall not relieve the party from whom
contribution may be sought for any obligation it may have hereunder or otherwise
(except as specifically provided in Section 8 hereof). For purposes of this
Section 9, each person, if any, who controls any Underwriter within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as such Underwriter, and each respective director of
Block Financial Corporation and/or the Depositor, each respective officer of
Block Financial Corporation and/or the Depositor who signed the Registration
Statement, and each person, if any, who controls Block Financial Corporation
and/or the Depositor within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as Block Financial
Corporation and/or the Depositor.
SECTION 10. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements
BWNY03/123624
<PAGE>
contained in this Underwriting Agreement or any statement set forth in any of
the certificates of officers of the Master Servicer, the Seller or the Depositor
submitted pursuant hereto shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Underwriters or
controlling person thereof, or by or on behalf of the Master Servicer, the
Seller or the Depositor and shall survive delivery of any Class A Certificates
to the Underwriters.
SECTION 11. Termination of Agreement. This Underwriting Agreement shall be
subject to termination by notice given by you to the Depositor if (i) any
change, or any development involving a prospective change, in or affecting
particularly the business or properties of the Trust, any of the Transaction
Parties or the Certificate Insurer which, in your judgment, materially impairs
the investment quality of the Class A Certificates or makes it impractical or
inadvisable to market the Class A Certificates; (ii) any downgrading in the
rating of any securities of the Trust, any of the Transaction Parties or the
Certificate Insurer by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the 1933 Act), or
any public announcement that any such organization has under surveillance or
review its rating of any securities of the Trust, any of the Transaction Parties
or the Certificate Insurer (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange; (iv) any suspension of trading of any
securities of the Trust, any of the Transaction Parties or the Certificate
Insurer on any exchange or in the over-the-counter market; (v) any banking
moratorium declared by federal or New York authorities; or (vi) any outbreak or
escalation of major hostilities in which the United States is involved, any
declaration of war by Congress, or any other substantial national or
international calamity or emergency if, in your judgment, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the sale of and payment for the Class
A Certificates. In the event of any such termination, the covenant set forth in
subsection 5(b), the provisions of Section 7, the indemnity agreement set forth
in Section 8, and the provisions of Sections 9 and 14 shall remain in effect.
SECTION 12. Default by One of the Underwriters. If one of the Underwriters
participating in the public offering of the Class A Certificates shall fail on
the Closing Date to purchase the Class A Certificates which it is obligated to
purchase hereunder (the "Defaulted Certificates"), then the non-defaulting
Underwriter shall have the right, within 24 hours thereafter, to make
arrangements for it, or any other underwriter, to purchase all, but not fewer
than all, of the Defaulted Certificates in such amounts as may be agreed upon
and upon the terms herein set forth. If,
BWNY03/123624
<PAGE>
however, you have not completed such arrangements within such 24-hour period,
then:
(i) if the aggregate principal amount of the Defaulted Certificates
does not exceed 10% of the aggregate principal amount of the Class A
Certificates to be purchased pursuant to this Underwriting Agreement, the
non-defaulting Underwriter named in this Underwriting Agreement shall be
obligated to purchase the full amount thereof, or
(ii) if the aggregate principal amount of the Defaulted Certificates
exceeds 10% of the aggregate principal amount of the Class A Certificates
to be purchased pursuant to this Underwriting Agreement, this Underwriting
Agreement shall terminate, without any liability on the part of the non-
defaulting Underwriter.
No action taken pursuant to this Section 12 shall relieve the defaulting
Underwriter from the liability with respect to any default of such Underwriter
under this Underwriting Agreement.
In the event of a default by any Underwriters as set forth in this Section
12, either you or the Seller shall have the right to postpone the Closing Date
for a period not exceeding five Business Days in order that any required changes
in the Registration Statement or Prospectus or in any other documents or
arrangements may be effected.
SECTION 13. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to Morgan Stanley & Co. Incorporated, 1585
Broadway, New York, New York 10036, Attention: Paul Scialabba and to Salomon
Brothers Inc at Seven World Trade Center, 32nd Floor, New York, New York 10048,
Attention: Paul Humphrey. Notices to the Master Servicer, the Seller or the
Depositor shall be directed to Block Mortgage Finance, Inc., 4435 Main Street,
Suite 500, Kansas City, Missouri 64111, to the attention of the Secretary, with
a copy to the Treasurer.
SECTION 14. Parties. This Underwriting Agreement shall inure to the benefit
of and be binding upon the Underwriters, the Master Servicer, the Seller and the
Depositor, and their respective successors. Nothing expressed or mentioned in
this Underwriting Agreement is intended nor shall it be construed to give any
person, firm or corporation, other than the parties hereto and their respective
successors and the controlling persons and officers and directors referred to in
Sections 8 and 9 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or with respect to this Underwriting
Agreement or any provision herein contained. This Underwriting Agreement and all
conditions and provisions hereof are intended to be for the sole and exclusive
benefit of the parties and their respective
BWNY03/123624
<PAGE>
successors and said controlling persons and officers and directors and their
heirs and legal representatives (to the extent of their rights as specified
herein) and except as provided above for the benefit of no other person, firm or
corporation. No purchaser of the Class A Certificates from the Underwriters
shall be deemed to be a successor by reason merely of such purchase.
SECTION 15. Governing Law and Time. This Underwriting Agreement shall be
governed by the law of the State of New York and shall be construed in
accordance with such law applicable to agreements made and to be performed
therein, without giving effect to the conflicts of laws principles thereof.
Specified times of day refer to New York City time.
SECTION 16. Counterparts. This Underwriting Agreement may be executed in
counterparts, each of which shall constitute an original of any party whose
signature appears on it, and all of which shall together constitute a single
instrument.
BWNY03/123624
<PAGE>
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement among the
Underwriters, the Master Servicer, the Seller and the Depositor in accordance
with its terms.
Very truly yours,
BLOCK MORTGAGE FINANCE, INC. as
Depositor
By: _________________________________________________
Name:
Title:
COMPANION MORTGAGE CORPORATION, as Seller
By: _________________________________________________
Name:
Title:
BLOCK FINANCIAL CORPORATION, as Master Servicer
By: _________________________________________________
Name:
Title:
<PAGE>
CONFIRMED AND ACCEPTED, as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
as Representative of the Underwriters
By: _______________________________________
Name: Paul C. Scialabba
Title: Vice President
<PAGE>
Schedule A
----------
Underwriting
------------
<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>
Morgan Stanley & Co.
Incorporated
Certificate
Balance (1)..... $20,200,000 $9,250,000 $5,450,000 $6,500,000 $4,600,000 $46,160,000
99.97937 99.942657 99.880076
Price to Public % 99.891611% % % 99.901625% 100.000000%
Underwriting
Discount........ 0.1800% 0.2500% 0.3750% 0.4500% 0.3775% 0.2775%
Purchase Price.. $20,159,473 $9,216,849 $5,426,437 $6,462,955 $4,578,110 $46,031,906
Salomon
Brothers Inc
Certificate
Balance (1)..... $20,200,000 $9,250,000 $5,450,000 $6,500,000 $4,600,00 $46,160,000
99.97937 99.942657 99.880076
Price to Public % 99.891611% % % 99.901625% 100.000000%
Underwriting
Discount........ 0.1800% 0.2500% 0.3750% 0.4500% 0.3775 0.2775%
Purchase Price. $20,159,473 $9,216,849 $5,426,437 $6,462,955 $4,578,110 $46,031,906
- ------------------
<FN>
(1) Subject to a permitted variance of plus or minus 5%, dependent upon the
principal balance of the Mortgage Loans as of the Cut-Off Date in the Trust Fund
on the Closing Date.
</FN>
</TABLE>
BWNY03/123624
EXECUTION COPY
POOLING AND SERVICING AGREEMENT
Relating to
BLOCK MORTGAGE FINANCE ASSET BACKED CERTIFICATES, SERIES 1998-1
Among
BLOCK MORTGAGE FINANCE, INC.,
as Depositor
BLOCK FINANCIAL CORPORATION,
as Master Servicer
COMPANION MORTGAGE CORPORATION,
as Seller
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
Dated as of January 1, 1998
<PAGE>
CONTENTS
Page
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.....................................3
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01 Establishment of the Trust.....................37
Section 2.02 Office.........................................37
Section 2.03 Purposes and Powers............................37
Section 2.04 Appointment of the Trustee; Declaration of
Trust..........................................37
Section 2.05 Expenses of the Trust..........................37
Section 2.06 Ownership of the Trust.........................38
Section 2.07 Situs of the Trust.............................38
Section 2.08 Miscellaneous REMIC Provisions.................38
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEPOSITOR,
THE MASTER SERVICER AND THE SELLER;
COVENANT OF THE SELLER TO CONVEY MORTGAGE LOANS
Section 3.01 Representations and Warranties of the
Depositor......................................39
Section 3.02 Representations and Warranties of the Master
Servicer.......................................42
Section 3.03 Representations and Warranties of the
Seller.........................................44
Section 3.04 Covenants of Seller to Take Certain Actions
with Respect to the Mortgage Loans In
Certain Situations.............................47
Section 3.05 Conveyance of the Mortgage Loans and
Qualified Replacement Mortgages................49
Section 3.06 Acceptance by Trustee; Certain Substitutions
of Mortgage Loans; Certification by Trustee....52
i
<PAGE>
Page
Page
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01 Issuance of Certificates.......................54
Section 4.02 Sale of Certificates...........................54
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01 Terms..........................................55
Section 5.02 Forms..........................................55
Section 5.03 Execution, Authentication and Delivery.........56
Section 5.04 Registration and Transfer of Certificates......56
Section 5.05 Mutilated, Destroyed, Lost or Stolen
Certificates...................................58
Section 5.06 Persons Deemed Owners..........................59
Section 5.07 Cancellation...................................59
Section 5.08 Limitation on Transfer of Ownership Rights.....59
Section 5.09 Assignment of Rights...........................61
ARTICLE VI
COVENANTS
Section 6.01 Distributions..................................62
Section 6.02 Money for Distributions to be Held in Trust;
Withholding....................................62
Section 6.03 Protection of Trust Estate.....................63
Section 6.04 Performance of Obligations.....................64
Section 6.05 Negative Covenants.............................64
Section 6.06 No Other Powers................................65
Section 6.07 Limitation of Suits............................65
Section 6.08 Unconditional Rights of Owners to Receive
Distributions..................................66
Section 6.09 Rights and Remedies Cumulative.................66
Section 6.10 Delay or Omission Not Waiver...................66
Section 6.11 Control by Owners..............................67
Section 6.12 Indemnification................................67
Section 6.13 Access to Owners of Certificates' Names and
Addresses......................................68
ii
<PAGE>
Page
Page
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01 Collection of Money............................68
Section 7.02 Establishment of Accounts......................68
Section 7.03 Flow of Funds..................................69
Section 7.04 Reserved.......................................74
Section 7.05 Investment of Accounts.........................74
Section 7.06 Payment of Trust Expenses......................75
Section 7.07 Permitted Investments..........................75
Section 7.08 Accounting and Directions by Trustee...........77
Section 7.09 Reports by Trustee to Owners and Certificate
Insurer........................................78
Section 7.10 Reports by Trustee.............................80
Section 7.11 Preference Payments............................81
ARTICLE VIII
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS
Section 8.01 Master Servicer and Sub-Servicers..............82
Section 8.02 Collection of Certain Mortgage Loan Payments...83
Section 8.03 Sub-Servicing Agreements Between Master
Servicer and Sub-Servicers.....................84
Section 8.04 Successor Sub-Servicers........................84
Section 8.05 Liability of Master Servicer; Indemnification..85
Section 8.06 No Contractual Relationship Between
Sub-Servicer, Trustee or the Owners............86
Section 8.07 Assumption or Termination of Sub-Servicing
Agreement by Trustee...........................86
Section 8.08 Collection Account.............................87
Section 8.09 Delinquency Advances and Servicing Advances....88
Section 8.10 Compensating Interest: Repurchase of Mortgage
Loans..........................................89
Section 8.11 Maintenance of Insurance.......................90
Section 8.12 Due-on-Sale Clauses; Assumption and
Substitution Agreements........................92
Section 8.13 Realization Upon Defaulted Mortgage Loans;
Inspection.....................................93
Section 8.14 Trustee to Cooperate; Release of Files.........95
Section 8.15 Servicing Compensation.........................96
Section 8.16 Annual Statement as to Compliance..............96
Section 8.17 Annual Independent Certified Public
Accountants' Reports...........................97
Section 8.18 Access to Certain Documentation and
Information Regarding the Mortgage Loans.......97
Section 8.19 Merger or Consolidation of the Master
Servicer; Assignment...........................98
iii
<PAGE>
Page
Page
Section 8.20 Removal of Master Servicer; Resignation of
Master Servicer................................98
Section 8.21 Inspections by Certificate Insurer; Errors
and Omissions Insurance.......................103
ARTICLE IX
TERMINATION OF TRUST
Section 9.01 Termination of Trust..........................103
Section 9.02 Termination upon Option of Owners of Class R
Certificates and Master Servicer..............104
Section 9.03 Termination Auction...........................105
Section 9.04 Termination Upon Loss of REMIC Status.........106
Section 9.05 Disposition of Proceeds.......................108
ARTICLE X
THE TRUSTEE
Section 10.01 Certain Duties and Responsibilities..........109
Section 10.02 Removal of Trustee for Cause.................111
Section 10.03 Certain Rights of the Trustee................112
Section 10.04 Not Responsible for Recitals or Issuance of
Certificates.................................113
Section 10.05 May Hold Certificates........................114
Section 10.06 Money Held in Trust..........................114
Section 10.07 Compensation and Reimbursement; No Lien for
Fees.........................................114
Section 10.08 Corporate Trustee Required; Eligibility......114
Section 10.09 Resignation and Removal; Appointment of
Successor....................................115
Section 10.10 Acceptance of Appointment by Successor
Trustee......................................116
Section 10.11 Merger, Conversion, Consolidation or
Succession to Business of the Trustee........117
Section 10.12 Reporting; Withholding.......................117
Section 10.13 Liability of the Trustee.....................118
Section 10.14 Appointment of Co-Trustee or Separate
Trustee......................................118
ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates and Opinions.........120
Section 11.02 Form of Documents Delivered to the Trustee...120
Section 11.03 Acts of Owners...............................121
iv
<PAGE>
Page
Section 11.04 Notices, etc. to Trustee.....................122
Section 11.05 Notices and Reports to Owners; Waiver of
Notices......................................122
Section 11.06 Rules by Trustee.............................123
Section 11.07 Successors and Assigns.......................123
Section 11.08 Severability.................................123
Section 11.09 Benefits of Agreement........................123
Section 11.10 Legal Holidays...............................123
Section 11.11 Governing Law; Submission to Jurisdiction....123
Section 11.12 Counterparts.................................124
Section 11.13 Usury........................................125
Section 11.14 Amendment....................................125
Section 11.15 Paying Agent; Appointment and Acceptance
of Duties....................................126
Section 11.16 REMIC Status.................................127
Section 11.17 Additional Limitation on Action and
Imposition of Tax 128
Section 11.18 Appointment of Tax Matters Person............129
Section 11.19 The Certificate Insurer......................129
Section 11.20 Reserved.....................................129
Section 11.21 Third Party Rights...........................129
Section 11.22 Notices......................................130
v
<PAGE>
SCHEDULE I REPRESENTATIONS AND WARRANTIES AS TO THE MORTGAGE LOANS
SCHEDULE I-A SCHEDULE OF FIXED RATE GROUP MORTGAGE LOANS
SCHEDULE I-B SCHEDULE OF ADJUSTABLE RATE GROUP MORTGAGE LOANS
EXHIBIT A FORM OF CLASS A CERTIFICATE
EXHIBIT B RESERVED
EXHIBIT C FORM OF CLASS R CERTIFICATE
EXHIBIT D PAYOFF CERTIFICATION
EXHIBIT E FORM OF TRUSTEE'S ACKNOWLEDGEMENT OF RECEIPT
EXHIBIT F FORM OF POOL CERTIFICATION
EXHIBIT G FORM OF DELIVERY ORDER
EXHIBIT H FORM OF AFFIDAVIT FOR CLASS R TRANSFER
EXHIBIT I FORM OF LOST NOTE AFFIDAVIT
EXHIBIT J RESERVED
EXHIBIT K TERMINATION AUCTION PROCEDURES
EXHIBIT L FORM OF LIQUIDATION REPORT
vi
<PAGE>
POOLING AND SERVICING AGREEMENT, relating to BLOCK MORTGAGE FINANCE ASSET
BACKED CERTIFICATES, SERIES 1998-1, dated as of January 1, 1998 by and among
BLOCK MORTGAGE FINANCE, INC., a Delaware corporation, in its capacity as
Depositor (the "Depositor"), BLOCK FINANCIAL CORPORATION, a Delaware
corporation, in its capacity as Master Servicer (the "Master Servicer"),
COMPANION MORTGAGE CORPORATION, a Delaware corporation, in its capacity as
Seller (the "Seller"), and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., a national
banking association, in its capacity as the trustee (the "Trustee").
WHEREAS, the Depositor wishes to establish a trust and provide for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution thereof;
WHEREAS, the Master Servicer has agreed to service the Mortgage Loans,
which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when executed by
the Depositor and authenticated by the Trustee, valid instruments, and to make
this Agreement a valid agreement, in accordance with their and its terms, have
been done;
WHEREAS, Bankers Trust Company of California, N.A. is willing to serve in
the capacity of Trustee hereunder; and
WHEREAS, MBIA Insurance Corporation is intended to be a third-party
beneficiary with the right to enforce this Agreement as if it were a party to
this Agreement and is hereby recognized by the parties hereto to be a
third-party beneficiary with the right to enforce this Agreement as if it were a
party to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Depositor, the Seller, the Master Servicer and the Trustee
hereby agree as follows:
CONVEYANCE
To provide for the distribution of the principal of and/or interest on the
Class A Certificates and the Class R Certificates in accordance with their
terms, all of the sums distributable under this Agreement with respect to the
Certificates and the performance of the covenants contained in this Agreement,
the Seller hereby bargains, sells, conveys, assigns and transfers to the
Depositor and the Depositor hereby bargains, sells, conveys, assigns and
transfers to the Trustee, in trust, without recourse (except as provided herein)
and for the exclusive benefit of the Owners of the Certificates and the
Certificate Insurer, all of its respective right, title and interest in and to
any and all benefits accruing to it from (a) the Mortgage Loans (other than any
principal and interest payments received or, with respect to an Actuarial Loan,
due thereon on or prior to the Cut-Off Date) listed in Schedules I-A and I-B to
this Agreement which the Seller is causing to be delivered to the Depositor and
the Depositor is causing to be delivered to the
<PAGE>
Trustee herewith (and all substitutions therefor as provided by Sections 3.03,
3.04 and 3.06), together with the related Mortgage Loan documents and the
Seller's and Depositor's interest in any Mortgaged Property which secures a
Mortgage Loan but which has been acquired by foreclosure or deed in lieu of
foreclosure, and all payments thereon and proceeds of the conversion, voluntary
or involuntary, of the foregoing; (b) such amounts as may be held by the Trustee
in the Distribution Account, exclusive of investment earnings on such amounts
(except as otherwise provided herein) and such amounts as may be held by the
Master Servicer in the name of the Trustee in the Collection Account, if any,
exclusive of investment earnings thereon (except as otherwise provided herein),
whether in the form of cash, instruments, securities or other properties
(including any Permitted Investments held by the Master Servicer); (c) with
respect to the Class A Certificates, the Certificate Insurance Policies and (d)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, hazard insurance and title insurance policy
relating to the Mortgage Loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing) to pay the Certificates as specified herein ((a)-(d) above
shall be collectively referred to herein as the "Trust Estate"), excluding the
proceeds of the Certificate Insurance Policies except with respect to the Class
A Certificates.
The Trustee acknowledges such sale, accepts the Trust hereunder in
accordance with the provisions hereof and agrees to perform the duties herein to
the best of its ability to the end that the interests of the Owners may be
adequately and effectively protected.
2
<PAGE>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Account": Any account established in accordance with Section 7.02 or 8.08
hereof.
"Accrual Period": With respect to the Fixed Rate Certificates and any
Distribution Date, the calendar month immediately preceding the month in which
the Distribution Date occurs; a "calendar month" shall be deemed to be 30 days.
With respect to the Adjustable Rate Certificates and any Distribution Date, the
period commencing on the immediately preceding Distribution Date (or the
Start-up Date in the case of the first Distribution Date) and ending on the day
immediately preceding the current Distribution Date. All calculations of
interest on the Fixed Rate Certificates will be made on the basis of a 360-day
year assumed to consist of twelve 30-day months and calculations of interest on
the Adjustable Rate Certificates will be made on the basis of the actual number
of days elapsed in the related Accrual Period and a year of 360 days.
"Actuarial Loan": Any Mortgage Loan as to which, pursuant to the Note
related thereto, interest is computed and charged to the Mortgagor at the
Mortgage Rate on the outstanding principal balance of such Note as of a
scheduled day of each month which is fixed at the time of origination, with the
effect that Scheduled Payments made by the related Mortgagor on such Mortgage
Loan either earlier or later than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest.
"Adjustable Rate Certificates": The Class A-6 Certificates.
"Adjustable Rate Group": The pool of Mortgage Loans identified in the
related Schedule of Mortgage Loans as having been assigned to the Adjustable
Rate Group in Schedule I-B hereto, including any Qualified Replacement Mortgage
Loans delivered in replacement thereof.
"Adjustable Rate Group Available Funds": As defined in Section 7.02(d)
hereof.
"Adjustable Rate Group Available Funds Shortfall": As defined in Section
7.03(c)(i)(A) hereof.
"Adjustable Rate Group Certificate Insurance Policy": The certificate
guaranty insurance policy (number 25622) dated January 28, 1998 issued by the
Certificate Insurer for the benefit
3
<PAGE>
of the Owners of the Adjustable Rate Certificates pursuant to which the
Certificate Insurer guarantees Insured Payments.
"Adjustable Rate Group Monthly Remittance Amount": As of any Monthly
Remittance Date, with respect to the Adjustable Rate Group, (a) all payments on
Simple Interest Loans in the Adjustable Rate Group other than Curtailments, Net
Liquidation Proceeds and Prepayments collected during the related Due Period,
(b) scheduled monthly payments on Actuarial Loans in the Adjustable Rate Group
due after the Cut-Off Date, or Replacement Cut-Off Date, as applicable, and on
or before the end of the related Due Period and in the Collection Account as of
the related Determination Date, (c) Curtailments, Net Liquidation Proceeds and
Prepayments on Mortgage Loans in the Adjustable Rate Group collected during the
related Prepayment Period and (d) Delinquency Advances made by the Master
Servicer with respect to the Adjustable Rate Group, in each case, as remitted by
the Master Servicer on the Monthly Remittance Date, together with any
Substitution Adjustment and any Loan Purchase Price amount received by the
Master Servicer on such Monthly Remittance Date, but in each case excluding any
amounts not required to be deposited into the Collection Account pursuant to
Section 8.08(c).
"Adjustable Rate Group Principal Distribution Amount": With respect to the
Class A-6 Certificates for any Distribution Date, the lesser of:
(a) the Adjustable Rate Group Total Available Funds plus any Insured
Payment with respect to the Class A-6 Certificates minus the Class A-6 Current
Interest; and
(b) the excess, if any, of (i) the sum of (A) through (J) (without
duplication):
(A) the Preference Amount with respect to principal owed to the
Owners of the Class A-6 Certificates that remains unpaid as of such
Distribution Date,
(B) the principal (other than the principal portion of
Curtailments, Net Liquidation Proceeds and Prepayments) collected by
the Master Servicer with respect to Simple Interest Loans in the
Adjustable Rate Group during the related Due Period,
(C) the principal portion of Curtailments, Net Liquidation
Proceeds and Prepayments collected by the Master Servicer with respect
to Mortgage Loans in the Adjustable Rate Group during the related
Prepayment Period,
(D) the principal portion of scheduled monthly payments due on the
Actuarial Loans in the Adjustable Rate Group after the Cut-Off Date or
Replacement Cut-Off Date, as applicable, and on or before the end of
the related Due Period to the extent such scheduled monthly payments
are in the Collection Account as of the related Determination Date,
4
<PAGE>
(E) the principal portion of any Loan Purchase Price of each
Mortgage Loan in the Adjustable Rate Group that was repurchased by the
Seller or purchased by the Master Servicer on or prior to the related
Monthly Remittance Date, to the extent such Loan Purchase Price is
actually received by the Trustee on or prior to the related Monthly
Remittance Date,
(F) the principal portion of any Substitution Adjustments
delivered by the Seller on or prior to the related Monthly Remittance
Date in connection with a substitution of a Mortgage Loan in the
Adjustable Rate Group, to the extent such Substitution Adjustments are
actually received by the Trustee on or prior to the related Monthly
Remittance Date,
(G) the amount of any Subordination Deficit with respect to the
Adjustable Rate Group for such Distribution Date,
(H) the portion of the proceeds received by the Trustee with
respect to the Adjustable Rate Group from any termination of the Trust
(to the extent such proceeds relate to principal),
(I) the amount of any Subordination Increase Amount with respect
to the Adjustable Rate Group for such Distribution Date, to the extent
of any Net Monthly Excess Cashflow available for such purpose, and
(J) the portion of any Carry Forward Amount relating to principal
with respect to the Adjustable Rate Group for such Distribution Date;
over
(ii) the amount of any Subordination Reduction Amount with respect to
the Adjustable Rate Group for such Distribution Date.
"Adjustable Rate Group Specified Subordinated Amount": As defined in the
Insurance Agreement.
"Adjustable Rate Group Subordinated Amount": As of any Distribution Date,
the excess, if any, of (x) the aggregate Loan Balances of the Mortgage Loans in
the Adjustable Rate Group as of the close of business on the last day of the
related Due Period (taking into account Curtailments, Net Liquidation Proceeds
and Prepayments collected during the related Prepayment Period and, with respect
to Actuarial Loans in the Adjustable Rate Group, any scheduled monthly payments
due on or before the last day of the related Due Period and in the Collection
Account as of the related Determination Date) over (y) the Class A-6 Certificate
Principal Balance as of such Distribution Date after taking into account the
payment of the Class A-6 Distribution Amount thereon (except for any
Subordination Deficit with respect to the Adjustable Rate Group
5
<PAGE>
and Subordination Increase Amount with respect to the Adjustable Rate Group on
such Distribution Date).
"Adjustable Rate Group Total Available Funds": As defined in Section
7.02(d) hereof.
"Adjustable Rate Group Total Monthly Excess Spread": With respect to the
Adjustable Rate Group and any Distribution Date, the excess, if any, of (i) the
sum of (a) interest (other than the interest portion of Curtailments, Net
Liquidation Proceeds or Prepayments) collected on the Simple Interest Loans in
the Adjustable Rate Group during the related Due Period, plus (b) the interest
portion of any Curtailments, Net Liquidation Proceeds and Prepayments collected
by the Master Servicer with respect to Mortgage Loans in the Adjustable Rate
Group during the related Prepayment Period, plus (c) the interest portion of
scheduled monthly payments due on the Actuarial Loans in the Adjustable Rate
Group after the Cut-Off Date or Replacement Cut-Off Date, as applicable, and on
or before the end of the related Due Period to the extent such scheduled monthly
payments are in the Collection Account as of the related Determination Date,
less (d) the Expense Rate with respect to Mortgage Loans in the Adjustable Rate
Group and any amounts not required to be deposited into the Collection Account
pursuant to Section 8.08(c), plus (e) any Delinquency Advances and Compensating
Interest paid by the Master Servicer with respect to the Adjustable Rate Group
for such Due Period over (ii) the interest accrued on the Class A-6 Certificates
during the Accrual Period for such Distribution Date.
"Adjusted Pass-Through Rate": A rate equal to the sum of (a) the Weighted
Average Pass-Through Rate plus (b) any portion of the Insurance Premium Amount
and the Trustee Fee (calculated as a percentage of the outstanding principal
amount of the Certificates) then accrued and outstanding.
"Advisor": As defined in Section 9.03 hereof.
"Agreement": This Pooling and Servicing Agreement, as it may be amended
from time to time, including the Exhibits and Schedules hereto.
"Annual Loss Percentage (Rolling Twelve Month)": As of any date of
determination thereof commencing February 1, 1999, a fraction, expressed as a
percentage, the numerator of which is the aggregate Realized Losses that
occurred during the twelve immediately preceding Due Periods and the denominator
of which is the aggregate Loan Balance of the Mortgage Loans on the twelfth
Determination Date preceding such date.
"Appraised Value": The appraised value of any Mortgaged Property based upon
the appraisal or other valuation made at or within six months of the origination
of the related Mortgage Loan, or, in the case of a Mortgage Loan which is a
purchase money mortgage (or a "lease option purchase" in which the sale price
was set less than 12 months prior to origination), the sale price of the
Mortgaged Property at such time of origination, if such sale price is less than
such appraised value.
6
<PAGE>
"Auction Date": As defined in Section 9.03 hereof.
"Auction Procedures": As defined in Section 9.03 hereof.
"Authorized Officer": With respect to any Person, any officer or employee
of such Person who is authorized to act for such Person in matters relating to
this Agreement, and whose action is binding upon such Person; with respect to
the Depositor, the Seller, the Master Servicer or any Sub-Servicer, initially
including those individuals whose names appear on the lists of Authorized
Officers delivered at the Closing; with respect to the Trustee, any Vice
President, any Assistant Vice President, any Assistant Secretary or any
Assistant Treasurer.
"Available Funds": The Fixed Rate Group Available Funds or the Adjustable
Rate Group Available Funds, as the case may be.
"Available Funds Shortfall": A Fixed Rate Group Available Funds Shortfall
or Adjustable Rate Group Available Funds Shortfall, as the case may be.
"Basis Risk Carryover Amount": With respect to any Distribution Date, the
sum of the Basis Risk Excess for such Distribution Date and any Basis Risk
Excess which remains unpaid from prior Distribution Dates.
"Basis Risk Excess": With respect to any Distribution Date as to which the
Class A-6 Pass-Through Rate is the Class A-6 Available Funds Cap Rate, the
excess of (i) the amount of interest the Class A-6 Certificates would be
entitled to receive on such Distribution Date at the lesser of (a) the Net
Lifetime Cap for such Distribution Date and (b) the then-applicable Class A-6
Pass-Through Rate without reference to the Class A-6 Available Funds Cap Rate
over (ii) the amount of interest the Class A-6 Certificates will receive on such
Distribution Date at the Class A-6 Available Funds Cap Rate.
"Business Day": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in The City of New York, the States of
California, Georgia, or Missouri or in the cities in which the principal
Corporate Trust Office of the Trustee or the principal offices of the
Certificate Insurer are located, are authorized or obligated by law or executive
order to be closed.
"Carry Forward Amount": With respect to any Class of the Class A
Certificates for any Distribution Date, the sum of (x) the amount, if any, by
which (i) the Class A Distribution Amount allocable to such Class as of the
immediately preceding Distribution Date exceeded (ii) the amount of the actual
distribution made to the Owners of such Class of the Class A Certificates on
such immediately preceding Distribution Date plus (y) 30 days' interest on such
amount at the Pass-Through Rate in effect with respect to such Class of Class A
Certificates.
7
<PAGE>
"Cashout Refinance Mortgage Loan": Any Mortgage Loan that is not a
Rate/Term Refinance Mortgage Loan or a Purchase Mortgage Loan.
"Certificate": Any one of the Class A Certificates or Class R Certificates,
each representing the interests and the rights described in this Agreement.
"Certificate Insurance Policies": The Adjustable Rate Group Certificate
Insurance Policy and the Fixed Rate Group Certificate Insurance Policy.
"Certificate Insurer": MBIA Insurance Corporation, the principal operating
subsidiary of MBIA Inc., a New York Stock Exchange listed company, or any
successor thereto, as issuer of the Certificate Insurance Policies.
"Certificate Insurer Default": The existence and continuance of any of the
following:
(a) the Certificate Insurer fails to make a payment required under a
Certificate Insurance Policy in accordance with its terms; or
(b)(i) the entry by a court having jurisdiction in the premises of (A)
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 (B) a decree or order adjudging the Certificate Insurer as 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 90 consecutive
days; or
(ii) 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 as bankrupt or insolvent, or the consent of 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 case or
proceeding against the Certificate Insurer, or the acquiescence 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 failure of 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.
8
<PAGE>
"Certificate Principal Balance": As of the Start-up Day as to each of the
following Classes of Class A Certificates, the principal balances thereof, as
follows:
Class A-1 Certificates - $40,400,000
Class A-2 Certificates - $18,500,000
Class A-3 Certificates - $10,900,000
Class A-4 Certificates - $13,000,000
Class A-5 Certificates - $9,200,000
Class A-6 Certificates - $92,320,000
The Class R Certificates do not have a Certificate Principal Balance.
"Class": Any class of the Class A Certificates or the Class R Certificates.
"Class A Certificate": Any one of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates or Class A-6 Certificates.
"Class A Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A
Certificates less any amounts actually distributed on such Class A Certificates
with respect to the Class A Distribution Amount pursuant to Section
7.03(c)(iii)(D) with respect to principal thereon on all prior Distribution
Dates (except, for purposes of effecting the Certificate Insurer's subrogation
rights, that portion of Insured Payments made in respect of principal).
"Class A Certificate Termination Date": With respect to the Class A-1
Certificates, the Class A-1 Certificate Termination Date, with respect to the
Class A-2 Certificates, the Class A-2 Certificate Termination Date, with respect
to the Class A-3 Certificates, the Class A-3 Certificate Termination Date, with
respect to the Class A-4 Certificates, the Class A-4 Certificate Termination
Date, with respect to the Class A-5 Certificates, the Class A-5 Certificate
Termination Date and with respect to the Class A-6 Certificates, the Class A-6
Certificate Termination Date.
"Class A Distribution Amount": The sum of the Class A-1 Distribution
Amount, Class A-2 Distribution Amount, Class A-3 Distribution Amount, and Class
A-4 Distribution Amount, Class A-5 Distribution Amount and the Class A-6
Distribution Amount.
"Class A-1 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-1 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
9
<PAGE>
"Class A-1 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-1
Certificates less any amounts actually distributed with respect to the Class A-1
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-1 Certificate Termination Date": The Distribution Date on which
the Class A-1 Certificate Principal Balance is reduced to zero.
"Class A-1 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-1 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-1 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-1 Certificates as it relates to
interest previously paid on the Class A-1 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-1 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-1 Distribution Amount": The sum of (x) Class A-1 Current Interest
and (y) the Fixed Rate Group Principal Distribution Amount payable to the Owners
of the Class A-1 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-1 Pass-Through Rate": 6.35% per annum.
"Class A-2 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-2 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-2 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-2
Certificates less any amounts actually distributed with respect to the Class A-2
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-2 Certificate Termination Date": The Distribution Date on which
the Class A-2 Certificate Principal Balance is reduced to zero.
"Class A-2 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-2 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-2 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act)
10
<PAGE>
plus the Preference Amount owed to the Owners of the Class A-2 Certificates as
it relates to interest previously paid on the Class A-2 Certificates plus the
portion of the Carry Forward Amount, if any, with respect to the Class A-2
Certificates relating to interest (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act).
"Class A-2 Distribution Amount": The sum of (x) Class A-2 Current Interest
and (y) the Fixed Rate Group Principal Distribution Amount payable to the Owners
of the Class A-2 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-2 Pass-Through Rate": 6.25% per annum.
"Class A-3 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-3 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-3 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-3
Certificates less any amounts actually distributed with respect to the Class A-3
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-3 Certificate Termination Date": The Distribution Date on which
the Class A-3 Certificate Principal Balance is reduced to zero.
"Class A-3 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-3 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-3 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-3 Certificates as it relates to
interest previously paid on the Class A-3 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-3 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-3 Distribution Amount": The sum of (x) Class A-3 Current Interest
and (y) the Fixed Rate Group Principal Distribution Amount payable to the Owners
of the Class A-3 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-3 Pass-Through Rate": 6.50% per annum.
"Class A-4 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-4 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
11
<PAGE>
"Class A-4 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-4
Certificates less any amounts actually distributed with respect to the Class A-4
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-4 Certificate Termination Date": The Distribution Date on which
the Class A-4 Certificate Principal Balance is reduced to zero.
"Class A-4 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-4 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-4 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-4 Certificates as it relates to
interest previously paid on the Class A-4 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-4 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-4 Distribution Amount": The sum of (x) Class A-4 Current Interest
and (y) the Fixed Rate Group Principal Distribution Amount payable to the Owners
of the Class A-4 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-4 Pass-Through Rate": Prior to the Optional Termination Date 6.95%
per annum and on and after the Optional Termination Date, 7.70% per annum.
"Class A-5 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-5 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-5 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-5
Certificates less any amounts actually distributed with respect to the Class A-5
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-5 Certificate Termination Date": The Distribution Date on which
the Class A-5 Certificate Principal Balance is reduced to zero.
"Class A-5 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-5 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-5 Pass-Through Rate (net of
12
<PAGE>
Net Prepayment Interest Shortfalls and the interest portion of reductions due to
the Relief Act) plus the Preference Amount owed to the Owners of the Class A-5
Certificates as it relates to interest previously paid on the Class A-5
Certificates plus the portion of the Carry Forward Amount, if any, with respect
to the Class A-5 Certificates relating to interest (net of Net Prepayment
Interest Shortfalls and the interest portion of reductions due to the Relief
Act).
"Class A-5 Distribution Amount": The sum of (x) Class A-5 Current Interest
and (y) the Fixed Rate Group Principal Distribution Amount payable to the Owners
of the Class A-5 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-5 Lockout Distribution Amount": For any Distribution Date, the
product of (i) the applicable Class A-5 Lockout Percentage for such Distribution
Date and (ii) the Class A-5 Lockout Pro Rata Distribution Amount for such
Distribution Date.
"Class A-5 Lockout Percentage": For each Payment Date is as follows:
Payment Dates Lockout Percentage
February 1998 - January 2001 0%
February 2001 - January 2003 45%
February 2003 - January 2004 85%
February 2004 - January 2005 100%
February 2005 - and thereafter 300%
"Class A-5 Lockout Pro Rata Distribution Amount": For any Distribution
Date, an amount equal to the product of (x) a fraction, the numerator of which
is the Certificate Principal Balance of the Class A-5 Certificates immediately
prior to such Distribution Date and the denominator of which is the aggregate
Certificate Principal Balance of all Classes of the Fixed Rate Certificates
immediately prior to such Distribution Date and (y) the Fixed Rate Group
Principal Distribution Amount for such Distribution Date.
"Class A-5 Pass-Through Rate": Prior to the Optional Termination Date 6.50%
per annum and on and after the Optional Termination Date, 7.25% per annum.
"Class A-6 Available Funds Cap Rate": On any Distribution Date prior to the
seventh Distribution Date, the weighted average of the Mortgage Rates of the
Mortgage Loans in the Adjustable Rate Group as of the first day of the related
Due Period (taking into account Curtailments, Net Liquidation Proceeds and
Prepayments received during the immediately preceding Prepayment Period and with
respect to the Actuarial Loans in the Adjustable Rate Group, scheduled monthly
payments due during the prior Due Period and in the Collection Account as of the
prior Determination Date), less the Expense Rate and, on any Distribution Date
on and after the seventh Distribution Date, 0.50% per annum.
13
<PAGE>
"Class A-6 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-6 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-6 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-6
Certificates less any amounts actually distributed with respect to the Class A-6
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-6 Certificate Termination Date": The Distribution Date on which
the Class A-6 Certificate Principal Balance is reduced to zero.
"Class A-6 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-6 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-6 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-6 Certificates as it relates to
interest previously paid on the Class A-6 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-6 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-6 Distribution Amount": The sum of (x) Class A-6 Current Interest
and (y) the Adjustable Rate Group Principal Distribution Amount payable to the
Owners of Class A-6 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-6 Pass-Through Rate": For any Distribution Date in any month prior
to the month in which the Optional Termination Date occurs, the lesser of (i)
LIBOR plus 0.23% per annum and (ii) the Class A-6 Available Funds Cap Rate for
such Distribution Date, and for any Distribution Date in any month commencing
with the month in which the Optional Termination Date occurs, the lesser of (i)
LIBOR plus 0.46% per annum and (ii) the Class A-6 Available Funds Cap Rate for
such Distribution Date.
"Class R Certificate": Any one of the Certificates designated on the face
thereof as a Class R Certificate, substantially in the form annexed hereto as
Exhibit C, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein, and evidencing an interest designated as the
"residual interest" in the Trust Fund for the purposes of the REMIC Provisions.
"Class R Optionholder": Any Owner of the Class R Certificates which
represent a Percentage Interest of 99.999% or greater.
14
<PAGE>
"Closing": As defined in Section 4.02 hereof.
"Code": The Internal Revenue Code of 1986, as amended.
"Collection Account": One or more collection accounts created or caused to
be created by the Master Servicer pursuant to Section 8.08(a) hereof.
"Compensating Interest": As defined in Section 8.10(a) hereof.
"Corporate Trust Office": The principal office of the Trustee at 3 Park
Plaza, 16th floor, Irvine, California 92614.
"Cram Down Losses": With respect to a Mortgage Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Loan Balance or the Mortgage Rate of such Mortgage Loan, the amount
of such reduction in principal balance or reduction in accrued interest. A "Cram
Down Loss" shall be deemed to have occurred on the date of issuance of such
order.
"CSC": Companion Servicing Company, L.L.C., a Georgia limited liability
company, as the initial Sub-Servicer.
"Cumulative Loss Percentage": As of any date of determination thereof, the
Cumulative Realized Losses as a percentage of the Original Aggregate Loan
Balance of the Mortgage Loans.
"Cumulative Realized Losses": As of any date of determination, the
aggregate amount of Realized Losses with respect to the Mortgage Loans since the
Cut-Off Date.
"Current Interest": With respect to any Distribution Date, the sum of the
Class A-1 Current Interest, Class A-2 Current Interest, Class A-3 Current
Interest, Class A-4 Current Interest, Class A-5 Current Interest and Class A-6
Current Interest.
"Curtailments": Any partial prepayment of principal of a Mortgage Loan
which is received by the Master Servicer in advance of the scheduled due date
for the payment of such principal (other than the principal portion of any
Prepaid Installment or any Prepayment).
"Cut-Off Date": As of the close of business on January 1, 1998.
"Delinquency Advance": As defined in Section 8.09(a) hereof.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment due thereon is
not made by the close of business on the day such payment is scheduled to be due
(without regard to grace periods). A Mortgage Loan is "30 days Delinquent" if
such payment has not been received by the close of business on the corresponding
day of the month immediately succeeding the month
15
<PAGE>
in which such payment was due, or, if there is no such corresponding day (e.g.,
as when a 30-day month follows a 31-day month in which a payment was due on the
31st day of such month) then on the last day of such immediately succeeding
month. Similarly for "60 days Delinquent," "90 days Delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as Exhibit G
hereto and delivered by the Depositor to the Trustee on the Startup Day pursuant
to Section 4.01 hereof.
"Depositor": Block Mortgage Finance, Inc., a Delaware corporation, or any
successor thereto.
"Depository": The Depository Trust Company, 7 Hanover Square, New York, New
York 10004, and any successor Depository hereafter named.
"Determination Date": The 13th day of any month, or if such 13th day is not
a Business Day, the Business Day immediately preceding such 13th day, commencing
in the month following the Startup Day.
"Direct Participant" or "DTC Participant": Any broker-dealer, bank or other
financial institution for which the Depository holds Class A Certificates from
time to time as a securities depository
"Disqualified Organization": Shall have the meaning set forth from time to
time in the definition thereof at Section 860E(e)(5) of the Code (or any
successor statute thereto) and applicable to the Trust.
"Distribution Account": The distribution account established in accordance
with Section 7.02(a) hereof and maintained in the corporate trust department of
the Trustee; provided that the funds in such account shall not be commingled
with other funds held by the Trustee.
"Distribution Date": Any date on which the Trustee is required to make
distributions to the Owners, which shall be the 25th day of each month or if
such day is not a Business Day, the next Business Day thereafter, commencing in
the month following the Startup Day.
"Due Period": With respect to any Monthly Remittance Date, and (a) with
respect to Simple Interest Loans (other than Curtailments, Net Liquidation
Proceeds and Prepayments), the calendar month immediately preceding the calendar
month in which such Monthly Remittance Date occurs, provided that with respect
to the first Monthly Remittance Date, the Due Period will be from January 2 to
January 31, 1998 and (b) with respect to scheduled monthly payments on Actuarial
Loans, the period from the second day of the calendar month preceding the
Monthly Remittance Date to and including the first day of the calendar month in
which such Monthly Remittance Date occurs.
16
<PAGE>
"Eligible Account": Either an account that is (i) maintained with a federal
or state chartered depository institution or trust company whose short-term
unsecured debt obligations at the time of any deposit therein have the highest
short-term rating by the Rating Agencies, (ii) one or more accounts with a
depository institution or trust company which accounts are fully insured by
either the Savings Association Insurance Fund or the Bank Insurance Fund of the
FDIC and the uninsured deposits in which accounts are otherwise secured such
that, as evidenced by an opinion of counsel delivered to the Trustee, the
Certificate Insurer and each Rating Agency, the holders of the Certificates have
a claim with respect to the funds in such account or a perfected first priority
security interest against any collateral (which shall be limited to Permitted
Investments) securing such funds that is superior to claims of any other
depositors or creditors of the depository institution or trust company in which
such account is maintained, (iii) a segregated trust account maintained with the
Trustee or an affiliate of the Trustee in its fiduciary capacity or (iv)
otherwise acceptable to the Certificate Insurer and each Rating Agency as
evidenced by a letter from the Certificate Insurer and each Rating Agency to the
Trustee, without reduction or withdrawal of their then current ratings of the
Class A Certificates. Eligible Accounts may bear interest.
"Event of Default": Any one of the events described in Section 8.20(a) or
8.20(b).
"Excess Subordinated Amount": With respect to any Mortgage Loan Group and
Distribution Date, the excess, if any, of (x) the Subordinated Amount that would
apply to the related Mortgage Loan Group on such Distribution Date after taking
into account the payment of the related Class A Distribution Amounts on such
Distribution Date (except for any distributions of related Subordination
Reduction Amounts on such Distribution Date), over (y) the related Specified
Subordinated Amount for such Distribution Date.
"Expense Rate": For any Distribution Date and each of the Fixed Rate Group
and the Adjustable Rate Group, the sum of the rates at which the Servicing Fee,
the Insurance Premium Amount and the Trustee Fee applicable to each of the Fixed
Rate Group and the Adjustable Rate Group are calculated.
"FDIC": The Federal Deposit Insurance Corporation, a corporate
instrumentality of the United States, or any successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Trustee pursuant to Section 3.05
hereof pertaining to a particular Mortgage Loan and any additional documents
required to be added to the File pursuant to this Agreement.
"Final Certification": As defined in Section 3.06(c) hereof.
17
<PAGE>
"Final Determination": As defined in Section 9.04(a) hereof.
"Final Scheduled Distribution Date": For each Class of Class A
Certificates, as set forth in Section 2.08(e).
"First Mortgage Loan": A Mortgage Loan which constitutes a first priority
mortgage lien with respect to the related Mortgaged Property.
"Fixed Rate Certificate": Any one of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates and Class A-5
Certificates.
"Fixed Rate Group": The pool of Mortgage Loans identified in the related
Schedule of Mortgage Loans as having been assigned to the Fixed Rate Group in
Schedule l-A hereto, including any Qualified Replacement Mortgage Loans
delivered in replacement thereof.
"Fixed Rate Group Available Funds": As defined in Section 7.02(c) hereof.
"Fixed Rate Group Available Funds Shortfall": As defined in Section
7.03(c)(i)(A) hereof.
"Fixed Rate Group Certificate Insurance Policy": The certificate guaranty
insurance policy (number 25621 dated January 28, 1998 issued by the Certificate
Insurer for the benefit of the owners of the Fixed Rate Certificates pursuant to
which the Certificate Insurer guarantees Insured Payments.
"Fixed Rate Group Current Interest": With respect to any Distribution Date,
the sum of the Class A-1 Current Interest, Class A-2 Current Interest, Class A-3
Current Interest, Class A-4 Current Interest and Class A-5 Current Interest.
"Fixed Rate Group Monthly Remittance Amount": As of any Monthly Remittance
Date, with respect to the Fixed Rate Group, (a) all payments on Simple Interest
Loans in the Fixed Rate Group other than Curtailments, Net Liquidation Proceeds
and Prepayments collected during the related Due Period, (b) scheduled monthly
payments on Actuarial Loans in the Fixed Rate Group due after the Cut-Off Date,
or Replacement Cut-Off Date, as applicable, and on or before the end of the
related Due Period and in the Collection Account as of the related Determination
Date, and (c) Curtailments, Net Liquidation Proceeds and Prepayments on the
Mortgage Loans in the Fixed Rate Group collected during the related Prepayment
Period and (d) Delinquency Advances made by the Master Servicer with respect to
the Fixed Rate Group, in each case, as remitted by the Master Servicer on the
Monthly Remittance Date, together with any Substitution Adjustment and any Loan
Purchase Price amount received by the Master Servicer on such Monthly Remittance
Date, but in each case excluding any amounts not required to be deposited into
the Collection Account pursuant to Section 8.08(c).
18
<PAGE>
"Fixed Rate Group Principal Distribution Amount": With respect to the Fixed
Rate Certificates for any Distribution Date, the lesser of:
(a) the Fixed Rate Group Total Available Funds plus any Insured Payment
with respect to the Fixed Rate Certificates minus the Fixed Rate Group Current
Interest; and
(b) the excess, if any, of (i) the sum of (without duplication):
(A) the Preference Amount with respect to principal owed to the
Owners of the Fixed Rate Certificates that remains unpaid as of such
Distribution Date,
(B) the principal (other than the principal portion of
Curtailments, Net Liquidation Proceeds and Prepayments) collected by
the Master Servicer with respect to Simple Interest Loans in the Fixed
Rate Group during the related Due Period,
(C) the principal portion of Curtailments, Net Liquidation
Proceeds and Prepayments collected by the Master Servicer with respect
to Mortgage Loans in the Fixed Rate Group during the related Prepayment
Period,
(D) the principal portion of scheduled monthly payments due on the
Actuarial Loans in the Fixed Rate Group after the Cut-Off Date or
Replacement Cut-Off Date, as applicable, and on or before the end of
the related Due Period to the extent such scheduled monthly payments
are in the Collection Account as of the related Determination Date,
(E) the principal portion of any Loan Purchase Price of each
Mortgage Loan in the Fixed Rate Group that was repurchased by the
Seller or purchased by the Master Servicer on or prior to the related
Monthly Remittance Date, to the extent such Loan Purchase Price is
actually received by the Trustee on or prior to the related Monthly
Remittance Date,
(F) the principal portion of any Substitution Adjustments
delivered by the Seller on or prior to the related Monthly Remittance
Date in connection with a substitution of a Mortgage Loan in the Fixed
Rate Group, to the extent such Substitution Adjustments are actually
received by the Trustee on or prior to the related Monthly Remittance
Date,
(G) the amount of any Subordination Deficit with respect to the
Fixed Rate Group for such Distribution Date,
19
<PAGE>
(H) the portion of the proceeds received by the Trustee with
respect to the Fixed Rate Group from any termination of the Trust (to
the extent such proceeds related to principal),
(I) the amount of any Subordination Increase Amount with respect
to the Fixed Rate Group for such Distribution Date, to the extent of
any Net Monthly Excess Cashflow available for such purpose, and
(J) the portion of any Carry Forward Amount relating to principal
with respect to the Fixed Rate Group for such Distribution Date;
over
(ii) the amount of any Subordination Reduction Amount with respect to
the Fixed Rate Group for such Distribution Date.
"Fixed Rate Group Specified Subordinated Amount": As defined in the
Insurance Agreement.
"Fixed Rate Group Subordinated Amount": As of any Distribution Date, the
excess, if any, of (x) the aggregate Loan Balances of the Mortgage Loans in the
Fixed Rate Group as of the close of business on the last day of the related Due
Period (taking into account Curtailments, Net Liquidation Proceeds and
Prepayments collected during the related Prepayment Period and, with respect to
Actuarial Loans in the Fixed Rate Group, any scheduled monthly payments due on
or before the last day of the related Due Period and in the Collection Account
as of the related Determination Date) over (y) the sum of the Class A-1
Certificate Principal Balance, Class A-2 Certificate Principal Balance, Class
A-3 Certificate Principal Balance, Class A-4 Certificate Principal Balance and
Class A-5 Certificate Principal Balance as of such Distribution Date after
taking into account the payment of the Fixed Rate Group Principal Distribution
Amount thereon (except for any Subordination Deficit with respect to the Fixed
Rate Group and Subordination Increase Amount with respect to the Fixed Rate
Group on such Distribution Date).
"Fixed Rate Group Total Available Funds": As defined in Section 7.02(c)
hereof.
"Fixed Rate Group Total Monthly Excess Spread": With respect to the Fixed
Rate Group and any Distribution Date, the excess, if any, of (i) the sum of (a)
interest (other than the interest portion of Curtailments, Net Liquidation
Proceeds or Prepayments) collected on the Simple Interest Loans in the Fixed
Rate Group during the related Due Period, plus (b) the interest portion of
Curtailments, Net Liquidation Proceeds and Prepayments collected by the Master
Servicer with respect to Mortgage Loans in the Fixed Rate Group during the
related Prepayment Period, plus (c) the interest portion of scheduled monthly
payments due on the Actuarial Loans in the Fixed Rate Group after the Cut-Off
Date or Replacement Cut-Off Date, as applicable, and on or before the end of the
related Due Period to the extent such scheduled monthly payments are in the
20
<PAGE>
Collection Account as of the Determination Date, less (d) the Expense Rate with
respect to Mortgage Loans in the Fixed Rate Group and any amounts not required
to be deposited into the Collection Account pursuant to Section 8.08(c), plus
(e) any Delinquency Advances and Compensating Interest paid by the Master
Servicer with respect to the Fixed Rate Group for such Due Period over (ii) the
interest accrued on the Fixed Rate Certificates during the Accrual Period for
such Distribution Date.
"FNMA": The Federal National Mortgage Association, a federally-chartered
and privately-owned corporation existing under the Federal National Mortgage
Association Charter Act, as amended, or any successor thereof.
"FNMA Guide": FNMA's Servicing Guide, as the same may be amended by FNMA
from time to time, and the Master Servicer shall elect to apply such amendments
in accordance with Section 8.01 hereof.
"Highest Lawful Rate": As defined in Section 11.13.
"Indemnification Agreement": The Indemnification Agreement dated as of
January 28, 1998, among the Certificate Insurer, the Seller and the
Underwriters.
"Indirect Participant": Any financial institution for whom any Direct
Participant holds an interest in a Class A Certificate.
"Insurance Agreement": The Insurance Agreement dated as of January 1, 1998,
among the Depositor, the Seller, the Master Servicer, the Certificate Insurer
and the Trustee, as it may be amended from time to time.
"Insurance Policy": Any hazard, flood, title or primary mortgage insurance
policy relating to a Mortgage Loan plus any obligation of the Master Servicer to
make payment out of its own funds pursuant to Section 8.11 hereof.
"Insurance Premium Amount": As defined in the Insurance Agreement.
"Insurance Proceeds": Proceeds of any Insurance Policy or other insurance
policy relating to a Mortgage Loan and/or the Mortgaged Property securing any
Mortgage Loan, to the extent proceeds are not to be applied to the restoration
of the related Mortgaged Property in accordance with the express requirements of
the related Mortgage or Note or other documents included in the related File or
in accordance with prudent and customary servicing practices.
"Insured Payments": With respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest
21
<PAGE>
Shortfall and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to the Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross- collateralization
provisions of the Trust plus (B) an amount equal to the principal portion of the
Preference Amount with respect to the Related Loan Group.
"Late Payment Rate": For any Distribution Date, the fluctuating rate of
interest, as it is published from time to time in the New York, New York edition
of The Wall Street Journal under the caption "Money Rates" as the "prime rate,"
to change when and as such published prime rate changes plus 3%. The Late
Payment Rate shall be computed on the basis of a year of 360 days calculating
the actual number of days elapsed. In no event shall the Late Payment Rate
exceed the Highest Lawful Rate.
"Latest Possible Maturity Date": The Distribution Date following the second
anniversary of the last payment with respect to the Mortgage Loan with the
latest scheduled maturity date included in the Trust as of the Startup Date. The
prepayment of such Mortgage Loan, or the removal of such Mortgage Loan, or the
addition of any Qualified Replacement Mortgage Loan shall not affect the Latest
Possible Maturity Date.
"LIBOR": With respect to any Accrual Period for the Class A-6 Certificates,
the rate determined by the Trustee on the related LIBOR Determination Date on
the basis of the quotations, as set forth on the Telerate Screen Page 3750,
offered by the principal London office of each of the Reference Banks for making
one-month United States dollar deposits in leading banks in the London interbank
market, as of 11:00 a.m. (London time) on such LIBOR Determination Date.
"LIBOR Business Day": Any day other than (i) a Saturday or a Sunday, or
(ii) a day on which banking institutions in the City of New York, New York, or
the City of London, England are authorized or obligated by law or executive
order to be closed.
"LIBOR Determination Date": With respect to any Accrual Period for the
Class A-6 Certificates, the second LIBOR Business Day preceding the commencement
of such Accrual Period.
"Liquidated Loan": As defined in Section 8.13(b) hereof.
"Liquidation Expenses": Expenses, not to exceed the Liquidation Proceeds,
which are incurred by the Master Servicer in connection with the liquidation of
any defaulted Mortgage
22
<PAGE>
Loan or property acquired in respect thereof, such expenses including, without
limitation, legal fees and expenses, committee or referee fees, and, if
applicable, brokerage commissions and conveyance taxes, and any Servicing
Advances expended by the Master Servicer pursuant to this Agreement with respect
to such Mortgage Loan on such property not previously reimbursed from
collections or other proceeds therefrom.
"Liquidation Proceeds": Any amounts (including Insurance Proceeds)
recovered by the Master Servicer in connection with (i) the taking of a
Mortgaged Property by exercise of the power of eminent domain or condemnation,
(ii) any Liquidated Loan, whether through trustee's sale, foreclosure sale or
otherwise, (iii) the sale of a defaulted Mortgage Loan or an REO Property in
accordance with Section 8.13, or (iv) the sale of all of the Mortgage Loans in
accordance with Article IX.
"Loan Balance": With respect to each Mortgage Loan and as of any date of
determination, the outstanding principal balance thereof as of the beginning of
the related Due Period (taking into account Curtailments, Net Liquidation
Proceeds and Prepayments collected during the immediately preceding Prepayment
Period, and with respect to Actuarial Loans, any scheduled monthly principal
payment due on or before the last day of the immediately preceding Due Period
and in the Collection Account as of the Determination Date for such immediately
preceding Due Period); provided, however, that the Loan Balance for any Mortgage
Loan that has become a Liquidated Loan shall be zero as of the first day of the
Due Period following the Due Period in which such Mortgage Loan becomes a
Liquidated Loan, and at all times thereafter.
"Loan Purchase Price": With respect to any Mortgage Loan purchased from the
Trust on a Monthly Remittance Date pursuant to Section 3.03, 3.04, 3.06(b),
8.10(b) or 8.13(a) hereof, an amount equal to the Loan Balance of such Mortgage
Loan as of the date of purchase (assuming that the Monthly Remittance Amount
remitted by the Master Servicer on such Monthly Remittance Date has already been
remitted), plus one month's interest on the outstanding Loan Balance thereof as
of the beginning of the related Due Period (taking into account Curtailments,
Net Liquidation Proceeds and Prepayments collected during the immediately
preceding Prepayment Period, and with respect to Actuarial Loans, any scheduled
monthly principal payment due on or before the last day of the immediately
preceding Due Period and in the Collection Account as of the Determination Date
for such immediately preceding Due Period) computed at the then applicable
Mortgage Rate, together with (without duplication) the aggregate amounts of (i)
all unreimbursed Delinquency Advances and Servicing Advances theretofore made
with respect to such Mortgage Loan, (ii) all Delinquency Advances and Servicing
Advances which the Master Servicer has theretofore failed to remit with respect
to such Mortgage Loan and (iii) all reimbursed Delinquency Advances to the
extent that reimbursement is not made from the Mortgagor or from Liquidation
Proceeds from the respective Mortgage Loan.
"Loan-to-Value Ratio": As of any particular date (i) with respect to any
First Mortgage Loan, the percentage obtained by dividing the Appraised Value
into the original principal balance of the Note relating to such First Mortgage
Loan and (ii) with respect to any Second Mortgage
23
<PAGE>
Loan, the percentage obtained by dividing the Appraised Value as of the date of
origination of such Second Mortgage Loan into an amount equal to the sum of (a)
the remaining principal balance of the note relating to the related Senior Lien
as of the date of origination of the related Second Mortgage Loan and (b) the
original principal balance of the Note relating to such Second Mortgage Loan.
"Master Servicer": Block Financial Corporation, a Delaware corporation, and
its permitted successors and assigns.
"Master Servicer Affiliate": A Person (i) controlling, controlled by or
under common control with the Master Servicer or which is 50% or more owned by
the Master Servicer and (ii) which is qualified to service residential mortgage
loans.
"Minimum Termination Amount": As of any time after the Optional Termination
Date, an amount equal to the greater of (i) the sum of (a) the Class A-1
Certificate Principal Balance, (b) any shortfall in interest due to the Owners
of the Class A-1 Certificates in respect of prior Distribution Dates, (c) one
month's interest on the Class A-1 Certificate Principal Balance at the Class A-1
Pass-Through Rate, (d) the Class A-2 Certificate Principal Balance, (e) any
shortfall in interest due to the Owners of the Class A-2 Certificates in respect
of prior Distribution Dates, (f) one month's interest on the Class A-2
Certificate Principal Balance at the Class A-2 Pass- Through Rate, (g) the Class
A-3 Certificate Principal Balance, (h) any shortfall in interest due to the
Owners of the Class A-3 Certificates in respect of prior Distribution Dates, (i)
one month's interest on the Class A-3 Certificate Principal Balance at the Class
A-3 Pass-Through Rate, (j) the Class A-4 Certificate Principal Balance, (k) any
shortfall in interest due to the Class A-4 Certificates in respect of prior
Distribution Dates, (l) one month's interest on the Class A-4 Certificate
Principal Balance at the Class A-4 Pass-Through Rate, (m) the Class A-5
Certificate Principal Balance, (n) any shortfall in interest due to the Owners
of the Class A-5 Certificates in respect of prior Distribution Dates, (o) one
month's interest on the Class A-5 Certificate Principal Balance at the Class A-5
Pass-Through Rate, (p) the Class A-6 Certificate Principal Balance, (q) any
shortfall in interest due to the Class A-6 Certificates in respect of prior
Distribution Dates, (r) one month's interest on the Class A-6 Certificate
Principal Balance at the Class A-6 Pass-Through Rate, and (s) any Reimbursement
Amounts due the Certificate Insurer and (ii) the sum of 100% of the aggregate
Loan Balance of the related Mortgage Loans as of the day of purchase and any
Reimbursement Amounts not otherwise paid to the Certificate Insurer minus
amounts remitted from the Collection Account to the Distribution Account
representing collections of principal on the Mortgage Loans during the current
Due Period (taking into account, with respect to Actuarial Loans, any scheduled
monthly principal payment due on or before the last day of the Due Period and
collected on or before the related Determination Date), plus one month's
interest on such amount computed at the weighted average Mortgage Rate, plus all
accrued and unpaid Servicing Fees plus the aggregate amount of any unreimbursed
Delinquency Advances and Servicing Advances plus Delinquency Advances which the
Master Servicer has theretofore failed to remit (taking into account, with
respect to Actuarial Loans, any
24
<PAGE>
scheduled monthly principal payment due on or before the last day of the Due
Period and collected on or before the related Determination Date).
"Monthly Remittance Amount": The sum of the Fixed Rate Group Monthly
Remittance Amount and the Adjustable Rate Group Monthly Remittance Amount.
"Monthly Remittance Date": With respect to any Distribution Date, no later
than noon, New York time, on the fourth Business Day following the related
Determination Date.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple or leasehold interest in real
property securing a Note.
"Mortgage Loan Group" or "Group": The Fixed Rate Group or the Adjustable
Rate Group, as the case may be. References herein to the related Class of Class
A Certificates, when used with respect to a Mortgage Loan Group, shall mean (A)
in the case of the Fixed Rate Group, the Fixed Rate Certificates and (B) in the
case of the Adjustable Rate Group, the Class A-6 Certificates.
"Mortgage Loans": Such of the mortgage loans transferred and assigned to
the Trust pursuant to Section 3.05(a) hereof, together with any Qualified
Replacement Mortgage Loans substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the
mortgage loans originally so held being identified in the Schedules of Mortgage
Loans. The term "Mortgage Loan" includes the terms "First Mortgage Loan" and
"Second Mortgage Loan". The term "Mortgage Loan" includes any Mortgage Loan
which is Delinquent, which relates to a foreclosure or which relates to a
Mortgaged Property which is REO Property prior to such Mortgaged Property's
disposition by the Trust. Any mortgage loan which, although intended by the
parties hereto to have been, and which purportedly was, transferred and assigned
to the Trust by the Depositor, in fact was not transferred and assigned to the
Trust for any reason whatsoever, including, without limitation, the
incorrectness of the statement set forth in item (x) of Schedule I hereto with
respect to such mortgage loan, shall nevertheless be considered a "Mortgage
Loan" for all purposes of this Agreement.
"Mortgage Rate": The rate of interest borne by each Note.
"Mortgaged Property": The underlying property securing a Mortgage Loan.
"Mortgagor": The obligor on a Note.
"Net Lifetime Cap": With respect to any Distribution Date, the weighted
average of the maximum Mortgage Rates on the Mortgage Loans in the Adjustable
Rate Group as of the first day of the related Due Period (taking into account,
with respect to Actuarial Loans in the
25
<PAGE>
Adjustable Rate Group, any scheduled monthly payments due on or before the last
day of the immediately preceding Due Period and collected on or before the
Determination Date for such immediately preceding Due Period), minus the sum of
(a) the Expense Rate and (b) commencing on the seventh Distribution Date, 0.50%
per annum.
"Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation Proceeds
net of Liquidation Expenses and unreimbursed Delinquency Advances relating to
such Mortgage Loan. In no event shall Net Liquidation Proceeds with respect to
any Liquidated Loan be less than zero.
"Net Monthly Excess Cashflow": As defined in Section 7.03(c)(ii) hereof.
"Net Prepayment Interest Shortfall": As of any Distribution Date, the
aggregate Prepayment Interest Shortfalls less the sum of the aggregate
Prepayment Interest Excesses and Compensating Interest.
"90+ Delinquency Percentage (Rolling Three Month)": With respect to each
Mortgage Loan and any Determination Date commencing with the Determination Date
in May 1998, the average of the percentage equivalents of the fractions
determined for each of three immediately preceding Due Periods the numerator of
each of which is equal to the aggregate Loan Balance of all of the Mortgage
Loans which are 90 days Delinquent (including any Mortgage Loans which have gone
into foreclosure or have been discharged by reason of bankruptcy) as of such
Determination Date and the denominator of which is the aggregate Loan Balance of
all of the Mortgage Loans as of such Determination Date.
"Nonrecoverable Advance": Any portion of a Delinquency Advance or a
Servicing Advance proposed to be made or previously made which has not been
previously reimbursed to the Master Servicer, and which the Master Servicer has
determined in its good faith business judgment will not or, in the case of a
proposed Delinquency Advance or Servicing Advance, would not be ultimately
recoverable by the Master Servicer from the sources of funds specified in
Section 8.09. The determination by the Master Servicer that it has made a
Nonrecoverable Advance or that any proposed Delinquency Advance or Servicing
Advance, if made, would constitute a Nonrecoverable Advance shall be evidenced
by an Officer's Certificate delivered to the Trustee, the Certificate Insurer
and the Depositor setting forth such determination and the procedures and
considerations of the Master Servicer forming the basis of such determination,
which shall include a copy of any information or reports obtained by the Master
Servicer which may support such determinations. Notwithstanding the above, the
Trustee shall be entitled to rely upon any determination of the Master Servicer
that any Delinquency Advance or Servicing Advance previously made is a
Nonrecoverable Advance or that any proposed Delinquency Advance or Servicing
Advance, if made, would constitute a Nonrecoverable Advance.
"Note": The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Mortgage Loan.
26
<PAGE>
"Officer's Certificate": A certificate signed by any Authorized Officer of
any Person delivering such certificate.
"Operative Documents": Collectively, this Agreement, the Certificate
Insurance Policies, the Certificates, the Indemnification Agreement, the
Insurance Agreement and the Sub-Servicing Agreement.
"Optional Termination Date": The first Distribution Date on which the
aggregate of the Loan Balances of the Mortgage Loans is less than 10% of the
Original Aggregate Loan Balance.
"Original Aggregate Loan Balance": The aggregate Loan Balances of all
Mortgage Loans as of the Cut-Off Date, i.e., $184,328,870.89.
"Outstanding": With respect to all Certificates of a Class, as of any date
of determination, all such Certificates theretofore executed and delivered
hereunder except:
(i) Certificates theretofore cancelled by the Registrar or delivered
to the Registrar for cancellation;
(ii) Certificates or portions thereof for which full and final payment
of money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent in trust for the Owners of such Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this Agreement,
unless proof satisfactory to the Trustee is presented that any such
Certificates are held by a bona fide purchaser;
(iv) Certificates alleged to have been destroyed, lost or stolen for
which replacement Certificates have been issued as provided for in Section
5.05 hereof; and
(v) Certificates as to which the Trustee has made the final
distribution thereon, whether or not such certificate is ever returned to
the Trustee.
"Owner": The Person in whose name a Certificate is registered in the
Register, and the Certificate Insurer, to the extent described in Section 5.06
and Section 7.03(g) hereof, respectively; provided that solely for the purposes
of determining the exercise of any voting rights hereunder, if Class A
Certificates are beneficially owned by the Depositor, the Seller or any
affiliate thereof, none of the Depositor, the Seller or such affiliate shall be
considered an Owner hereunder.
"Pass-Through Rate": Any of the Class A-1 Pass-Through Rate, the Class A-2
Pass-Through Rate, the Class A-3 Pass-Through Rate, the Class A-4 Pass-Through
Rate, the Class A-5 Pass-Through Rate or the Class A-6 Pass-Through Rate.
27
<PAGE>
"Paying Agent": Initially, the Trustee, and thereafter, the Trustee or any
other Person that meets the eligibility standards for the Paying Agent specified
in Section 11.15 hereof and is authorized by the Trustee and the Depositor to
make payments on the Certificates on behalf of the Trustee.
"Percentage Interest": With respect to a Class A Certificate, a fraction,
expressed as a percentage, the numerator of which is the portion of the Class A
Certificate Principal Balance represented by such Class A Certificate on such
date of determination (prior to giving effect to any distribution of principal
on such date) and the denominator of which is the Certificate Principal Balance
attributable to the related Class of Class A Certificates as of such date of
determination (prior to giving effect to any distribution of principal on such
date). With respect to a Class R Certificate, the portion of the Class evidenced
thereby, expressed as a percentage, as stated on the face of such Certificate,
all of which shall total 100% with respect to the related Class.
"Permitted Investments": Those investments so designated pursuant to
Section 7.07 hereof.
"Person": Any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Pool Certification": As defined in Section 3.06(a) hereof.
"Preference Amount": With respect to the Class A Certificates, any amount
previously distributed to an Owner on the Class A Certificates that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code in accordance with a
final, nonappealable order of a court having competent jurisdiction.
"Prepaid Installment": With respect to any Mortgage Loan, any installment
of principal thereof and interest thereon received by the Master Servicer prior
to the scheduled due date for such installment, intended by the Mortgagor as an
early payment thereof and not as a Prepayment (or, in the case of an Actuarial
Loan, a Curtailment) with respect to such Mortgage Loan.
"Prepayment": Any payment in full of principal of a Mortgage Loan which is
received by the Master Servicer in advance of the scheduled due date for the
payment of such principal (other than the principal portion of any Prepaid
Installment), and the Insurance Proceeds which are to be applied as a payment of
principal on the related Mortgage Loan shall be deemed to be Prepayments for all
purposes of this Agreement.
"Prepayment Interest Excess": With respect to any Distribution Date and any
Mortgage Loan that was subject to a Prepayment after its scheduled monthly due
date during the related Prepayment Period, the amount of interest collected on
such Mortgage Loan for such Distribution
28
<PAGE>
Date less (a) with respect to an Actuarial Loan, the amount of interest accrued
on such Mortgage Loan through the due date of such Mortgage Loan occurring
during such Prepayment Period or (b) with respect to a Simple Interest Loan, 30
days interest on the Loan Balance for such Mortgage Loan as of the first day of
the related Due Period (in each case net of the Servicing Fee on the related
Mortgage Loan).
"Prepayment Interest Shortfall": With respect to any Distribution Date and
any Mortgage Loan that was subject to a Prepayment prior to its scheduled
monthly due date during the related Prepayment Period, the amount of interest
that would have accrued on such Mortgage Loan absent such Prepayment (net of the
Servicing Fee on the related Mortgage Loan) less the amount of interest
collected on such Mortgage Loan by the Master Servicer for such Distribution
Date.
"Prepayment Period": With respect to any Distribution Date, the period
commencing on the calendar day after the prior Determination Date and ending on
the related Determination Date; provided, however, that with respect to the
first Distribution Date, the Prepayment Period will be from January 2, 1998 to
February 13, 1998.
"Preservation Expenses": Expenditures made by the Master Servicer in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, certain amounts due with respect to Senior Liens,
property restoration or preservation.
"Principal Distribution Amount": The Fixed Rate Group Principal
Distribution Amount or the Adjusted Rate Group Principal Distribution Amount, as
the case may be.
"Prohibited Transaction": The meaning set forth from time to time in the
definition thereof at Section 860F(a)(2) of the Code (or any successor statute
thereto) and applicable to the Trust.
"Prospectus": The Prospectus dated January 27, 1998 constituting part of
the Registration Statement.
"Prospectus Supplement": The Block Mortgage Finance Asset Backed
Certificates, Series 1998-1 Prospectus Supplement dated January 27, 1998 to the
Prospectus.
"Purchase Mortgage Loan": A Mortgage Loan the proceeds of which were used
by the related Mortgagor to obtain the related Mortgaged Property.
"Purchase Option Period": As defined in Section 9.04(a) hereof.
"Qualified Insurer": An insurance company or security or bonding company
qualified to write the related insurance policy in the relevant jurisdiction,
which shall have a claims paying ability of "AA" or better by each Rating
Agency, unless each of the Rating Agencies has
29
<PAGE>
confirmed in writing that an insurance company with a lower claims paying
ability shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating Agency to any Class of
Certificates and such insurance company or security or bonding company is
acceptable to the Certificate Insurer.
"Qualified Liquidation": The meaning set forth from time to time in the
definition thereof at Section 860F(a)(4) of the Code (or any successor statute
thereto) and applicable to the Trust.
"Qualified Mortgage": The meaning set forth from time to time in the
definition thereof at Section 860G(a)(3) of the Code (or any successor statute
thereto) and applicable to the Trust.
"Qualified Replacement Mortgage Loan": A Mortgage Loan substituted for
another pursuant to Section 3.03, 3.04 or 3.06(b) hereof, which (i) has a
Mortgage Rate at least equal to the Mortgage Rate of the Mortgage Loan being
replaced, (ii) is of the same property type (or is a single family dwelling) and
the same occupancy status (or is a primary residence) as the replaced Mortgage
Loan, (iii) shall have an original term to maturity that is no later than one
month following the maturity of the Mortgage Loan for which it was substituted,
(iv) has a Loan-to-Value Ratio as of the Replacement Cut-Off Date no higher than
the Loan-to-Value Ratio of the replaced Mortgage Loan as of such date, (v) shall
be of the same or higher credit quality classification (determined in accordance
with (a) the credit underwriting guidelines pursuant to which the replaced
Mortgage Loan was underwritten at the time the replaced Mortgage Loan was
underwritten, or (b) the standards acceptable to the Rating Agencies, which
would not cause a downgrade or removal of the ratings assigned to the Class A
Certificates (without giving effect to any Certificate Insurance Policy)) as the
Mortgage Loan which such Qualified Replacement Mortgage Loan replaces, (vi) has
a Loan Balance as of the related Replacement Cut-Off Date equal to or less than
the Loan Balance of the replaced Mortgage Loan as of such Replacement Cut-Off
Date, (vii) shall not provide for a "balloon" payment if the related Mortgage
Loan did not provide for a "balloon" payment (and if such related Mortgage Loan
provided for a "balloon" payment, such Qualified Replacement Mortgage Loan shall
have an original maturity of not greater than (and not more than one year less
than) the original maturity of such related Mortgage Loan), (viii) shall be a
fixed rate Mortgage Loan with the same lien priority as the replaced Mortgage
Loan if the Mortgage Loan being replaced is in the Fixed Rate Group and shall be
a first lien adjustable rate Mortgage Loan if the Mortgage Loan being replaced
is in the Adjustable Rate Group, (ix) satisfies the criteria set forth from time
to time in the definition thereof at Section 860G(a)(4) of the Code (or any
successor statute hereto) and applicable to the Trust and (x) satisfies the
representations and warranties made pursuant to Schedule I hereof as of the date
of substitution.
"Rate/Term Refinance Mortgage Loan": Either (i) a Mortgage Loan the
proceeds of which were primarily used by the related Mortgagor to refinance an
existing mortgage loan on more favorable terms or to refinance a balloon payment
or (ii) a Mortgage Loan which is not a Purchase Mortgage Loan where less than
$1,000 of the proceeds of such Mortgage Loan were
30
<PAGE>
applied by the related Mortgagor toward debt consolidation or otherwise
disbursed to the related Mortgagor.
"Rating Agencies": Collectively, Moody's and Standard & Poor's or any
successors thereto.
"Realized Loss": As to any Liquidated Loan, the amount, if any, by which
the Loan Balance thereof as of the date of liquidation is in excess of Net
Liquidation Proceeds realized thereon applied in reduction of such Loan Balance.
"Record Date": With respect to the Fixed Rate Certificates and each
Distribution Date, the last day of the calendar month immediately preceding the
calendar month in which such Distribution Date occurs and with respect to the
Class A-6 Certificates, the day immediately preceding such Distribution Date.
"Reference Banks": Any leading banks selected by the Trustee which are
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) not
controlling, under the control of or under common control with the Seller or any
affiliate thereof, (iii) whose quotations appear on Telerate Page 3750 on the
relevant LIBOR Determination Date and (iv) which have been designated as such by
the Trustee.
"Register": The register maintained by the Registrar in accordance with
Section 5.04 hereof, in which the names of the Owners are set forth.
"Registrar": The Trustee, acting in its capacity as Registrar appointed
pursuant to Section 5.04 hereof, or any duly appointed and eligible successor
thereto.
"Registration Statement": The Registration Statement filed by the Depositor
with the Securities and Exchange Commission (Registration Number 333-14041),
including all amendments thereto and including the Prospectus Supplement
relating to the Class A Certificates constituting a part thereof.
"Reimbursement Amount": As of any Distribution Date, the sum, without
duplication, of (x)(i) all Insured Payments previously paid to the Trustee by
the Certificate Insurer and not previously repaid to the Certificate Insurer
pursuant to Section 7.03(c)(i)(C) and (D) hereof or pursuant to the Insurance
Agreement plus (ii) interest accrued on each such Insured Payment not previously
repaid calculated at the Reimbursement Late Payment Rate and (y)(i) any amounts
then due and owing to the Certificate Insurer under the Insurance Agreement plus
(ii) interest on such amounts to the extent provided in the Insurance Agreement.
The Certificate Insurer shall notify the Trustee, the Depositor and the Seller
of the amount of any Reimbursement Amount.
31
<PAGE>
"Reimbursement Late Payment Rate": Means for any Distribution Date, the
rate of interest as it is publicly announced by Citibank, N.A., or any successor
thereto, 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 3%. The Reimbursement Late Payment Rate shall
be computed on the basis of a year of 365 days and the actual number of days
elapsed. In no event shall the Reimbursement Late Payment Rate exceed the
maximum rate permissible under any applicable law limiting interest rates.
"Related Loan Group": The Fixed Rate Group or the Adjustable Rate Group, as
the case may be.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"REMIC": A "real estate mortgage investment conduit" within the meaning of
Section 860D of the Code.
"REMIC Opinion": As defined in Section 3.03 hereof.
"REMIC Provisions": Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at Section 860A through
860G of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations and revenue rulings promulgated thereunder, as the foregoing may be
in effect from time to time.
"REO Property": A Mortgaged Property acquired by the Master Servicer on
behalf of the Trust through foreclosure or deed-in-lieu of foreclosure in
connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified Replacement
Mortgage Loan, the first day of the calendar month in which such Qualified
Replacement Mortgage Loan is conveyed to the Trust.
"Representation Letter": Letters to, or agreements with, the Depository to
effectuate a book entry system with respect to the Class A Certificates
registered in the Register under the nominee name of the Depository.
"Residual Net Monthly Excess Cashflow": With respect to any Distribution
Date, the aggregate Net Monthly Excess Cashflow, if any, remaining after the
making of all applications, transfers and disbursements described in Sections
7.03(c)(i), 7.03(c)(ii) and 7.03(c)(iii)(A) through (G) hereof.
"Schedules of Mortgage Loans": The schedules of Mortgage Loans attached
hereto as Schedule I-A and Schedule I-B, separated by Mortgage Loan Group
listing each Mortgage Loan in the related Mortgage Loan Group to be conveyed on
the Startup Day. Such Schedules of
32
<PAGE>
Mortgage Loans shall set forth as to each Mortgage Loan (i) the Master
Servicer's loan number, (ii) the Mortgagor's name and address (including the
state) of the Mortgaged Property, (iii) the lien priority thereof, (iv) the
combined Loan-to-Value Ratio at origination, (v) the Loan Balance as of the
Cut-Off Date or Replacement Cut-Off Date, (vi) the Mortgage Rate thereof (and,
with respect to the Mortgage Loans in the Adjustable Rate Group, the margin and
the applicable index), (vii) the current scheduled monthly payment of principal
and interest, (viii) the maturity of the related Note, (ix) the property type,
(x) occupancy status, (xi) Appraised Value and (xii) original term-to-maturity.
"Scheduled Payment": As of any date of calculation, with respect to a
Mortgage Loan, the then stated scheduled monthly installment of principal and
interest payable thereunder which, if timely paid, would result in the full
amortization of principal over the term thereof (or, in the case of a "balloon"
Note, the term to the nominal maturity date for amortization purposes, without
regard to the actual maturity date).
"Second Mortgage Loan": A Mortgage Loan which constitutes a second priority
mortgage lien with respect to the related Mortgaged Property.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": Companion Mortgage Corporation, a Delaware corporation.
"Senior Lien": With respect to any Second Mortgage Loan, the mortgage loan
relating to the corresponding Mortgaged Property having a first priority lien.
"Servicer Loss Test": The Servicer Loss Test is satisfied if the Cumulative
Loss Percentage for such period does not exceed the percentage set out for such
period below (provided, that for purposes of the calculation of the Servicer
Loss Test, Realized Losses attributable solely to Cram Down Losses are excluded
from the calculation of Cumulative Loss Percentage).
Period Cumulative Loss Percentage
February 2, 1998 - February 1, 1999 0.75%
February 2, 1999 - February 1, 2000 1.50%
February 2, 2000 - February 1, 2001 2.00%
February 2, 2001 - February 1, 2002 2.25%
February 2, 2002 - February 1, 2003 2.75%
"Servicer Termination Test": The Servicer Termination Test is satisfied for
any date of determination thereof if (a) the 90+ Delinquency Percentage (Rolling
Three Month) with respect to the Mortgage Loans is less than 13.0%, (b) the
Servicer Loss Test is satisfied and (c) the
33
<PAGE>
Annual Loss Percentage (Rolling Twelve Month) as it relates to the Mortgage
Loans for the twelve month period immediately preceding the date of
determination is not greater than 2.25%.
"Servicing Advance": As defined in Section 8.09(b) and Section 8.13(a)
hereof.
"Servicing Fee": With respect to any Mortgage Loan, an amount retained by
the Master Servicer as compensation for servicing and administration duties
relating to such Mortgage Loan pursuant to Section 8.15 and equal to 0.50% per
annum of the then outstanding Loan Balance of such Mortgage Loan as of the first
day of the related Due Period payable on a monthly basis (taking into account
Curtailments, Net Liquidation Proceeds and Prepayments received during the
immediately preceding Prepayment Period and, with respect to Actuarial Loans,
any scheduled monthly payment due on or before the last day of the immediately
preceding Due Period and in the Collection Account as of the Determination Date
for such immediately preceding Due Period.
"Servicing Standard": As defined in Section 8.01 hereof.
"Simple Interest Loans": Any Mortgage Loan as to which, pursuant to the
Note relating thereto, interest is computed and charged to the Mortgagor at the
Mortgage Rate on the outstanding principal balance of such Note based on the
number of days elapsed between receipt of the Mortgagor's last payment through
receipt of the Mortgagor's most current payment.
"Specified Subordinated Amount": As applicable, the Fixed Rate Group
Specified Subordinated Amount or the Adjustable Rate Group Specified
Subordinated Amount.
"Standard & Poor's": Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"Startup Day": January 28, 1998.
"Subordinate Certificates": Collectively, the Class R Certificates.
"Subordinated Amount": The Fixed Rate Group Subordinated Amount or the
Adjustable Rate Group Subordinated Amount, as the case may be.
"Subordination Deficiency Amount": With respect to any Mortgage Loan Group
and Distribution Date, the excess, if any, of (i) the Specified Subordinated
Amount applicable to such Mortgage Loan Group and Distribution Date over (ii)
the Subordinated Amount applicable to such Mortgage Loan Group and Distribution
Date prior to taking into account the payment of any related Subordination
Increase Amounts on such Distribution Date.
"Subordination Deficit": With respect to any Mortgage Loan Group and
Distribution Date, the amount, if any, by which (x) the aggregate of the related
Class A Certificate Principal Balances relating to such Mortgage Loan Group,
after taking into account all distributions to be
34
<PAGE>
made on such Distribution Date exceeds (y) the aggregate Loan Balances of the
Mortgage Loans in the related Mortgage Loan Group as of the close of business on
the last day of the related Due Period (taking into account, Curtailments, Net
Liquidation Proceeds and Prepayments collected during the related Prepayment
Period, and with respect to Actuarial Loans in the related Mortgage Loan Group,
the principal portion of all scheduled monthly payments due on or before the
last day of the related Due Period and in the Collection Account as of the
related Determination Date).
"Subordination Increase Amount": With respect to any Mortgage Loan Group
and Distribution Date, the aggregate amount of Net Monthly Excess Cashflow
allocated to such Mortgage Loan Group pursuant to Sections 7.03(c)(ii)(A) and
(B) on such Distribution Date.
"Subordination Reduction Amount": With respect to any Mortgage Loan Group
and Distribution Date, an amount equal to the lesser of (x) the Excess
Subordinated Amount for such Mortgage Loan Group and Distribution Date and (y)
the amount available for distribution on account of principal with respect to
the Class A Certificates relating to such Mortgage Loan Group on such
Distribution Date.
"Sub-Servicer: Any Person with whom the Master Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
8.03 hereof in respect of the qualification of a Sub-Servicer, which initially
will be CSC.
"Sub-Servicing Agreement": The sub-servicing agreement between the Master
Servicer and CSC relating to servicing and/or administration of certain Mortgage
Loans as permitted by Section 8.03, or any successor agreement.
"Substitution Adjustment": As defined in Section 3.03 hereof.
"Tax Matters Certificate": The Certificate representing the Tax Matters
Person Residual Interest, initially issued to the Trustee as the initial Tax
Matters Person.
"Tax Matters Person": The Person appointed for the Trust pursuant to
Section 11.18 hereof to act as the Tax Matters Person under the Code.
"Tax Matters Person Residual Interest": The 0.001% interest in the
"residual interest" in the Trust Fund, 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 11.18 hereof.
"Termination Auction": As defined in Section 9.03 hereof.
"Termination Notice": As defined in Section 9.04(a) hereof.
35
<PAGE>
"Total Available Funds": As defined in Section 7.02(d) hereof.
"Total Monthly Excess Cashflow": As defined in Section 7.03(c)(i) hereof.
"Total Monthly Excess Spread": The Fixed Rate Group Total Monthly Excess
Spread or the Adjustable Rate Group Total Monthly Excess Spread, as the case may
be.
"Trust": Block Mortgage Finance Asset Backed Certificates, Series 1998-1,
the trust created under this Agreement.
"Trust Estate": As defined in the conveyance clause under this Agreement.
"Trustee": Bankers Trust Company of California, N.A., a national banking
association, the Corporate Trust Office of which is located on the date of
execution of this Agreement at 3 Park Plaza, 16th floor, Irvine, California
92614, not in its individual capacity but solely as Trustee under this
Agreement, and any successor hereunder.
"Trustee Fee": The fee payable monthly on each Distribution Date in an
amount equal to one-twelfth of 0.015% multiplied by the then-outstanding Loan
Balance.
"Underwriters": Morgan Stanley & Co. Incorporated and Salomon Brothers Inc.
"Voting Rights": The portion of the voting rights of all of the
Certificates that is allocated to any Certificate or Class of Certificates. At
all times during the term of this Agreement, the percentage of the Voting Rights
assigned to each Class shall be a fraction, the numerator of which is equal to
the aggregate outstanding Certificate Principal Balance of such Class of
Certificates and the denominator of which is equal to the aggregate outstanding
Certificate Principal Balances of all Classes of Certificates. The Voting Rights
of any Class of Certificates shall be allocated among Owners of Certificates of
such Class in proportion to their respective Percentage Interests. The aggregate
Voting Rights of Owners of more than one Class of Certificates shall be equal to
the sum of the products of each such Owner's Voting Rights and the percentage of
Voting Rights allocated to the related Class of Certificates. At all times
during the term of this Agreement, 99% and 1% of all Voting Rights shall be
allocated to the Owners of the Class A Certificates (for such time as any Class
A Certificate is outstanding) and the Owners of the Class R Certificates,
respectively.
"Weighted Average Pass-Through Rate": As to the Class A Certificates and
any Distribution Date, the weighted average of the Class A-1 Pass-Through Rate,
Class A-2 Pass-Through Rate, Class A-3 Pass-Through Rate, Class A-4 Pass-Through
Rate, Class A-5 Pass Through Rate and Class A-6 Pass Through Rate (such rate
calculated for this purpose on the basis of a 360-day year assumed to consist of
twelve 30 day months) weighted by the respective Certificate Principal Balances
of the related Class, as of such Distribution Date prior to taking into account
any distributions to be made on such Distribution Date.
36
<PAGE>
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01 Establishment of the Trust.
The parties hereto do hereby create and establish, pursuant to the laws of
the State of New York and this Agreement, the Trust, which, for convenience,
shall be known as "Block Mortgage Finance Asset Backed Certificates, Series
1998-1," which shall contain two separate pools of Mortgage Loans.
Section 2.02 Office.
The office of the Trust shall be in care of the Trustee, addressed to 3
Park Plaza, 16th floor, Irvine, California 92614, Attention: Block Mortgage
Finance Asset Backed Certificates, Series 1998-1, or at such other address as
the Trustee may designate by notice to the Depositor, the Seller, the Master
Servicer, the Owners and the Certificate Insurer.
Section 2.03 Purposes and Powers.
The purpose of the Trust is to engage in the following activities and only
such activities: (i) the issuance of the Certificates and the acquiring, owning
and holding of Mortgage Loans and the Trust Estate in connection therewith; (ii)
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith, including the
investment of moneys in accordance with this Agreement; and (iii) such other
activities as may be required in connection with conservation of the Trust
Estate and distributions to the Owners; provided, however, that nothing
contained herein shall permit the Trustee to take any action which would
adversely affect the Trust Fund's status as a REMIC.
Section 2.04 Appointment of the Trustee; Declaration of Trust.
The Depositor hereby appoints the Trustee as trustee of the Trust effective
as of the Startup Day, to have all the rights, powers and duties set forth
herein. The Trustee hereby acknowledges and accepts such appointment, represents
and warrants its eligibility as of the Startup Day to serve as Trustee pursuant
to Section 10.08 hereof and declares that it will hold the Trust Estate in trust
upon and subject to the conditions set forth herein for the benefit of the
Owners.
Section 2.05 Expenses of the Trust.
The expenses of the Trust, including (i) any portion of the Trustee Fee not
paid pursuant to Section 7.03(c)(iii)(B) hereof, (ii) any reasonable expenses of
the Trustee, and (iii) any other
37
<PAGE>
reasonable expenses of the Trust (provided that the reasonable expenses of the
Trust set forth in this clause (iii) have been reviewed and approved by the
Master Servicer, which review and approval shall not be required in connection
with the enforcement of a remedy by the Trustee resulting from a default under
this Agreement), shall be paid directly by the Master Servicer. The Master
Servicer shall pay directly the reasonable fees and expenses of counsel to the
Trustee. The reasonable fees and expenses of the Trustee's counsel in connection
with the review and delivery of this Agreement and related documentation shall
be paid by the Master Servicer on the Startup Day. In addition, if any
assignment of Mortgage is required to be filed pursuant to the terms of this
Agreement, the Master Servicer shall pay for all costs and expenses associated
with filing such assignment in the appropriate recording office.
Section 2.06 Ownership of the Trust.
On the Startup Day, the ownership interests in the Trust shall be
transferred as set forth in Section 4.02 hereof, such transfer to be evidenced
by sale of the Certificates as described therein. Thereafter, transfer of any
ownership interest shall be governed by Sections 5.04 and 5.08 hereof.
Section 2.07 Situs of the Trust.
It is the intention of the parties hereto that the Trust constitute a trust
under the laws of the State of New York. The Trust will be created and
administered in, and all Accounts maintained by the Trustee on behalf of the
Trust will be located in, the State of New York. The Trust will not have any
employees and will not have any real or personal property (other than property
acquired pursuant to Section 8.13 hereof) located in any state other than in the
State of New York (provided, however, that the Trustee may maintain the Files in
California) and payments will be received by the Trustee only in the State of
New York and payments from the Trustee will be made only from the State of New
York. The Trust's only office will be at the office of the Trustee as set forth
in Section 2.02 hereof.
Section 2.08 Miscellaneous REMIC Provisions.
(a) The Trust Fund for federal income tax purposes will consist of a single
REMIC. The Certificates will represent the entire beneficial ownership interest
in the Trust Fund. The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and
Class A-6 Certificates will represent the "regular interests" in the Trust Fund
and the Class R Certificates will represent the single "residual interest" in
the Trust Fund. The Owner of the Tax Matters Person Residual Interest is hereby
designated as "tax matters person" as defined in the REMIC Provisions with
respect to the Trust.
(b) The Trust shall, for federal income tax purposes, maintain books on a
calendar year basis and report income on an accrual basis.
38
<PAGE>
(c) The Trustee shall cause the Trust to elect to be treated as a REMIC
under Section 860D of the Code. Any inconsistencies or ambiguities in this
Agreement or in the administration of the Trust shall be resolved in a manner
that preserves the validity of such election to be treated as a REMIC.
(d) The Trustee shall provide to the Internal Revenue Service and to the
Person described in Section 860(E)(e)(3) and (6) of the Code the information
described in Treasury Regulation Section 1.860D-l(b)(5)(ii), or any successor
regulation thereto with respect to the Trust. Such information will be provided
in the manner described in Treasury Regulation Section 1.860E-2(a)(5), or any
successor regulation thereto.
(e) For federal income tax purposes, the Final Scheduled Distribution Date
for each Class of Certificates is hereby set to be the Distribution Date
indicated below:
Final Scheduled
Class Distribution Date
Class A-1 Certificates September 2012
Class A-2 Certificates September 2012
Class A-3 Certificates November 2020
Class A-4 Certificates June 2027
Class A-5 Certificates September 2012
Class A-6 Certificates December 2027
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE MASTER SERVICER AND THE SELLER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and the Owners that as of the Startup Day:
(a) The Depositor 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
39
<PAGE>
corporation in each jurisdiction in which the nature of its business, or the
properties owned or leased by it, make such qualification necessary, except
where the failure to so qualify would not have a material adverse effect on the
Depositor, the Owners or the Certificate Insurer. The Depositor has all
requisite corporate power and authority to own and operate its properties, to
carry out its business as currently conducted and as proposed to be conducted
and to enter into and discharge its obligations under this Agreement and the
other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Depositor and its
performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Depositor and will not (i) violate
the Depositor's Certificate of Incorporation or Bylaws, (ii) constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in a breach of, any material contract,
agreement or other instrument to which the Depositor is a party or by which the
Depositor is bound or (iii) violate any statute or any order, rule or regulation
of any court, governmental agency or body or other tribunal having jurisdiction
over the Depositor or any of its properties, except where the failure to so
comply would not have a material adverse effect on the Depositor, the Owners or
the Certificate Insurer.
(c) This Agreement and the other Operative Documents to which the Depositor
is a party, assuming due authorization, execution and delivery by the other
parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
other governmental agency, which default would materially and adversely affect
the condition (financial or other) or operations of the Depositor or its
properties or the consequences of which would materially and adversely affect
its performance hereunder or under the other Operative Documents to which the
Depositor is a party.
(e) No litigation is pending or, to the best of the Depositor's knowledge,
threatened against the Depositor which litigation is likely to have consequences
that would prohibit its entering into this Agreement or that would materially
and adversely affect the condition (financial or otherwise) or operations of the
Depositor or its properties or is likely to have consequences that would
materially and adversely affect its performance hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Depositor contains any untrue
statement of a material fact or
40
<PAGE>
omits to state any material fact necessary to make the certificate, statement or
report not misleading.
(g) The statements contained in the Registration Statement which describe
the Depositor or matters or activities for which the Depositor is responsible in
accordance with the Operative Documents or which are attributable to the
Depositor 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 Depositor required to be stated therein or necessary to make
the statements contained therein with respect to the Depositor, in light of the
circumstances under which they were made, not misleading. The Registration
Statement does not contain any untrue statement of a material fact required to
be stated therein or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
(h) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Depositor, as the case may be, by or from
any federal, state or other governmental authority or agency (other than any
such actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Depositor makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Depositor of the Operative Documents to which it is a party, have been duly
taken, given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Depositor and the
performance by the Depositor of its obligations under this Agreement and such of
the other Operative Documents to which it is a party.
(i) The Depositor is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is the Depositor aware of any pending
insolvency of the Depositor, the Seller or the Master Servicer.
(j) The transactions contemplated by this Agreement are in the ordinary
course of business of the Depositor.
(k) The transfer, assignment and conveyance of the Notes and the Mortgages
by the Depositor hereunder are not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction.
It is understood and agreed that the representations and warranties set
forth in this Section 3.01 shall survive delivery of the respective Mortgage
Loans to the Trustee.
41
<PAGE>
Section 3.02 Representations and Warranties of the Master Servicer.
The Master Servicer hereby represents, warrants and covenants to the
Trustee, the Certificate Insurer and the Owners that as of the Startup Day:
(a) The Master Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is, and each
Sub-Servicer 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 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, except where the failure to
so qualify would not have a material adverse effect on the Master Servicer, the
Sub-Servicer, if applicable, the Owners, the Trust or the Certificate Insurer.
The Master Servicer and each Sub-Servicer has all requisite corporate power and
authority to own and operate its properties, to carry out its business as
currently conducted and as proposed to be conducted and to enter into and
discharge its obligations under this Agreement and the other Operative Documents
to which it is a party. Either the Master Servicer or a Sub-Servicer is
designated as an approved seller-servicer by FNMA for first and second mortgage
loans and has combined equity and subordinated debt of at least $1,500,000, as
determined in accordance with generally accepted accounting principles.
(b) The execution and delivery of this Agreement by the Master Servicer and
its performance and compliance with the terms of this Agreement have been duly
authorized by all necessary corporate action on the part of the Master Servicer
and will not (i) violate the Master Servicer's Certificate of Incorporation or
Bylaws, (ii) 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 of,
any material contract, agreement or other instrument to which the Master
Servicer is a party or by which the Master Servicer is bound or (iii) violate
any statute or any order, rule or regulation of any court, governmental agency
or body or other tribunal having jurisdiction over the Master Servicer or any of
its properties, except where the failure to so comply would not have a material
adverse effect on the Master Servicer, the Owners, the Trust or the Certificate
Insurer.
(c) This Agreement and the Operative Documents to which the Master Servicer
is a party, assuming due authorization, execution and delivery by the other
parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Master Servicer, enforceable against it in accordance with the
terms hereof and thereof, except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Master Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition
42
<PAGE>
(financial or otherwise) or operations of the Master Servicer or its properties
or might have consequences that would materially and adversely affect its
performance hereunder or under the other Operative Documents to which the Master
Servicer is a party.
(e) No litigation is pending or, to the best of the Master Servicer's
knowledge, threatened against the Master Servicer which litigation is likely to
have consequences that would prohibit its entering into this Agreement or that
would materially and adversely affect the condition (financial or otherwise) or
operations of the Master Servicer or its properties or is likely to have
consequences that would materially and adversely affect its performance
hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Master Servicer contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) 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 Operative Documents or which are attributed
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 or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein with respect to the Master Servicer, in light of the circumstances under
which they were made, not misleading.
(h) The Master Servicer will account for any servicing fee rights in
accordance with Statement of Financial Accounting Standards No. 125 issued by
the Financial Accounting Standards Board.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Master Servicer, as the case may be, by or
from any federal, state or other governmental authority or agency (other than
any such actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Master Servicer makes no
such representation or warranty), that are necessary or advisable in connection
with the execution and delivery by the Master Servicer of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative Documents on
the part of the Master Servicer and the performance by the Master Servicer of
its obligations under this Agreement and such of the other Operative Documents
to which it is a party.
43
<PAGE>
(j) The collection practices used by the Master Servicer and each
Sub-Servicer with respect to the Mortgage Loans have been, in all material
respects, legal, proper, prudent and customary in the mortgage servicing
business for comparable mortgage loans.
(k) The transactions contemplated by this Agreement are in the ordinary
course of business of the Master Servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the Mortgage Loans to the
Trustee.
Upon discovery by any of the Depositor, the Seller, the Master Servicer,
the Certificate Insurer, any Owner or the Trustee (each, for purposes of this
paragraph, a party) of a breach of any of the representations and warranties set
forth in this Section 3.02 which materially and adversely affects the interests
of the Owners or of the Certificate Insurer, the party discovering such breach
shall give prompt written notice to the other parties. Within 60 days of its
discovery or its receipt of notice of breach, the Master Servicer shall cure
such breach in all material respects and, upon the Master Servicer's continued
failure to cure such breach, may thereafter be removed by the Trustee pursuant
to Section 8.20 hereof; provided, however, that if any party can establish to
the reasonable satisfaction of the Certificate Insurer that it is diligently
pursuing remedial action, then the cure period may be extended with the written
approval of the Certificate Insurer.
Section 3.03 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and the Owners that as of the Startup Day:
(a) 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, except where the failure to so qualify would not have a material
adverse effect on the Seller, the Owners, the Trust and the Certificate Insurer.
The Seller has all requisite corporate power and authority to own and operate
its properties, to carry out its business as currently conducted and as proposed
to be conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Seller and its
performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Seller and will not (i) violate
the Seller's Certificate of Incorporation or Bylaws, (ii) constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in a breach of, any material contract, agreement or
other instrument to which the Seller is
44
<PAGE>
a party or by which the Seller is bound or (iii) violate any statute or any
order, rule or regulation of any court, governmental agency or body or other
tribunal having jurisdiction over the Seller or any of its properties, except
where the failure to so comply would not have a material adverse effect on the
Seller, the Owners, the Trust and the Certificate Insurer.
(c) This Agreement and the other Operative Documents to which the Seller is
a party, assuming due authorization, execution and delivery by the other parties
hereto and thereto, each constitutes a valid, legal and binding obligation of
the Seller, enforceable against it in accordance with the terms hereof and
thereof, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Seller is not in default with respect to any order or decree of any
court or any order, regulation or demand of any federal, state, municipal or
other governmental agency, which default would materially and adversely affect
the condition (financial or other) or operations of the Seller or its properties
or the consequences of which would materially and adversely affect its
performance hereunder and under the other Operative Documents to which the
Seller is a party.
(e) No litigation is pending or, to the best of the Seller's knowledge,
threatened against the Seller which litigation is likely to have consequences
that would prohibit its entering into this Agreement or that would materially
and adversely affect the condition (financial or otherwise) or operations of the
Seller or its properties or is likely to have consequences that would materially
and adversely affect its performance hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Seller contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which describe
the Seller or matters or activities for which the Seller is responsible in
accordance with the Operative Documents or which are attributable to the Seller
therein are true and correct in all material respects. The Registration
Statement does not contain any untrue statement of a material fact required to
be stated therein, or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
(h) Upon the receipt of each Mortgage Loan (including the related Note) and
other items of the Trust Estate by the Trustee under this Agreement, the Trust
will have good title to such Mortgage Loan (including the related Note) and such
other items of the Trust Estate free and clear of any lien, charge, mortgage,
encumbrance or rights of others, except as set forth in item (ix) of Schedule I
(other than liens which will be simultaneously released).
45
<PAGE>
(i) Neither the Seller nor any affiliate thereof will report on any
financial statement any part of the Servicing Fee as an adjustment to the sales
price of the Mortgage Loans.
(j) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Seller, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc., under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Seller makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Seller of the Operative Documents to which it is a party, have been duly taken,
given or obtained, as the case may be, are in full force and effect on the date
hereof, are not subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review thereof may
be obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
Operative Documents on the part of the Seller and the performance by the Seller
of its obligations under this Agreement and such of the other Operative
Documents to which it is a party.
(k) The origination practices used by the Seller or, to the Seller's
knowledge, the respective originators of the Mortgage Loans with respect to such
Mortgage Loans have been in all material respects, legal, proper, prudent and
customary in the mortgage lending business in the jurisdiction in which the
related Mortgage Properties are located.
(l) The Seller is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is the Seller aware of any pending
insolvency of the Seller, the Depositor or the Master Servicer.
(m) The transfer, assignment and conveyance of the Notes and the Mortgages
by the Seller hereunder are not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction.
(n) The transactions contemplated by this Agreement are in the ordinary
course of business of the Seller.
It is understood and agreed that the representations and warranties set
forth in this Section 3.03 shall survive delivery of the respective Mortgage
Loans to the Trustee.
Upon discovery by any of the Master Servicer, the Seller, the Depositor,
the Certificate Insurer or the Trustee (each, for purposes of this paragraph, a
"party") of a breach of any of the representations and warranties set forth in
this Section 3.03 which materially and adversely affects the interests of the
Owners or the Certificate Insurer, the party discovering such breach shall give
prompt written notice to the other parties. The Seller hereby covenants and
agrees that within
46
<PAGE>
60 days of its discovery or its receipt of notice of breach, it shall cure such
breach in all material respects or, with respect to a breach of clause (h)
above, the Seller may (or may cause an affiliate of the Seller to) on the
Monthly Remittance Date next succeeding such discovery or receipt of notice (i)
substitute in lieu of any Mortgage Loan not in compliance with clause (h) a
Qualified Replacement Mortgage Loan and, if the outstanding principal amount of
such Qualified Replacement Mortgage Loan as of the applicable Replacement
Cut-Off Date is less than the Loan Balance of such Mortgage Loan as of such
Replacement Cut-Off Date, deliver an amount equal to such difference together
with the aggregate amount of (A) all Delinquency Advances and Servicing Advances
theretofore made with respect to such Mortgage Loan, to the extent unreimbursed
to the Master Servicer and (B) all Delinquency Advances and Servicing Advances
which the Master Servicer has theretofore failed to remit with respect to such
Mortgage Loan (a "Substitution Adjustment") to the Master Servicer for deposit
in the Collection Account or (ii) purchase such Mortgage Loan from the Trust at
the Loan Purchase Price, which purchase price shall be delivered to the Master
Servicer for deposit in the Collection Account. Notwithstanding any provision of
this Agreement to the contrary, with respect to any Mortgage Loan which is not
in default or as to which no default is imminent, no repurchase or substitution
pursuant to Section 3.03, 3.04 or 3.06 shall be made unless the Seller obtains
for the Trustee and the Certificate Insurer an opinion of counsel experienced in
federal income tax matters to the effect that such a repurchase or substitution
would not constitute a Prohibited Transaction for the Trust or otherwise subject
the Trust to tax and would not jeopardize the status of the Trust as a REMIC (a
"REMIC Opinion") addressed to the Trustee and the Certificate Insurer and
acceptable to the Certificate Insurer and the Trustee. Any Mortgage Loan as to
which repurchase or substitution was delayed pursuant to this Section shall be
repurchased or substituted for (subject to compliance with Sections 3.03, 3.04
or 3.06, as the case may be) upon the earlier of (a) the occurrence of a default
or imminent default with respect to such Mortgage Loan and (b) receipt by the
Trustee and the Certificate Insurer of a REMIC Opinion.
Section 3.04 Covenants of Seller to Take Certain Actions with Respect to
the Mortgage Loans in Certain Situations.
(a) The Seller hereby makes the representations set forth on Schedule I
hereto with respect to the Mortgage Loans.
(b) Upon the discovery by the Seller, the Master Servicer, the Certificate
Insurer, or the Trustee (i) that any of the statements set forth in Schedule I
hereto were untrue as of the Startup Day with the result that the interests of
the Owners or the Certificate Insurer are materially and adversely affected or
(ii) that statements set forth in clauses (ix), (x), (xiii), (xxxvi), (xl), or
(xli) of Schedule I hereto were untrue in any material respect as of the Startup
Day, the party discovering such breach shall give prompt written notice to the
other parties. Upon the earlier to occur of the Seller's discovery or its
receipt of notice of breach from any one of the other parties, the Seller hereby
covenants and warrants that it shall promptly cure such breach in all material
respects or, subject to the last two sentences of Section 3.03, it shall on the
second Monthly Remittance Date next succeeding such discovery or receipt of
notice (i) substitute
47
<PAGE>
in lieu of each Mortgage Loan which has given rise to the requirement for action
by the Seller a Qualified Replacement Mortgage Loan and deliver the Substitution
Adjustment to the Master Servicer for deposit in the Collection Account or (ii)
purchase such Mortgage Loan from the Trust at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be delivered to the Master
Servicer for deposit in the Collection Account. Other than as specified in
Section 6.12 hereof, it is understood and agreed that the foregoing obligation
of the Seller so to substitute for or purchase any Mortgage Loan shall
constitute the sole remedy respecting a discovery of any such statement which is
untrue in any material respect in this Section 3.04 available to the Owners, the
Trustee and the Certificate Insurer.
(c) In the event that any such repurchase results in a prohibited
transaction tax, the Trustee shall (upon its actual knowledge of such event)
promptly notify the Seller in writing thereof and the Seller will, within 10
days of receiving notice thereof from the Trustee, deposit the amount due from
the Trust with the Trustee for the payment thereof, including any interest and
penalties, in immediately available funds. In the event that any Qualified
Replacement Mortgage Loan is delivered by the Seller to the Trust pursuant to
Section 3.03, Section 3.04 or Section 3.06 hereof, the Seller shall be obligated
to take the actions described in Section 3.04(b) with respect to such Qualified
Replacement Mortgage Loan upon the discovery by any of the Owners, the Seller,
the Master Servicer, the Certificate Insurer, or the Trustee that the statements
set forth in clause (ix), (x), (xiii), (xxxvi), (xl) or (xli) of Schedule I
hereto are untrue in any material respect on the date such Qualified Replacement
Mortgage Loan is conveyed to the Trust or that any of the other statements set
forth in Schedule I hereto are untrue on the date such Qualified Replacement
Mortgage Loan is conveyed to the Trust such that the interests of the Owners or
the Certificate Insurer in the related Qualified Replacement Mortgage Loan are
materially and adversely affected; provided, however, that for the purposes of
this subsection (c) the statements in Schedule I hereto referring to items "as
of the Cut-Off Date" or "as of the Startup Day" shall be deemed to refer to such
items as of the date such Qualified Replacement Mortgage Loan is conveyed to the
Trust or the related Replacement Cut-Off Date, as appropriate.
(d) It is understood and agreed that the covenants set forth in this
Section 3.04 shall survive delivery of the respective Mortgage Loans (including
Qualified Replacement Mortgage Loans) to the Trustee.
(e) The Trustee shall have no duty to conduct any affirmative investigation
other than as specifically set forth in this Agreement as to the occurrence of
any condition requiring the purchase or repurchase of, or substitution for, any
Mortgage Loan pursuant to this Article III or the eligibility of any Mortgage
Loan for the purpose of this Agreement.
Notwithstanding the fact that a representation contained in Schedule I
hereto may be limited to the Seller's knowledge, such limitation shall not
relieve the Seller of its purchase obligation under the terms of this Section
3.04, or its obligations under Section 6.12 hereof.
48
<PAGE>
Section 3.05 Conveyance of the Mortgage Loans and Qualified Replacement
Mortgage Loans.
(a) On the Startup Day the Seller, concurrently with the execution and
delivery hereof, hereby transfers, assigns, sets over and otherwise conveys to
the Depositor and the Depositor, concurrently with the execution and delivery
hereof, transfers, assigns, sets over and otherwise conveys, without recourse,
to the Trustee for the benefit of the Owners all of their respective right,
title and interest in and to the Trust Estate; provided, however, that the
Seller reserves and retains all of its right, title and interest in and to (i)
principal (including Prepayments) and interest collected on each Mortgage Loan
on or prior to the Cut-Off Date (other than, with respect to Actuarial Loans,
scheduled monthly payments collected on or prior to the Cut-Off Date and due
after the Cut-Off Date) and (ii) with respect to Actuarial Loans, scheduled
monthly payments due on or prior to the Cut-Off Date. The transfer by the
Depositor of the Mortgage Loans set forth on the Schedules of Mortgage Loans to
the Trustee is absolute and is intended by the Owners and all parties hereto to
be treated as a sale by the Depositor.
It is intended that the sale, transfer, assignment and conveyance herein
contemplated constitute a sale of the Mortgage Loans conveying good title
thereto free and clear of any liens and encumbrances from the Seller to the
Depositor and from the Depositor to the Trust and that the Mortgage Loans not be
part of the Depositor's or the Seller's estate in the event of insolvency. In
the event that such conveyance is deemed to be a loan, the parties intend that
the Seller shall be deemed to have granted to the Depositor and the Depositor
shall be deemed to have granted to the Trustee a first priority perfected
security interest in the Trust Estate, and that this Agreement shall constitute
a security agreement under applicable law.
In connection with such sale, transfer, assignment, and conveyance from the
Seller to the Depositor, the Seller has filed, in the appropriate office or
offices in the States of New York, California, Georgia and Missouri, a UCC-1
financing statement executed by the Seller as debtor, naming the Depositor as
secured party and the Trustee as assignee and listing the Mortgage Loans and the
other property described above as collateral. The characterization of the Seller
as debtor and the Depositor as secured party on such financing statements is
solely for protective purposes and shall in no way be construed as being
contrary to the intent of the parties that this transaction be treated as a sale
of the Seller's entire right, title and interest in and to the Trust Estate. In
connection with such filing, the Seller agrees that it shall cause to be filed
all necessary continuation statements and amendments thereof and to take or
cause to be taken such actions and execute such documents as are necessary to
perfect and protect the Trustee's, the Owners' and the Certificate Insurer's
interest in the Trust Estate.
In connection with such sale, transfer, assignment, and conveyance from the
Depositor to the Trustee, the Depositor has filed, in the appropriate office or
offices in the States of New York, California, Georgia and Missouri, a UCC-1
financing statement executed by the Depositor as debtor, naming the Trustee as
secured party and listing the Mortgage Loans and the other property described
above as collateral. The characterization of the Depositor as debtor and the
49
<PAGE>
Trustee as secured party in such financing statements is solely for protective
purposes and shall in no way be construed as being contrary to the intent of the
parties that this transaction be treated as a sale of the Depositor's entire
right, title and interest in and to the Trust Estate. In connection with such
filing, the Depositor agrees that it shall cause to be filed all necessary
continuation statements thereof and to take or cause to be taken such actions
and execute such documents as are necessary to perfect and protect the
Trustee's, the Owners' and the Certificate Insurer's interest in the Trust
Estate.
(b) In connection with the transfer and assignment of the Mortgage Loans,
the Depositor agrees to:
(i) deliver without recourse to the Trustee on the Startup Day with
respect to each Mortgage Loan, (A) the original Mortgage Note, endorsed by
the Seller or the last endorsee of such Mortgage Loan, without recourse, in
the following form: "Pay to the order of ________________________ without
recourse", with all intervening endorsements necessary to show a complete
chain of endorsement from the originator to the Seller or last endorsee (or
a lost note affidavit in the form of Exhibit I); (B) the original recorded
Mortgage; (C) a duly executed assignment of the Mortgage in blank (each
such assignment, when duly and validly completed, to be in recordable form
and sufficient to effect the assignment of, and transfer to the assignee
thereof under, the Mortgage to which such assignment relates); (D) the
original recorded assignment or assignments of the Mortgage together with
all interim recorded assignments of such Mortgage from the originator to
the Seller or last endorsee; (E) the original or copies of each assumption,
modification, written assurance or substitution agreement, if any; (F) the
original or duplicate original lender's title policy and all riders thereto
or, in the event such original title policy has not been received from the
insurer, any one of an original title binder, an original preliminary title
report or an original title commitment, or a copy thereof certified by the
title company, with the original policy of title insurance to be delivered
within one year of the Startup Day; and (G) the original certificate of
title to each manufactured home, noting the Trustee as lienholder thereon;
and
(ii) deliver the title insurance policy or title searches, the original
Mortgages and such recorded assignments, together with originals or duly
certified copies of any and all prior assignments, to the Trustee within 15
days of receipt thereof by the Depositor (but in any event, with respect to
any Mortgage as to which original recording information has been made
available to the Depositor, within one year after the Startup Day).
With respect to each Mortgage Loan, the Master Servicer shall, within six
(6) months of the Startup Day, cause to be recorded with respect to each
Mortgage Loan the original assignment of Mortgage referred to in clause (i)(C)
above and shall, within five Business Days after receipt thereof, deliver or
cause to be delivered to the Trustee such original recorded assignment of
Mortgage, except in the states for which a legal opinion is delivered to the
Trustee and the Certificate Insurer as provided below and is approved by the
Certificate Insurer. In regard to
50
<PAGE>
those states in which Mortgaged Properties are located, the Master Servicer
shall have the right to deliver to the Trustee and the Certificate Insurer a
legal opinion providing that the recordation of the assignment of Mortgage in
one or more of such states is not necessary under applicable state law to
transfer the related Mortgage Loan to the Trust; provided such legal opinion is
made and delivered within six (6) months of the Startup Day, and is in form and
substance reasonably acceptable to the Certificate Insurer. Upon approval of
such opinion by the Certificate Insurer, the Master Servicer will not be
required to record the related assignments of Mortgages. All assignments of
Mortgages shall be delivered to the Trustee in recordable form at the time of
closing, and in such states where no opinion is so rendered, or is rendered and
is deemed to be unacceptable to the Certificate Insurer, recording of such
assignments of Mortgages will be required. Notwithstanding the preceding
provisions allowing for nonrecordation of assignments of Mortgage in certain
states, if an Event of Default has occurred as to a party other than the
Certificate Insurer as provided in Article 5 of the Insurance Agreement, or an
event set forth in Section 8.20 of this Agreement has occurred, the Master
Servicer shall be required to record all assignments of Mortgage in those states
where an opinion has not been previously delivered and approved.
Notwithstanding anything to the contrary contained in this Section 3.05, in
those instances where the public recording office retains the original Mortgage,
the assignment of a Mortgage or the intervening assignments of the Mortgage
after it has been recorded, the Depositor shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee of a copy of such Mortgage,
such assignment or assignments of Mortgage certified by the public recording
office to be a true copy of the recorded original thereof.
The Depositor hereby appoints the Master Servicer its attorney-in-fact for
the purpose of, and with full power in, preparing, executing and recording, on
its behalf, all assignments of Mortgages in the event that the Depositor fails
to do so on a timely basis.
Copies of all Mortgage assignments received by the Trustee shall be
retained in the related File.
All recordings required pursuant to this Section 3.05 shall be prepared and
recorded by the Master Servicer and shall be accomplished at the expense of the
Master Servicer.
(c) In the case of Mortgage Loans which have been prepaid in full after the
Cut-Off Date and prior to the Startup Day, the Depositor, in lieu of the
foregoing, will deliver within six (6) days after the Startup Day to the Trustee
a certification of an Authorized Officer of the Depositor in the form set forth
in Exhibit D.
(d) The Seller shall transfer, assign, set over and otherwise convey,
without recourse, to the Trustee all right, title and interest of the Seller in
and to any Qualified Replacement Mortgage Loan delivered to the Trustee on
behalf of the Trust by the Seller pursuant to Section 3.03, 3.04 or 3.06 hereof
and all its right, title and interest to principal and interest on such
51
<PAGE>
Qualified Replacement Mortgage Loan after the applicable Replacement Cut-Off
Date; provided, however, that the Seller shall reserve and retain all right,
title and interest in and to (i) payments of principal and interest received on
such Qualified Replacement Mortgage Loan on or prior to the applicable
Replacement Cut-Off Date (other than, with respect to Actuarial Loans, scheduled
monthly payments collected on or prior to the applicable Replacement Cut-Off
Date and due after the applicable Replacement Cut-Off Date) and (ii) with
respect to Actuarial Loans, scheduled monthly payments due on or prior to the
applicable Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the Trust in connection with the
conveyance of a Qualified Replacement Mortgage Loan therefor, the Trustee will
transfer, assign, set over and otherwise convey without recourse or
representation, on the Seller's order, all of its right, title and interest in
and to such released Mortgage Loan and all the Trust's right, title and interest
in and to principal and interest on such released Mortgage Loan after the
applicable Replacement Cut-Off Date; provided, however, that the Trust shall
reserve and retain all right, title and interest in and to payments of principal
and interest on such released Mortgage Loan on or prior to the applicable
Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage Loan to the Trustee on behalf of the Trust, the Seller
agrees to (i) deliver without recourse to the Trustee on the date of delivery of
such Qualified Replacement Mortgage Loan the documents set forth in Section
3.05(b)(i) and (ii) deliver the original Qualified Replacement Mortgage Loan,
together with original or duly certified copies of any and all prior
assignments, to the Trustee within 15 days of receipt thereof by the Seller (but
in any event within 120 days after the date of conveyance of such Qualified
Replacement Mortgage Loan).
(g) As to each Mortgage Loan released from the Trust in connection with the
conveyance of a Qualified Replacement Mortgage Loan, the Trustee shall deliver
on the date of conveyance of such Qualified Replacement Mortgage Loan and on the
order of the Seller (i) the original Note relating thereto, endorsed in blank,
(ii) the original Mortgage so released and all assignments relating thereto,
including an assignment of such Mortgage to the Seller and (iii) such other
documents as constituted the File with respect thereto.
(h) If a Mortgage assignment is lost or is returned from the recorder's
office unrecorded due to a defect therein, the Seller shall prepare a substitute
assignment or cure such defect, as the case may be, and thereafter cause such
substitute or cured assignment to be duly recorded.
Section 3.06 Acceptance by Trustee; Certain Substitutions of Mortgage
Loans; Certification by Trustee.
(a) The Trustee agrees to execute and deliver on the Startup Day an
acknowledgment of receipt of the items delivered by the Seller or the Depositor
in the form attached as Exhibit E hereto, and declares that it will hold such
documents and any amendments, replacement or
52
<PAGE>
supplements thereto, as well as any other assets included in the definition of
Trust Estate and delivered to the Trustee, as Trustee in trust upon and subject
to the conditions set forth herein for the benefit of the Owners. The Trustee
agrees, for the benefit of the Owners and the Certificate Insurer, to review
such items within 45 days after the Startup Day (or, with respect to any
document delivered after the Startup Day, within 45 days of receipt and with
respect to any Qualified Replacement Mortgage Loan, within 45 days after the
assignment thereof) and to deliver to the Depositor, the Seller, the Master
Servicer and the Certificate Insurer a certification in the form attached hereto
as Exhibit F (a "Pool Certification") to the effect that, as to each Mortgage
Loan listed in the Schedules of Mortgage Loans (other than any Mortgage Loan
paid in full or any Mortgage Loan specifically identified in such Pool
Certification as not covered by such Pool Certification), (i) all documents
required to be delivered to it pursuant to Section 3.05(b)(i) of this Agreement
are in its possession, (ii) such documents have been reviewed by it and have not
been mutilated, damaged or torn and relate to such Mortgage Loan and (iii) based
on its examination and only as to the foregoing documents, the information set
forth in (i), (ii) and (viii) of the definition of the Schedules of Mortgage
Loans, accurately reflects the information set forth in the File, subject, in
each case, to such exceptions as provided in Section 3.06(b). The Trustee shall
have no responsibility for reviewing any File except as expressly provided in
this Section 3.06(a). Without limiting the effect of the preceding sentence, in
reviewing any File, the Trustee shall have no responsibility for determining
whether any document is valid and binding, whether the text of any assignment is
in proper form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction or whether a blanket assignment is
permitted in any applicable jurisdiction, 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. The
Trustee shall be under no duty or obligation to inspect, review or examine any
such documents, instruments, certificates or other papers to determine that they
are genuine, enforceable, or appropriate for the represented purpose or that
they are other than what they purport to be on their face, nor shall the Trustee
be under any duty to determine independently whether there are any intervening
assignments or assumption or modification agreements with respect to any
Mortgage Loan.
(b) If the Trustee during such 45-day period finds any document
constituting a part of a File which is not executed, has not been received, or
is unrelated to the Mortgage Loans identified in the Schedules of Mortgage
Loans, or that any Mortgage Loan does not conform to the description thereof as
set forth in the Schedules of Mortgage Loans, the Trustee shall promptly so
notify the Depositor, the Seller, the Certificate Insurer and the Owners. In
performing any such review, the Trustee may conclusively rely on the Seller as
to the purported genuineness of any such document and any signature thereon. It
is understood that the scope of the Trustee's review of the items delivered by
the Seller pursuant to Section 3.05(b)(i) is limited solely to confirming that
the documents listed in Section 3.05(b)(i) have been executed and received,
relate to the Files identified in the Schedules of Mortgage Loans and conform to
the description thereof in the Schedules of Mortgage Loans. The Seller agrees to
use reasonable efforts to remedy a material defect in a document constituting
part of a File of which it is so notified by the Trustee. If, however, within 30
days after the Trustee's notice to it respecting
53
<PAGE>
such defect the Seller has not remedied the defect and the defect materially and
adversely affects the interest in the related Mortgage Loan of the Owners or of
the Certificate Insurer, the Seller will (or will cause an affiliate of the
Seller to) on the next succeeding Monthly Remittance Date (i) substitute in lieu
of such Mortgage Loan a Qualified Replacement Mortgage Loan and deliver the
Substitution Adjustment to the Master Servicer for deposit in the Collection
Account or (ii) purchase such Mortgage Loan at a purchase price equal to the
Loan Purchase Price thereof, which purchase price shall be delivered to the
Master Servicer for deposit in the Collection Account.
(c) In addition to the foregoing, the Trustee also agrees to make a review
during the 12th month after the Startup Day indicating the current status of the
exceptions previously indicated on the Pool Certification (the "Final
Certification"). After delivery of the Final Certification, the Trustee shall
provide to the Certificate Insurer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01 Issuance of Certificates.
On the Startup Day, upon the Trustee's receipt from the Depositor of an
executed Delivery Order in the form set forth as Exhibit G hereto, the Trustee
shall authenticate and deliver the Certificates on behalf of the Trust.
Section 4.02 Sale of Certificates.
At 11:00 a.m. New York City time on the Startup Day (the "Closing"), at the
offices of Brown & Wood LLP, One World Trade Center, New York, New York (or at
such other location acceptable to the Seller), the Seller will sell and convey
the Mortgage Loans and the money, instruments and other property related thereto
to the Depositor and the Depositor will sell and convey the Mortgage Loans and
the money, instruments and other property related thereto to the Trustee, and in
payment therefor, the Trustee will deliver (i) to the Depositor the Class A
Certificates with an aggregate Percentage Interest in each Class equal to 100%,
registered in the name of Cede & Co., or in such other names as the Underwriters
shall direct and (ii) to the respective registered owners thereof, a Class R
Certificate with a Percentage Interest equal to 99.999%, registered in the name
of the Seller, and a Class R Certificate with a Percentage Interest equal to
.001%, registered in the name of the Trustee. The Depositor will deliver to the
Underwriters the Class A Certificates against payment of the purchase price
thereof by wire transfer of immediately available funds to the Depositor.
54
<PAGE>
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01 Terms.
(a) The Certificates are pass-through securities having the rights
described therein and herein. Notwithstanding references herein or therein with
respect to the Certificates to "principal" and "interest", no debt of any Person
is represented thereby, nor are the Certificates or the underlying Notes
guaranteed by any Person (except that the Notes may be recourse to the
Mortgagors thereof to the extent permitted by law and except for the rights of
the Trustee on behalf of the Owners of the Class A Certificates with respect to
the Certificate Insurance Policies). Subject to Section 8.09, the Certificates
are payable solely from payments received on or with respect to the Mortgage
Loans, moneys in the Collection Account, earnings on moneys and the proceeds of
property held as a part of the Trust Estate and, with respect to the Class A
Certificates upon the occurrence of certain events, from Insured Payments. Each
Certificate entitles the Owner thereof to receive monthly on each Distribution
Date, in order of priority of distributions with respect to such Class of
Certificates as set forth in Section 7.03, a specified portion of such payments
with respect to the Mortgage Loans (and, with respect to the Owners of the Class
A Certificates, Insured Payments deposited in the Distribution Account), pro
rata in accordance with such Owner's Percentage Interest.
(b) Each Owner is required, and hereby agrees, to return to the Trustee any
Certificate with respect to which the Trustee has made the final distribution
due thereon. Any such Certificate as to which the Trustee has made the final
distribution thereon shall be deemed cancelled and shall no longer be
Outstanding for any purpose of this Agreement and the related Certificate
Insurance Policy, whether or not such Certificate is ever returned to the
Trustee, except to the extent of a Reimbursement Amount on such Class of
Certificates, in which case the Certificate Insurer will be subrogated to the
rights of such Owner and the Class of Certificate will not be deemed cancelled.
Section 5.02 Forms.
The Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates,
Class A-4 Certificates, Class A-5 Certificates, Class A-6 Certificates and the
Class R Certificates shall be in substantially the forms set forth in Exhibits A
and C hereof, respectively, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Agreement or as may in the Trustee's judgment be necessary, appropriate or
convenient to comply, or facilitate compliance, with applicable laws, and may
have such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
applicable securities laws or as may, consistently herewith, be determined by
the Authorized Officer of the Trustee executing such Certificates, as evidenced
by his execution thereof.
55
<PAGE>
Section 5.03 Execution, Authentication and Delivery.
Each Certificate shall be executed on behalf of the Trust, by the manual or
facsimile signature of one of the Trustee's Authorized Officers and shall be
authenticated by the manual or facsimile signature of one of the Trustee's
Authorized Officers.
Certificates bearing the manual signature of individuals who were at any
time the proper officers of the Trustee shall, upon proper authentication by the
Trustee, bind the Trust, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the execution and delivery of such
Certificates or did not hold such offices at the date of authentication of such
Certificates.
The initial Certificates shall be dated as of the Startup Day and delivered
at the Closing to the parties specified in Section 4.02 hereof. Subsequently
issued Certificates will be dated as of the issuance of the Certificate.
No Certificate shall be valid until executed and authenticated as set forth
above.
Section 5.04 Registration and Transfer of Certificates.
(a) The Trustee shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby initially appointed Registrar
for the purpose of registering Certificates and transfers of Certificates as
herein provided. The Certificate Insurer, the Owners and the Trustee shall have
the right to inspect the Register during the Trustee's normal hours and to
obtain copies thereof, and the Trustee shall have the right to rely upon a
certificate executed on behalf of the Registrar by an Authorized Officer thereof
as to the names and addresses of the Owners of the Certificates and the
principal amounts and numbers of such Certificates.
(b) Subject to the provisions of Section 5.08 hereof, upon surrender for
registration of transfer of any Certificate at the office designated as the
location of the Register, upon the direction of the Registrar the Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the aggregate
principal amount or Percentage Interest of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class owned by such
Owner may be exchanged for other Certificates authorized of like Class and tenor
and a like aggregate original principal amount or percentage interest and
bearing numbers not contemporaneously outstanding, upon surrender of the
Certificates to be exchanged at the office designated as the location of the
Register. Whenever any Certificate is so surrendered for exchange, upon the
direction of the Registrar, the Trustee shall execute, authenticate and deliver
the Certificate or Certificates which the Owner making the exchange is entitled
to receive.
56
<PAGE>
(d) All Certificates issued upon any registration of transfer or exchange
of Certificates shall be valid evidence of the same ownership interests in the
Trust and entitled to the same benefits under this Agreement as the Certificates
surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for registration of transfer
or exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed, by the Owner
thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any registration of
transfer or exchange of Certificates, but the Registrar or Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
(g) It is intended that the Class A Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. Each Class of Class A Certificates shall, except as otherwise provided
in Subsection (h), be initially issued in the form of a single fully registered
Class A Certificate of such Class. Upon initial issuance, the ownership of each
such Class A Certificate shall be registered in the Register in the name of Cede
& Co., or any successor thereto, as nominee for the Depository.
On the Startup Day, the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates, Class A-4 Certificates, Class A-5 Certificates and Class
A-6 Certificates shall be issued in denominations of no less than $25,000 and
multiples of $1,000 in excess thereof (except that one certificate in each class
may be issued in an amount less than $25,000 or in an integral multiple other
than $1,000).
The Depositor and the Trustee are hereby authorized to execute and deliver
the Representation Letter with the Depository.
With respect to the Class A Certificates registered in the Register in the
name of Cede & Co., as nominee of the Depository, the Certificate Insurer, the
Depositor, the Master Servicer, the Seller and the Trustee shall have no
responsibility or obligation to Direct or Indirect Participants or beneficial
owners for which the Depository holds Class A Certificates from time to time as
a Depository. Without limiting the immediately preceding sentence, the
Depositor, the Certificate Insurer, the Master Servicer, the Seller and the
Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of the Depository, Cede & Co., or any Direct or Indirect
Participant with respect to the ownership interest in the Class A Certificates,
(ii) the delivery to any Direct or Indirect Participant or any other Person,
other than a registered Owner of a Class A Certificate as shown in the Register,
of any notice with respect to the Class A Certificates or (iii) the payment to
any Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class A Certificate as shown in the Register, of any amount with
57
<PAGE>
respect to any distribution of principal or interest on the Class A
Certificates. No Person other than a registered Owner of a Class A Certificate
as shown in the Register shall receive a certificate evidencing such Class A
Certificate.
Upon delivery by the Depository to the Trustee of written notice to the
effect that the Depository has determined to substitute a new nominee in place
of Cede & Co., and subject to the provisions hereof with respect to the payment
of principal and interest by the mailing of checks or drafts to the registered
Owners of Class A Certificates appearing as registered Owners in the
registration books maintained by the Trustee at the close of business on a
Record Date, the name "Cede & Co." in this Agreement shall refer to such new
nominee of the Depository.
(h) In the event that (i) the Depository or the Depositor advises the
Trustee in writing that the Depository is no longer willing, qualified or able
to discharge properly its responsibilities as nominee and depository with
respect to the Class A Certificates and the Depositor or the Trustee is unable
to locate a qualified successor, (ii) the Depositor at its sole option elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, beneficial owners having not less than 51% of
the Voting Rights evidenced by the Class A Certificates advise the Trustee and
the Depository through the Direct Participants in writing that the continuation
of a book-entry system through the Depository is no longer in the best interests
of beneficial owners, the Class A Certificates shall no longer be restricted to
being registered in the Register in the name of Cede & Co. (or a successor
nominee) as nominee of the Depository. At that time, the Depositor may determine
that the Class A Certificates shall be registered in the name of and deposited
with a successor depository operating a global book-entry system, as may be
acceptable to the Depositor and at the Depositor's expense, or such depository's
agent or designee but, if the Depositor does not select such alternative global
book-entry system, then the Class A Certificates may be registered in whatever
name or names registered Owners of Class A Certificates transferring Class A
Certificates shall designate, in accordance with the provisions hereof.
(i) Notwithstanding any other provision of this Agreement to the contrary,
so long as any Class A Certificate is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Class A Certificates and all notices with respect to such Class A Certificates
shall be made and given, respectively, in the manner provided in the
Representation Letter.
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) in the case of any mutilated Certificate, such
mutilated Certificate shall first be surrendered to the Trustee, and in the case
of any destroyed, lost or stolen Certificate, there shall be first delivered to
the Trustee such security or indemnity as may be reasonably required by it to
hold the Trustee and the Certificate Insurer harmless, then, in the absence of
notice to the Trustee or the Registrar that
58
<PAGE>
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
Class, tenor and aggregate principal amount, bearing a number not
contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section, the Registrar
or Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto; any other expenses
in connection with such issuance shall be an expense of the Trust.
Every new Certificate issued pursuant to this Section in exchange for or in
lieu of any mutilated, destroyed, lost or stolen Certificate shall constitute
evidence of a substitute interest in the Trust, and shall be entitled to all the
benefits of this Agreement equally and proportionately with any and all other
Certificates of the same Class duly issued hereunder and such mutilated,
destroyed, lost or stolen Certificate shall not be valid for any purpose.
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 Certificates.
Section 5.06 Persons Deemed Owners.
The Certificate Insurer, the Trustee and any agent of the Trustee may treat
the Person in whose name any Certificate is registered as the Owner of such
Certificate for the purpose of receiving distributions with respect to such
Certificate and for all other purposes whatsoever, and none of the Certificate
Issuer, the Trustee or any agent of the Trustee shall be affected by notice to
the contrary.
Section 5.07 Cancellation.
All Certificates surrendered for registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it. No Certificate shall be
authenticated in lieu of or in exchange for any Certificate cancelled as
provided in this Section, except as expressly permitted by this Agreement. All
cancelled Certificates may be held by the Trustee in accordance with its
standard retention policy.
Section 5.08 Limitation on Transfer of Ownership Rights.
(a) No sale or other transfer of record or beneficial ownership of a Class
R Certificate (whether pursuant to a purchase, a transfer resulting from a
default under a secured lending agreement or otherwise) shall be made to a
Disqualified Organization or an agent of a Disqualified Organization. The
transfer, sale or other disposition of a Class R Certificate (whether pursuant
to a purchase, a transfer resulting from a default under a secured lending
59
<PAGE>
agreement or otherwise) to a Disqualified Organization shall be deemed to be of
no legal force or effect whatsoever and such transferee shall not be deemed to
be an Owner for any purpose hereunder, including, but not limited to, the
receipt of distributions on such Class R Certificate. Furthermore, in no event
shall the Trustee accept surrender for transfer or registration of transfer, or
register the transfer, of any Class R Certificate or authenticate and make
available any new Class R Certificate unless the Trustee has received an
affidavit from the proposed transferee in the form attached hereto as Exhibit H.
Each holder of a Class R Certificate, by his acceptance thereof, shall be deemed
for all purposes to have consented to the provisions of this Section 5.08(a).
(b) No other sale or other transfer of record or beneficial ownership of a
Class R Certificate shall be made unless such transfer is exempt from the
registration requirements of the Securities Act and any applicable state
securities laws or is made in accordance with said Act and laws. In the event
such a transfer is to be made within three years from the Startup Day, (i) the
Trustee shall require a written opinion of counsel acceptable to and in form and
substance satisfactory to the Depositor, the Registrar, the Trustee and the
Certificate Insurer in the event that such transfer may be made pursuant to an
exemption, describing the applicable exemption and the basis therefor, from said
Act and laws or is being made pursuant to said Act and laws, which opinion of
counsel shall not be an expense of the Trustee, the Trust Estate, the Registrar,
the Master Servicer, the Seller, the Depositor or the Certificate Insurer, and
(ii) the Trustee shall require the transferee to execute an investment letter
acceptable to and in form and substance satisfactory to the Depositor, the
Registrar, the Trustee and the Certificate Insurer certifying to the Trustee,
the Certificate Insurer, the Registrar and the Depositor the facts surrounding
such transfer, which investment letter shall not be an expense of the Trustee,
the Trust Estate, the Certificate Insurer, the Registrar, the Master Servicer,
the Seller or the Depositor. The Owner of a Class R Certificate desiring to
effect such transfer shall, and does hereby agree to, indemnify the Trustee, the
Certificate Insurer, the Depositor, the Servicer, the Registrar 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.
(c) No transfer of a Class R Certificate shall be made unless the Registrar
and Trustee shall have received either: (i) a representation letter from the
transferee of such Class R Certificate, acceptable to and in form and substance
satisfactory to the Registrar, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or a plan or other
arrangement subject to Section 406 of ERISA or a plan or other arrangement
subject to Section 4975 of the Code (collectively, a "Plan"), or is not acting
on behalf of any Plan and is not using the assets of any Plan to effect such
transfer or in the case of an insurance company purchasing such Certificates,
with funds from its general account, the transfer is covered by the Prohibited
Transaction Class Exemption 95-60 or (ii) in the event that any Class R
Certificate is purchased by a Plan, or by a person or entity acting on behalf of
any Plan or using the assets of any Plan to effect such transfer, an opinion of
counsel, acceptable to and in form and substance satisfactory to the Depositor,
the Trustee, the Certificate Insurer and the Registrar, which opinion of counsel
shall not be at the expense of the Trustee or the Trust, to the effect that
60
<PAGE>
the purchase or holding of any Class R Certificates will not result in the
assets of the Trust being deemed to be "plan assets," will not cause the Trust
to be subject to the fiduciary requirements and prohibited transaction
provisions of ERISA and the Code, and will not subject the Depositor, Seller,
Registrar, Master Servicer, Certificate Insurer or the Trustee to any obligation
or liability in addition to those expressly undertaken under this Agreement.
Notwithstanding anything else to the contrary herein, any purported transfer of
a Certificate to or on behalf of any Plan without the delivery to the Trustee
and the Certificate Insurer of an opinion of counsel as described above shall be
null and void and of no effect.
(d) No sale or other transfer of any Class A Certificate may be made to an
affiliate of the Seller unless the Trustee and the Certificate Insurer shall
have been furnished with an opinion of counsel, at the expense of the Seller
acceptable to the Certificate Insurer and the Trustee experienced in federal
bankruptcy matters to the effect that such sale or transfer would not adversely
affect the character of the conveyance of the Mortgage Loans to the Trust as a
sale. To the extent any payment to an Owner of a Class A Certificate constitutes
an Insured Payment, such payment will not be made to the Seller, the Depositor
or the Master Servicer or any Sub- Servicer. The Class R Certificate issued to
Trustee on the Startup Day may not be transferred or sold to any Person, except
to a Person who accepts the appointment of Tax Matters Person pursuant to
Section 11.18 hereof.
Section 5.09 Assignment of Rights.
An Owner may pledge, encumber, hypothecate or assign all or any part of its
right to receive distributions hereunder, but such pledge, encumbrance,
hypothecation or assignment shall not constitute a transfer of an ownership
interest sufficient to render the transferee an Owner of the Trust without
compliance with the provisions of Section 5.04 and Section 5.08 hereof.
61
<PAGE>
ARTICLE VI
COVENANTS
Section 6.01 Distributions.
On each Distribution Date, the Trustee will withdraw amounts from the
Distribution Account and make the distributions with respect to the Certificates
in accordance with the terms of the Certificates and this Agreement. Such
distributions shall be made (i) by check or draft mailed on each Distribution
Date or (ii) if requested by any Owner of (A) a Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, or Class A-6 Certificate having an original principal
balance of not less than $1,000,000 or (B) a Class R Certificate having a
Percentage Interest of not less than 10% in writing not later than five Business
Days prior to the applicable Record Date (which request does not have to be
repeated unless it has been withdrawn), to such Owner by wire transfer to an
account within the United States designated no later than five Business Days
prior to the related Record Date, made on each Distribution Date, in each case
to each Owner of record on the immediately preceding Record Date.
Section 6.02 Money for Distributions to Be Held in Trust; Withholding.
(a) All payments of amounts due and payable with respect to any Certificate
that are to be made from amounts withdrawn from the Distribution Account or from
Insured Payments shall be made by and on behalf of the Trustee, and no amounts
so withdrawn from the Distribution Account for payments of Certificates and no
Insured Payment shall be paid over to the Trustee except as provided in this
Section.
(b) Whenever the Trustee has appointed one or more Paying Agents pursuant
to Section 11.15 hereof, the Trustee will, on the Business Day immediately
preceding each Distribution Date, cause to be deposited with such Paying Agents
in immediately available funds an aggregate sum sufficient to pay the amounts
then becoming due (to the extent funds are then available for such purpose in
the Distribution Account for the Class to which such amounts are due) such sum
to be held in trust for the benefit of the Owners entitled thereto.
(c) The Trustee may at any time 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 payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
(d) Each Paying Agent, including the Trustee on behalf of the Trust, shall
comply with all requirements of the Code and applicable state and local law with
respect to the withholding from any distributions made by it to any Owner of any
applicable withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
62
<PAGE>
(e) Any money held by the Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Class A Certificate and remaining
unclaimed by the Owner of such Class A Certificate for the period then specified
in the escheat laws of the State of New York after such amount has become due
and payable shall be discharged from such trust and be paid to the Owners of the
Class R Certificates; and the Owner of such Class A Certificate shall
thereafter, as an unsecured general creditor, look only to the Owners of the
Class R Certificates for payment thereof (but only to the extent of the amounts
so paid to the Owners of the Class R Certificates) 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 payment, may, at the expense of the Trust, cause to be
published once, in the eastern edition of The Wall Street Journal, notice that
such money remains unclaimed and that, after a date specified therein, which
shall be not fewer than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be paid to the Owners of the Class R
Certificates. The Trustee shall, at the direction of the Owners of a majority of
the Percentage Interest in the Class R Certificates also adopt and employ, at
the expense of the Trust, any other reasonable means of notification of such
payment (including but not limited to mailing notice of such payment to Owners
whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Registrar, the Trustee or any Paying Agent,
at the last address of record for each such Owner).
Section 6.03 Protection of Trust Estate.
(a) The Trustee will hold the Trust Estate in trust for the benefit of the
Owners and the Certificate Insurer and, upon request of the Certificate Insurer
or, with the consent of the Certificate Insurer, at the request of the
Depositor, will from time to time execute and deliver all such supplements and
amendments hereto pursuant to Section 11.14 hereof and all instruments of
further assurance and other instruments, and will take such other action upon
such request from the Depositor or the Certificate Insurer, to:
(i) more effectively hold in trust all or any portion of the Trust Estate;
(ii) perfect, publish notice of, or protect the validity of any grant made
or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the rights of the
Trustee, and the ownership interests of the Owners and the Certificate
Insurer represented thereby, in such Trust Estate against the claims of all
Persons and parties.
The Trustee shall send copies of any request received from the Certificate
Insurer or the Depositor to take any action pursuant to this Section 6.03 to the
other parties hereto.
63
<PAGE>
(b) The Trustee shall have the power to enforce, and shall enforce, the
obligations and rights of the other parties to this Agreement, and of the
Certificate Insurer or the Owners, by action, suit or proceeding at law or in
equity, and shall also have the power to enjoin, by action or suit in equity,
any acts or occurrences which may be unlawful or in violation of the rights of
the Certificate Insurer as such rights are set forth in this Agreement;
provided, however, that nothing in this Section shall require any action by the
Trustee unless the Trustee shall first (i) have been furnished indemnity
satisfactory to it and (ii) when required by this Agreement, have been requested
by the Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates; provided, further, however, that if
there is a dispute with respect to payments under the Certificate Insurance
Policies, the Trustee's sole responsibility is to the Owners.
(c) The Trustee shall execute any instrument required pursuant to this
Section so long as such instrument does not conflict with this Agreement or with
the Trustee's fiduciary duties hereunder, or adversely affect its rights and
immunities hereunder.
Section 6.04 Performance of Obligations.
The Trustee will not take any action that would release any Person from any
of such Person's covenants or obligations under any instrument or document
relating to the Certificates or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or document, except as
expressly provided in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in performing its
duties hereunder pursuant to Section 10.03(g).
Section 6.05 Negative Covenants.
The Trustee will not permit the Trust to:
(i) sell, transfer, exchange or otherwise dispose of any of the Trust
Estate except as expressly permitted by this Agreement;
(ii) claim any credit on, or make any deduction from the distributions
payable in respect of, the Certificates (other than amounts properly
withheld from such payments under the Code) or assert any claim against any
present or former Owner by reason of the payment of any taxes levied or
assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty any indebtedness of any Person except
pursuant to this Agreement;
64
<PAGE>
(iv) dissolve or liquidate in whole or in part, except pursuant to Article
IX hereof; or
(v) (A) permit the validity or effectiveness of this Agreement to be
impaired, or permit any Person to be released from any covenants or
obligations with respect to the Trust or to the Certificates under this
Agreement, except as may be expressly permitted hereby or (B) permit any
lien, charge, adverse claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or burden
the Trust Estate or any part thereof or any interest therein or the
proceeds thereof.
Section 6.06 No Other Powers.
The Trustee will not permit the Trust to engage in any business activity or
transaction other than those activities permitted by Section 2.03 hereof.
Section 6.07 Limitation of Suits.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement or the Certificate Insurance Policies,
or for the appointment of a receiver or trustee of the Trust, or for any other
remedy with respect to an event of default hereunder, unless:
(1) such Owner has previously given written notice to the Depositor, the
Certificate Insurer and the Trustee of such Owner's intention to
institute such proceeding;
(2) the Owners of not less than 25% of the Percentage Interests represented
by the Class A Certificates then Outstanding or, if there are no Class
A Certificates then Outstanding, by such percentage of the Percentage
Interests represented by the Class R Certificates, shall have made
written request to the Trustee to institute such Proceeding in its own
name as Trustee establishing the Trust;
(3) such Owner or Owners have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute such proceeding;
(5) as long as any Class A Certificates are Outstanding, the Certificate
Insurer consented in writing thereto (unless the Certificate Insurer is
the party against whom the proceeding is directed); and
(6) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Owners of a majority of
the Percentage
65
<PAGE>
Interests represented by the Class A Certificates or, if there are no
Class A Certificates then Outstanding, by such majority of the
Percentage Interests represented by the Class R Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or inconsistent requests
and indemnity from two or more groups of Owners, each representing less than a
majority of the applicable Class of Certificates and each conforming to clauses
(1)-(6) of this Section 6.07, the Certificate Insurer in its sole discretion may
determine what action, if any, shall be taken, notwithstanding any other
provision of this Agreement (unless the Certificate Insurer is the party against
whom the proceeding is directed).
Section 6.08 Unconditional Rights of Owners to Receive Distributions.
Notwithstanding any other provision in this Agreement, the Owner of any
Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or, subject to Section 6.07, to institute suit for the
enforcement of any such distribution, and such right shall not be impaired
without the consent of such Owner.
Section 6.09 Rights and Remedies Cumulative.
Except as otherwise provided herein, no right or remedy herein conferred
upon or reserved to the Trustee, the Certificate Insurer or the Owners 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. Except as otherwise provided herein, 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 6.10 Delay or Omission Not Waiver.
No delay of the Trustee, the Certificate Insurer or any Owner of any
Certificate to exercise any right or remedy under this Agreement with respect to
any event described in Section 8.20(a) or (b) shall impair any such right or
remedy or constitute a waiver of any such event or an acquiescence therein.
Every right and remedy given by this Article VI or by law to the Trustee, the
Certificate Insurer or the Owners may be exercised from time to time, and as
often
66
<PAGE>
as may be deemed expedient, by the Trustee, the Certificate Insurer or the
Owners, as the case may be.
Section 6.11 Control by Owners.
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates then Outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate,
including, but not limited to, those powers set forth in Section 6.03 and
Section 8.20 hereof, provided that:
(i) such direction shall not be in conflict with any rule of law or with
this Agreement;
(ii) the Trustee shall have been provided with indemnity satisfactory to
it; and
(iii) the Trustee may take any other action deemed proper by the Trustee,
as the case may be, which is not inconsistent with such direction;
provided, however, that the Trustee need not take any action which it
determines might involve it in liability or may be unjustly prejudicial
to the Owners not so directing.
Section 6.12 Indemnification.
The Depositor agrees to indemnify and hold the Trustee, the Certificate
Insurer and each Owner harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments, and any other
costs, fees and expenses that the Trustee, the Certificate Insurer and any Owner
may sustain in any way related to the negligent or willful failure of the
Depositor to perform its duties in compliance with the terms of this Agreement.
The Depositor shall immediately notify the Trustee, the Certificate Insurer and
each Owner if such a claim is made by a third party with respect to this
Agreement, and the Depositor shall assume (with the consent of the Trustee) the
defense of any such claim and pay all expenses in connection therewith,
including reasonable counsel fees, and promptly pay, discharge and satisfy any
judgment or decree which may be entered against the Master Servicer, the Seller,
the Trustee, the Certificate Insurer and/or any Owner in respect of such claim.
The Trustee shall reimburse the Depositor from amounts distributable pursuant to
Section 7.03(c)(iii)(G) for all amounts advanced by it pursuant to the preceding
sentence, except when the claim relates directly to the failure of the Depositor
to perform its duties in compliance with the terms of this Agreement based upon
an opinion of counsel (at the expense of the Depositor) delivered to the Trustee
and the Certificate Insurer. In addition to the foregoing, the Seller agrees to
indemnify and hold the Trustee, the Certificate Insurer and each Owner harmless
against any and all claims, losses, penalties, fines, forfeitures, legal fees
and related costs, judgments, and other costs, fees and
67
<PAGE>
expenses that the Trustee, the Certificate Insurer and any Owner may sustain in
any way related to the breach by the Seller of its representations and
warranties set forth in Section 3.04(a) hereof with respect to a Mortgage Loan
if such Mortgage Loan qualifies as a "high cost mortgage" pursuant to Section
226.32 of the Truth in Lending Act, as amended. The provisions of this Section
6.12 shall survive the termination of this Agreement and the resignation or
removal of the Trustee hereunder and the payment of the outstanding
Certificates.
Section 6.13 Access to Owners' Names and Addresses. (a) Upon written
request of the Master Servicer, the Trustee will provide to the Master Servicer,
within 15 days after receipt of such request, a list of the names and addresses
of all Owners of record as of the most recent Record Date. Upon written request
by three or more Owners of the Class A Certificates who in aggregate hold
Certificates that evidence not less than 25% of the aggregate Class A
Certificate Principal Balance and such request is accompanied by a copy of the
communication that such Owners propose to transmit, the Trustee or the
Certificate Registrar will provide such Owners with a list of the names and
addresses of all Owners of record as of the most recent Record Date.
(b) Every Owner, by receiving and holding such list, agrees with the
Trustee that the Trustee shall not be held accountable in any way by reason of
the disclosure of any information as to the names and addresses of the Owners
hereunder, regardless of the source from which such information was derived.
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01 Collection of Money.
Except as otherwise expressly provided herein, the Trustee shall demand
payment or delivery of all money and other property payable to or receivable by
the Trustee pursuant to this Agreement or the Certificate Insurance Policies,
including (a) all payments due on the Mortgage Loans in accordance with the
respective terms and conditions of such Mortgage Loans and required to be paid
over to the Trustee by the Master Servicer or by any Sub-Servicer and (b)
Insured Payments. The Trustee shall hold all such money and property received by
it, other than pursuant to or as contemplated by Section 6.02(e) hereof, as part
of the Trust Estate and shall apply it as provided in this Agreement.
Section 7.02 Establishment of Accounts;
(a) The Depositor shall cause to be established on the Startup Day, and the
Trustee shall maintain the Distribution Account, which is to be held as an
Eligible Account by the Trustee on behalf of the Owners, the Trustee and the
Certificate Insurer, as their interests may appear.
68
<PAGE>
(b) [Reserved.]
(c) On the Monthly Remittance Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
by the Master Servicer), with respect to the related Distribution Date, the
amount that is to be on deposit in the Distribution Account as of such
Distribution Date for the Fixed Rate Group (disregarding the amount of any
Insured Payments as well as any amounts that cannot be distributed to the Owners
of the Class A Certificates, if any, by the Trustee as a result of a proceeding
under the United States Bankruptcy Code), which amount will be equal to the sum
of (x) the amount on deposit therein with respect to the Fixed Rate Group
excluding the amount of any Total Monthly Excess Cashflow from the Fixed Rate
Group included in such amount plus (y) any amount of Total Monthly Excess
Cashflow from either Loan Group to be applied on such Distribution Date to the
Fixed Rate Certificates. The amount described in clause (x) of the preceding
sentence with respect to each Distribution Date is the "Fixed Rate Group
Available Funds"; the sum of the amounts described in clauses (x) and (y) of the
preceding sentence with respect to each Distribution Date is the "Fixed Rate
Group Total Available Funds."
(d) On the Monthly Remittance Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
by the Master Servicer), with respect to the related Distribution Date, the
amount that is to be on deposit in the Distribution Account as of such
Distribution Date for the Adjustable Rate Group (disregarding the amount of any
Insured Payments as well as any amounts that cannot be distributed to the Owners
of the Class A Certificates, if any, by the Trustee as a result of a proceeding
under the United States Bankruptcy Code), which amount will be equal to the sum
of (x) the amount on deposit therein with respect to the Adjustable Rate Group
excluding the amount of any Total Monthly Excess Cashflow from the Adjustable
Rate Group included in such amount plus (y) any amount of Total Monthly Excess
Cashflow from either Loan Group to be applied on such Distribution Date to the
Class A-6 Certificates. The amount described in clause (x) of the preceding
sentence with respect to each Distribution Date is the "Adjustable Rate Group
Available Funds"; the sum of the amounts described in clauses (x) and (y) of the
preceding sentence with respect to each Distribution Date is the "Adjustable
Rate Group Total Available Funds." Collectively, the Fixed Rate Group Total
Available Funds and the Adjustable Rate Group Total Available Funds are the
"Total Available Funds."
Section 7.03 Flow of Funds.
(a) With respect to the Fixed Rate Group, the Trustee shall deposit into
the Distribution Account, without duplication, upon receipt, any Insured
Payments relating to such Group, the proceeds of any liquidation of the assets
of the Trust insofar as such assets relate to the Fixed Rate Group, all
remittances made to the Trustee pursuant to Section 8.08(d)(ii) insofar as such
assets relate to the Fixed Rate Group, and the Fixed Rate Group Monthly
Remittance Amount, to the extent remitted by the Master Servicer.
69
<PAGE>
(b) With respect to the Adjustable Rate Group, the Trustee shall deposit to
the Distribution Account, without duplication, upon receipt, any Insured
Payments relating to such Group, the proceeds of any liquidation of the assets
of the Trust insofar as such assets relate to the Adjustable Rate Group, all
remittances made to the Trustee pursuant to Section 8.08(d)(ii) insofar as such
assets relate to the Adjustable Rate Group and the Adjustable Rate Group Monthly
Remittance Amount, to the extent remitted by the Master Servicer.
(c) With respect to the Distribution Account, on each Distribution Date,
the Trustee shall make the following allocations, disbursements and transfers
for each Mortgage Loan Group from amounts deposited therein pursuant to
subsections (a) and (b), respectively, in the following order of priority, and
each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) first, on each Distribution Date, the Trustee shall allocate an amount
equal to the sum of (x) the Total Monthly Excess Spread with respect to such
Mortgage Loan Group and Distribution Date plus (y) any Subordination Reduction
Amount with respect to such Mortgage Loan Group and Distribution Date (such sum
being the "Total Monthly Excess Cashflow" with respect to such Mortgage Loan
Group and Distribution Date) with respect to such Mortgage Loan Group in the
following order of priority:
(A) first, such Total Monthly Excess Cashflow with respect to each
Mortgage Loan Group shall be allocated to the payment of the
related Class A Distribution Amount pursuant to clauses (iii)(C)
or (iii)(D), as applicable, below on such Distribution Date with
respect to the related Mortgage Loan Group in an amount equal to
the amount, if any, by which (x) the related Class A Distribution
Amount (calculated for this purpose only by reference to clause
(b) of the definition of the Fixed Rate Group Principal
Distribution Amount or Adjustable Rate Group Principal
Distribution Amount, as the case may be, and without any
Subordination Increase Amount with respect to the related
Mortgage Loan Group) for such Distribution Date exceeds (y) the
Available Funds with respect to such Mortgage Loan Group for such
Distribution Date (the amount of such difference being the "Fixed
Rate Group Available Funds Shortfall" with respect to the Fixed
Rate Group, and the "Adjustable Rate Group Available Funds
Shortfall" with respect to the Adjustable Rate Group);
(B) second, any portion of the Total Monthly Excess Cashflow with
respect to such Mortgage Loan Group remaining after the
allocation described in clause (A) above shall be allocated
against any Available Funds Shortfall with respect to the other
Mortgage Loan Group;
(C) third, any portion of the Total Monthly Excess Cashflow with
respect to such Mortgage Loan Group remaining after the
allocations described in
70
<PAGE>
clauses (A) and (B) above shall be disbursed to the Certificate
Insurer in respect of amounts owed on account of any
Reimbursement Amount with respect to the related Mortgage Loan
Group; and
(D) fourth, any portion of the Total Monthly Excess Cashflow with
respect to such Mortgage Loan Group remaining after the
allocations described in clauses (A), (B) and (C) above shall be
disbursed to the Certificate Insurer in respect of any
Reimbursement Amount with respect to the other Mortgage Loan
Group;
(ii)second, on each Distribution Date, the Trustee shall apply the amount,
if any, of the Total Monthly Excess Cashflow with respect to a Mortgage
Loan Group on a Distribution Date remaining after the allocations
described in clause (i) above (the "Net Monthly Excess Cashflow") for
such Mortgage Loan Group and Distribution Date in the following order
of priority:
(A) first, such Net Monthly Excess Cashflow shall be used to reduce
to zero, through the allocation of a Subordination Increase
Amount to the payment of the related Class A Distribution Amount
pursuant to clause (iii)(D) below, any Subordination Deficiency
Amount with respect to the related Mortgage Loan Group as of such
Distribution Date;
(B) second, any Net Monthly Excess Cashflow remaining after the
application described in clause (A) above shall be used to reduce
to zero, through the allocation of a Subordination Increase
Amount to the payment of the related Class A Distribution Amount
pursuant to clause (iii)(D) below, the Subordination Deficiency
Amount, if any, with respect to the other Mortgage Loan Group;
and
(C) third, any Net Monthly Excess Cashflow remaining after the
applications described in clauses (A) and (B) above shall be paid
to the Master Servicer to the extent of any unreimbursed
Delinquency Advances and unreimbursed Servicing Advances;
(iii) third, following the making by the Trustee of all allocations,
transfers and disbursements described above under this subsection (c),
from amounts (including any related Insured Payment, the proceeds of
which will be applied solely to the payment of the amount specified in
clauses (C) and (D) below) then on deposit in the Distribution Account
with respect to the related Mortgage Loan Group, the Trustee shall
distribute:
(A) to the Certificate Insurer, on each Distribution Date for the
related Mortgage Loan Group, beginning with the Distribution Date
which occurs
71
<PAGE>
in April 1998, the prorated Insurance Premium Amount determined
by the relative Certificate Principal Balance of the related
Classes of Class A Certificates for such Distribution Date;
(B) to the Trustee, the Trustee Fees with respect to such Mortgage
Loan Group then due;
(C) to the Owners of the Class A Certificates of the related Mortgage
Loan Group, the Fixed Rate Group Current Interest or Class A-6
Current Interest, as applicable, on a pro rata basis without any
priority among such Class A Certificates, until the applicable
Class A Certificate Termination Date;
(D) to the Owners of the related Class of Class A Certificates, (I)
the Fixed Rate Group Principal Distribution Amount shall be
distributed as follows: (a) first, to Owners of Class A-5
Certificates, in an amount equal to the Class A-5 Lockout
Distribution Amount, until the Class A-5 Termination Date, (b)
second, to the Owners of the Class A-1 Certificates until the
Class A-1 Certificate Termination Date, (c) third, to the Owners
of the Class A-2 Certificates until the Class A-2 Certificate
Termination Date, and (d) fourth, to the Owners of the Class A-3
Certificates until the Class A-3 Certificate Termination Date,
(e) fifth, to the Owners of the Class A-4 Certificates until the
Class A-4 Termination Date and (f) sixth, to the Owners of the
Class A-5 Certificates until the Class A-5 Termination Date and
(II) the Adjustable Rate Group Principal Distribution Amount
shall be distributed to the Owners of the Class A-6 Certificates
until the Class A-6 Certificate Termination Date;
(E) to the Owners of the Class A-6 Certificates, the Basis Risk
Carryover Amount outstanding on such Distribution Date;
(F) to the Owners of the related Class of Class A Certificates, any
Net Prepayment Interest Shortfalls or the interest portion of
reductions due to the Relief Act incurred by such Class of
Certificates which remain outstanding on such Distribution Date,
on a pro rata basis among such Classes of Certificates;
(G) to the Depositor and the Master Servicer to the extent of costs,
expenses and liabilities incurred pursuant to Sections 6.12 and
8.05, respectively;
(H) to the Owners of the Class R Certificates, any amounts remaining
in the Distribution Account.
72
<PAGE>
(d) Notwithstanding Section 7.03(c) above, on any Distribution Date during
the continuance of any Certificate Insurer Default:
(i) Any amounts otherwise payable to the Certificate Insurer as
Insurance Premium Amounts or Reimbursement Amounts shall be
retained in the Distribution Account as Total Available Funds; and
(ii) If there is a Subordination Deficit for the Fixed Rate Group, then
the Fixed Rate Group Principal Distribution Amount for such
Distribution Date shall be distributed pro rata to the Owners of
any Outstanding Fixed Rate Certificates on such Distribution Date.
(e) Notwithstanding clause (c)(iii) above, the aggregate amounts
distributed on all Distribution Dates to the Owners of the Class A Certificates
on account of principal pursuant to clause (c)(iii)(D) shall not exceed the
original Certificate Principal Balance of the related Certificates.
(f) Upon receipt of Insured Payments from the Certificate Insurer on behalf
of the Owners of the Class A Certificates, the Trustee shall deposit such
Insured Payments in the Distribution Account and shall distribute such Insured
Payments, or the proceeds thereof, (i) in the case of the Fixed Rate
Certificates, through the Distribution Account to the Owners of such
Certificates and (ii) in the case of the Class A-6 Certificates, through the
Distribution Account to the Owners of such Certificates.
(g) Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on any of the Class A Certificates which is
made with moneys received pursuant to the terms of a Certificate Insurance
Policy shall not be considered payment of such 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 such Certificates within the meaning of Section
7.03. The Depositor, the Master Servicer and the Trustee acknowledge, and each
Owner by its acceptance of a Certificate agrees, that without the need for any
further action on the part of the Certificate Insurer, the Depositor, the Master
Servicer, the Trustee or the Registrar (a) to the extent the Certificate Insurer
makes payments, directly or indirectly, on account of principal of or interest
on any Class A Certificates to the Owners of such Certificates, the Certificate
Insurer will be fully subrogated to the rights of such Owners and (b) the
Certificate Insurer shall be paid such principal and interest only from the
sources and in the manner provided herein for the payment of such principal and
interest. In the event that the Owners of the Class A Certificates shall have
received the full amount of the Class A Distribution Amount for such
Distribution Date, the Certificate Insurer shall be entitled to receive the
related Reimbursement Amount pursuant to Section 7.03(c)(i) hereof. The Trustee
or Paying Agent shall (i) receive as attorney-in-fact of each Owner of Class A
Certificates any Insured Payment from the Certificate Insurer and (ii) disburse
the same to the Owners of the related Class A Certificates as set forth in
Section 7.03(c)(iii).
73
<PAGE>
It is understood and agreed that the intention of the parties is that the
Certificate Insurer shall not be entitled to receive all or any portion of
Reimbursement Amounts unless on such Distribution Date the Owners of the Class A
Certificates shall also have received the full amount of the Class A
Distribution Amount for such Distribution Date.
The rights of the Owners to receive distributions from the proceeds of the
Trust Estate, and all ownership interests of the Owners in such distributions,
shall be as set forth in this Agreement. In this regard, all rights of the
Owners of the Class R Certificates to receive distributions in respect of the
Class R Certificates, and all ownership interests of the Owners of the Class R
Certificates in and to such distributions, shall be subject and subordinate to
the preferential rights of the holders of the Class A Certificates to receive
distributions thereon and the ownership interests of such Owners in such
distributions, as described herein. In accordance with the foregoing, the
ownership interests of the Owners of the Class R Certificates in amounts
deposited in the Accounts from time to time shall not vest unless and until such
amounts are distributed in respect of the Class R Certificates in accordance
with the terms of this Agreement. Notwithstanding anything contained in this
Agreement to the contrary, the Owners of the Class R Certificates shall not be
required to refund any amount properly distributed on the Class R Certificates
pursuant to this Section 7.03.
Section 7.04 [Reserved.]
Section 7.05 Investment of Accounts.
(a) Consistent with any requirements of the Code, all or a portion of the
Distribution Account held by the Trustee for the benefit of the Owners shall be
invested and reinvested by the Trustee in the name of the Trustee for the
benefit of the Owners and the Certificate Insurer, as directed in writing by the
Master Servicer, in one or more Permitted Investments bearing interest or sold
at a discount. If the Master Servicer shall have failed to give investment
directions to the Trustee then the Trustee shall invest in money market funds
described in Section 7.07(h) to be redeemable without penalty no later than the
Business Day immediately preceding the next Distribution Date. The bank serving
as Trustee or any affiliate thereof may be the obligor on any investment which
otherwise qualifies as an Permitted Investment. No investment in any Account
shall mature later than the Business Day immediately preceding the next
Distribution Date.
(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. No investments will be
liquidated prior to maturity unless the proceeds thereof are needed for
disbursement.
(c) Subject to Section 10.01 hereof, the Trustee shall not in any way be
held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any loss on any
74
<PAGE>
Permitted Investment included therein (except to the extent that the bank
serving as Trustee is the obligor thereon).
(d) All income or other gain from investments in any Account held by the
Trustee shall be deposited in such Account immediately on receipt, and any loss
resulting from such investments shall be charged to such Account, as
appropriate, subject to the provisions of Section 7.05(e) and Section 8.08(b)
requiring that the Master Servicer contribute funds in an amount equal to such
loss on the Collection Account or the Distribution Account, as applicable, and
permitting the Master Servicer to retain or receive all income or gain with
respect to investments of funds on the Collection Account or the Distribution
Account, as applicable.
(e) Any investment earnings on funds held in the Distribution Account shall
be for the account of the Master Servicer and may only be disbursed by the
Trustee from the Distribution Account to the Master Servicer following maturity
of the related investments. Prior to each Distribution Date, the Master Servicer
shall deposit into the Distribution Account the net amount of any investment
losses on such funds during the period from and after the related Monthly
Remittance Date to but not including such Distribution Date. Any references
herein to amounts on deposit in the Distribution Account shall refer to amounts
net of such investment earnings.
Section 7.06 Payment of Trust Expenses.
(a) The Trustee shall make demand on the Master Servicer to pay the amount
of the reasonable expenses of the Trust (other than payments of premiums to the
Certificate Insurer) (including Trustee's fees and expenses not covered by
Section 7.03(c)(iii)(B)) and the Master Servicer shall promptly pay such
reasonable expenses directly to the Persons to whom such amounts are due.
(b) The Master Servicer shall pay directly the reasonable fees and expenses
of counsel to the Trustee.
Section 7.07 Permitted Investments.
The following are Permitted Investments:
(a) direct general obligations of, or obligations fully and unconditionally
guaranteed as to the timely payment of principal and interest by, the United
States or any agency or instrumentality thereof, provided such obligations are
backed by the full faith and credit of the United States, Federal Housing
Administration debentures, FHLMC senior debt obligations and FNMA senior debt
obligations, but excluding any of such securities whose terms do not provide for
payment of a fixed dollar amount upon maturity or call for redemption;
(b) Consolidated senior debt obligations of any Federal Home Loan Banks;
75
<PAGE>
(c) Federal funds, certificates of deposit, time deposits, and bankers'
acceptances (having original maturities of not more than 365 days) of any
domestic bank, the short-term debt obligations of which have been rated A-1 or
better by Standard & Poor's and P-1 or better by Moody's;
(d) Deposits of any bank or savings and loan association (the long-term
deposit rating of which is Baa3 or better by Moody's and BBB or better by
Standard & Poor's) which has combined capital, surplus and undivided profits of
at least $50,000,000 and which deposits are insured by the FDIC and held up to
the limits insured by the FDIC;
(e) Investment agreements approved by the Certificate Insurer provided:
1. The agreement is with a bank or insurance company which has an
unsecured, uninsured and unguaranteed senior debt obligation rated Aa2 or
better by Moody's and AA or better by Standard & Poor's, or is the lead
bank of a parent bank holding company with an uninsured, unsecured and
unguaranteed senior debt obligation meeting such rating requirements, and
2. Moneys invested thereunder may be withdrawn without any penalty,
premium or charge upon not more than one day's notice (provided such notice
may be amended or canceled at any time prior to the withdrawal date), and
3. The agreement is not subordinated to any other obligations of such
insurance company or bank, and
4. The same guaranteed interest rate will be paid on any future
deposits made pursuant to such agreement, and
5. The Trustee receives an opinion of counsel that such agreement is an
enforceable obligation of such insurance company or bank;
(f) Repurchase agreements collateralized by securities described in (a)
above with any registered broker/dealer subject to the Securities Investors
Protection Corporation's jurisdiction and subject to applicable limits therein
promulgated by Securities Investors Protection Corporation or any commercial
bank, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed
short-term or long-term obligation rated P-1 or Aa2, respectively, or better by
Moody's and A-1+ or AA, respectively, or better by Standard & Poor's, provided:
1. A master repurchase agreement or specific
written repurchase agreement governs the transaction,
and
2. The securities are held free and clear of any lien by the Trustee or
an independent third party acting solely as agent for the Trustee, and such
third party is (a)
76
<PAGE>
a Federal Reserve Bank, (b) a bank which is a member of the FDIC and which
has combined capital, surplus and undivided profits of not less than $125
million, or (c) a bank approved in writing for such purpose by the
Certificate Insurer, and the Trustee shall have received written
confirmation from such third party that it holds such securities, free and
clear of any lien, as agent for the Trustee, and
3. A perfected first security interest under the Uniform Commercial
Code, or book entry procedures prescribed at 31 CFR 306.1 et seq. or 31 CFR
350.0 et seq., in such securities is created for the benefit of the
Trustee, and
4. The repurchase agreement has a term of thirty days or less and such
broker/dealer or bank will value the collateral securities, and notify the
Trustee of such valuation, no less frequently than weekly and will
liquidate the collateral securities if any deficiency in the required
collateral percentage is not restored within two business days of such
valuation, and
5. The fair market value of the collateral securities (as determined by
such broker/dealer or bank, with notice thereof to the Trustee) in relation
to the amount of the repurchase obligation, including principal and
interest, is equal to at least 106%;
(g) Commercial paper (having original maturities of not more than 270 days)
rated in the highest short-term rating categories of Standard & Poor's and
Moody's; and
(h) Investments in no load money market funds rated AAAm or AAAm-G by
Standard & Poor's and Aaa by Moody's;
provided that no instrument described above shall be a Permitted Investment if
(a) such instrument evidences the right to receive 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 provide a yield to
maturity greater than 120% of the yield to maturity at par of the underlying
obligations; and provided, further, that all Permitted Investments in the
Collection Account shall mature at par no later than one Business Day prior to
the next succeeding Monthly Remittance Date and all Permitted Investments in the
Distribution Account shall mature at par no later than one Business Day prior to
the next succeeding Distribution Date unless otherwise provided in this
Agreement and 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 stated maturity.
Section 7.08 Accounting and Directions by Trustee.
On the second Business Day prior to each Distribution Date occurring on or
prior to the latest to occur of the Class A-1 Certificate Termination Date,
Class A-2 Certificate Termination
77
<PAGE>
Date, Class A-3 Certificate Termination Date, Class A-4 Certificate Termination
Date, Class A-5 Certificate Termination Date and the Class A-6 Certificate
Termination Date, the Trustee shall determine, no later than 12:00 noon New York
time on such date, whether an Insured Payment will be required to be made by the
Certificate Insurer on the following Distribution Date. If the Trustee
determines that an Insured Payment will be required to be made by the
Certificate Insurer on the following Distribution Date, then no later than 12:00
noon on the second Business Day immediately preceding the related Distribution
Date the Trustee shall furnish the Certificate Insurer and the Depositor with a
completed Notice in the form set forth as Exhibit A to the applicable
Certificate Insurance Policy. The Notice shall specify the amount of Insured
Payment and shall constitute a claim for an Insured Payment pursuant to such
Certificate Insurance Policy.
Section 7.09 Reports by Trustee to Owners and Certificate Insurer.
(a) On each Distribution Date the Trustee shall report in writing to the
Depositor, each Owner, the Certificate Insurer, the Underwriters, Standard &
Poor's and Moody's:
(i) the amount of the related distribution to Owners of each Class of
Certificates allocable to principal, separately identifying by Mortgage
Loan Group the amount of any Prepayments included therein, any principal
portion of any Carry Forward Amount included in such distribution and any
remaining principal portion of any Carry Forward Amount after giving effect
to such distribution;
(ii) the amount of such distribution to Owners of each Class of
Certificates allocable to interest, any Compensating Interest, any interest
portion of any Carry Forward Amount included in such distribution, any
remaining interest portion of any Carry Forward Amount after giving effect
to such distribution, any amount paid on account of any outstanding Basis
Risk Carryover Amount and any remaining Basis Risk Carryover Amount after
giving effect to such distribution;
(iii) the Certificate Principal Balance of each Class of Class A
Certificates after giving effect to the distribution of principal on such
Distribution Date;
(iv) the aggregate Loan Balance of the Mortgage Loans in each Mortgage
Loan Group for the following Distribution Date;
(v) the related amount of the Servicing Fees, Insurance Premium Amount
and Trustee Fee paid to or retained by the Master Servicer or paid to the
Certificate Insurer or the Trustee;
(vi) the Pass-Through Rate for each Class of Class A Certificates with
respect to the current Accrual Period;
78
<PAGE>
(vii) the amount of Delinquency Advances and Servicing Advances, stated
separately, included in the distribution on such Distribution Date and the
aggregate amount of Delinquency Advances and Servicing Advances, stated
separately, outstanding as of the close of business of such Distribution
Date;
(viii) the number and aggregate Loan Balance of Mortgage Loans by Mortgage
Loan Group (A) delinquent (exclusive of Mortgage Loans in foreclosure) (1)
1 to 30 days, (2) 31 to 59 days, (3) 60 to 89 days and (4) 90 or more days
and (B) in foreclosure and delinquent (1) 1 to 30 days, (2) 31 to 59 days,
(3) 60 to 89 days and (4) 90 or more days, as of the close of business on
the last day of the related Due Period and, with respect to the Actuarial
Loans, not collected by the related Determination Date;
(ix) with respect to any Mortgaged Property that became an REO Property
during the related Due Period, the loan number and principal balance of the
related Mortgage Loan as of the last day of the related Due Period
preceding such Distribution Date (taking into account, with respect to
Actuarial Loans, amounts due on or before the last day of the related Due
Period and in the Collection Account as of the related Determination Date);
(x) the total number and principal balance of any REO Properties as of
the last day of the related Due Period preceding such Distribution Date
(taking into account Net Liquidation Proceeds and, with respect to the
Actuarial Loans, amounts due on or before the last day of the related Due
Period and in the Collection Account as of the related Determination Date);
(xi) the amount of any Insured Payment included in the amounts distributed
to the holders of each Class of the Class A Certificates on such
Distribution Date;
(xii) the aggregate Loan Balance of all Mortgage Loans and the aggregate
Loan Balance of the Mortgage Loans in each Mortgage Loan Group after giving
effect to any payment of principal on such Distribution Date;
(xiii) the Subordinated Amount and Subordination Deficit for each Mortgage
Loan Group, if any, remaining after giving effect to all distributions and
transfers on such Distribution Date and the Specified Subordinated Amount
for each Mortgage Loan
Group;
(xiv) the total of any Substitution Adjustments or Loan Purchase Price
amounts included in such distribution with respect to each Mortgage Loan
Group;
(xv) the weighted average Mortgage Rate and the weighted average remaining
term to maturity of the Mortgage Loans with respect to each Mortgage Loan
Group;
79
<PAGE>
(xvi) the largest Loan Balance outstanding with respect to each Mortgage
Loan Group;
(xvii) the Adjustable Rate Group Available Funds, the Adjustable Rate Group
Total Available Funds, the Fixed Rate Group Available Funds and the Fixed
Rate Group Total Available Funds; and
(xviii) such other information as the Certificate Insurer may reasonably
request with respect to delinquent Mortgage Loans.
In addition, an Owner may, by facsimile to the Trustee at (714) 224-1579,
request on a quarterly basis such information as may be required by Section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to assist
the holders of the Class A Certificates in computing their market discount.
The Master Servicer shall provide to the Trustee the information described
in Section 8.08(d)(ii) and in clause (b) below no later than 12:00 noon, New
York time, on the second Business Day following the Determination Date to enable
the Trustee to perform its reporting obligations under this Section, and such
obligations of the Trustee under this Section are conditioned upon such
information being received and the information provided shall be based solely
upon information contained in the monthly servicing report provided by the
Master Servicer to the Trustee pursuant to Section 8.08(d)(ii) hereof.
(b) The Master Servicer shall furnish to the Trustee and to the Certificate
Insurer, during the term of this Agreement, such periodic, special, or other
reports or information not specifically provided for herein, as may be
necessary, reasonable, or appropriate with respect to the Trustee 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 as the
Trustee or the Certificate Insurer may reasonably require.
Section 7.10 Reports by Trustee.
(a) The Trustee shall, at the request of the Depositor, the Seller or the
Certificate Insurer, transmit promptly to the Depositor, the Seller and the
Certificate Insurer copies of all accountings of receipts in respect of the
Mortgage Loans furnished to it by the Master Servicer and shall notify the
Depositor, the Seller and the Certificate Insurer if any Monthly Remittance
Amount has not been received by the Trustee when due.
(b) The Trustee shall report to the Certificate Insurer and each Owner with
respect to any written notices it may from time to time receive which provide an
Authorized Officer with actual knowledge that any of the statements set forth in
Section 3.04(b) hereof are inaccurate.
80
<PAGE>
Section 7.11 Preference Payments.
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the
Certificate Insurer of (i) a certified copy of such order, (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 Owners relating to or arising under the Class A
Certificates against the debtor which made such Preference Amount or otherwise
with respect to such Preference Amount 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 Amount, 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 payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the order and not to the Trustee or any Owner of Class A
Certificate directly (unless an Owner of a Class A Certificate has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the order, in which case such payment shall be disbursed
to the Trustee for distribution to such Owner upon proof of such payment
reasonably satisfactory to the Certificate Insurer).
Each Owner of a Class A Certificate, by its purchase of Class A
Certificates, the Master Servicer and the Trustee hereby agree that the
Certificate Insurer 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, the direction of any appeal of any order
relating to such preference claim and the posting of any surety or performance
bond pending any such appeal. In addition and without limitation of the
foregoing, the Certificate Insurer shall be subrogated to the rights of the
Master Servicer, the Trustee and the Owner of each Class A Certificate in the
conduct of any such preference claim, including, without limitation, all rights
of any party to an adversary proceeding action with respect to any court order
issued in connection with any such preference claim.
Each Owner of a Class A Certificate will promptly notify the Trustee in
writing upon the receipt of a court order relating to a Preference Amount and
will be required to enclose a copy of such order with such notice to the
Trustee.
81
<PAGE>
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 8.01 Master Servicer and Sub-Servicers.
Acting directly or through one or more Sub-Servicers as provided in Section
8.03, the Master Servicer shall service and administer the Mortgage Loans as
described below and with reasonable care, and using that degree of skill and
attention that the Master Servicer exercises with respect to comparable mortgage
loans that it services for itself or others (the "Servicing Standard"), and
shall have full power and authority, acting alone, to do or cause to be done any
and all things in connection with such servicing and administration which it may
deem necessary or desirable. In performing such servicing functions the Master
Servicer shall (i) take into account the mortgagor non-conforming credit quality
of the Mortgagors under the Mortgage Loans, (ii) follow the policies and
procedures that it would apply to similar loans held for its own account, unless
such policies and procedures are not generally in accordance with standard
industry practices, in which case the Master Servicer shall service the loans
generally in accordance with standard industry practices applicable to servicing
similar loans, and (iii) comply with all applicable laws and follow collection
practices with respect to the related Mortgage Loans that are in all material
respects legal, proper and prudent. CSC currently uses the FNMA Guide as its
servicing manual. To the extent the Master Servicer enters into a Sub-Servicing
Agreement with any additional servicer pursuant to Section 8.03 of this
Agreement, the Master Servicer shall provide the Certificate Insurer with a copy
of the servicing manual or procedures for each additional Sub-Servicer within
thirty days from the date of such Sub-Servicing Agreement.
Subject to Section 8.03 hereof, the Master Servicer may, and is hereby
authorized to, perform any of its servicing responsibilities with respect to all
or certain of the Mortgage Loans through a Sub-Servicer as it may from time to
time designate, but no such designation of a Sub- Servicer shall serve to
release the Master Servicer from any of its obligations under this Agreement.
Such Sub-Servicer shall have all the rights and powers of the Master Servicer
with respect to such Mortgage Loans under this Agreement.
Without limiting the generality of the foregoing, but subject to Sections
8.13 and 8.14, the Master Servicer in its own name or in the name of a
Sub-Servicer may be authorized and empowered pursuant to a power of attorney
executed and delivered by the Trustee to execute and deliver, and may be
authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Owners and the Trustee or any of them, (i) any and all instruments
of satisfaction or cancellation or of partial or full release or discharge and
all other comparable instruments with respect to the Mortgage Loans and with
respect to the Mortgaged Properties, and (ii) to institute foreclosure
proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of
any Mortgaged Property in the name of the Trustee; provided, however, that to
the extent any
82
<PAGE>
instrument described in clause (i) preceding would be delivered by the Master
Servicer outside of its usual procedures for mortgage loans held in its own
portfolio, the Master Servicer shall, prior to executing and delivering such
instrument, obtain the prior written consent of the Certificate Insurer, and
provided further, however, that Section 8.14(a) shall constitute an
authorization from the Trustee to the Master Servicer to execute an instrument
of satisfaction (or assignment of mortgage without recourse) with respect to any
Mortgage Loan paid in full (or with respect to which payment in full has been
escrowed). The Trustee shall execute any documentation furnished to it by the
Master Servicer for recordation by the Master Servicer in the appropriate
jurisdictions as shall be necessary to effectuate the foregoing. Subject to
Sections 8.13 and 8.14, the Trustee shall execute any authorizations and other
documents as the Master Servicer or such Sub-Servicer shall reasonably request
that are furnished to the Trustee to enable the Master Servicer and such
Sub-Servicer to carry out their respective servicing and administrative duties
hereunder.
The Master Servicer shall give prompt notice to the Trustee and the
Certificate Insurer of any action, of which the Master Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.
Servicing Advances incurred by the Master Servicer or any Sub-Servicer in
connection with the servicing of the Mortgage Loans (including any penalties in
connection with the payment of any taxes and assessments or other charges) on
any Mortgaged Property shall be recoverable by the Master Servicer or such
Sub-Servicer to the extent described in Section 8.09(b) hereof.
Notwithstanding any other provision contained herein, with respect to the
Actuarial Loans, payments due other than on the first day of a month are deemed
to be due on the first day of the month for all purposes hereunder.
Section 8.02 Collection of Certain Mortgage Loan
Payments.
The Master Servicer shall use reasonable efforts to collect or caused to be
collected all payments called for under the terms and provisions of the Mortgage
Loans, and shall, to the extent such procedures shall be consistent with this
Agreement and the terms and provisions of any applicable Insurance Policy,
follow collection procedures for all Mortgage Loans in accordance with the
Servicing Standard. Consistent with the foregoing, the Master Servicer may in
its discretion waive or permit to be waived any late payment charge, prepayment
charge, assumption fee or any penalty interest in connection with the prepayment
of a Mortgage Loan or any other fee or charge which the Master Servicer would be
entitled to retain hereunder as servicing compensation. In the event the Master
Servicer shall consent to the deferment of the due dates for payments due on a
Note, the Master Servicer shall nonetheless make payment of any required
Delinquency Advance with respect to the payments so extended to the same extent
as if such installment were due, owing and Delinquent and had not been deferred,
and shall be entitled to reimbursement therefor in accordance with Section
8.09(a) hereof. The Master Servicer may waive, modify or vary the terms of the
Mortgage Loans in accordance with the
83
<PAGE>
Servicing Standard; provided, however, that the Master Servicer may not waive,
modify or vary the terms of any Mortgage Loan to (A) decrease the interest rate
on the Mortgage Loan, (B) forgive the payment of principal or interest (except
with respect to liquidation of such Mortgage Loan) or (C) extend the maturity
date of such Mortgage Loan, unless, (i) the related Mortgagor is in default
under such Mortgage Loan or such default is, in the reasonable judgment of the
Master Servicer, reasonably foreseeable, (ii) the Certificate Insurer, in its
sole and absolute discretion approves such waiver, modification or variation,
(iii) the amendment, modification or waiver is recorded with the appropriate
recording office with proof of such recording provided to the Certificate
Insurer by the Master Servicer promptly upon receipt by the Master Servicer, and
(iv) all costs and expenses associated with such amendment, modification or
waiver, including any recording costs, are paid by the Master Servicer out of
its own funds. In addition, if the aggregate principal balance of the Mortgage
Loans with respect to such waivers, modifications or variations which have been
granted equals or exceeds 3% of the Original Aggregate Loan Balance of the
Mortgage Loans, any further waivers, modifications or variations shall require
the Certificate Insurer's prior written consent. The Certificate Insurer shall
respond to any written request of the Master Servicer for a waiver, modification
or variation of a Mortgage Loan within two weeks of the date of such written
request.
Section 8.03 Sub-Servicing Agreements Between Master Servicer and
Sub-Servicers.
The Master Servicer may enter into Sub-Servicing Agreements for any
servicing and administration of Mortgage Loans with one or more institutions
that are in compliance with the laws of each state necessary to enable each of
them to perform their obligations under such Sub- Servicing Agreements and (x)
is CSC or (y)(i) has been designated an approved seller-servicer by FHLMC or
FNMA and (ii) has equity of at least $1,500,000, as determined in accordance
with generally accepted accounting principles or (z) is a Master Servicer
Affiliate. The Master Servicer shall give notice to the Trustee, the Certificate
Insurer and the Rating Agencies of the appointment of any Sub-Servicer. For
purposes of this Agreement, the Master Servicer shall be deemed to have received
payments on Mortgage Loans when any Sub-Servicer has received such payments.
Each Sub-Servicer shall be required to service the Mortgage Loans in accordance
with this Agreement and any such Sub-Servicing Agreement shall be consistent
with and not violate the provisions of this Agreement. Each Sub-Servicing
Agreement shall provide that a successor Master Servicer shall have the option
to terminate such agreement without payment of any termination fees if the
original Master Servicer is terminated or resigns.
Section 8.04 Successor Sub-Servicers.
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 to either itself directly service the related Mortgage Loans or
enter into a Sub-Servicing Agreement with a successor Sub-Servicer which
qualifies under Section 8.03.
84
<PAGE>
Section 8.05 Liability of Master Servicer; Indemnification.
(a) The Master Servicer shall not be relieved of its obligations under this
Agreement 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 and the Master Servicer shall be obligated to the
same extent and under the same terms and conditions as if it alone were
servicing and administering the Mortgage Loans. 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 such
Sub-Servicing Agreement shall be deemed to limit or modify this Agreement.
(b) The Master Servicer (except the Trustee if it is required to succeed
the Master Servicer hereunder) agrees to indemnify and hold the Trustee, the
Certificate Insurer and each Owner harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Certificate Insurer and any
Owner may sustain in any way related to the failure of the Master Servicer to
perform its duties and service the Mortgage Loans in compliance with the terms
of this Agreement. The Master Servicer shall immediately notify the Trustee, the
Certificate Insurer and each Owner if a claim is made by a third party with
respect to this Agreement, and the Master Servicer shall assume (with the
consent of the Trustee and the Certificate Insurer) the defense of any such
claim and pay all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree which may
be entered against the Master Servicer, the Trustee, the Certificate Insurer
and/or Owner in respect of such claim. The Trustee shall reimburse the Master
Servicer from amounts distributable pursuant to ss. 7.03(c)(iii)(G) for all
amounts advanced by it pursuant to the preceding sentence except when the claim
relates directly to the failure of the Master Servicer to service and administer
the Mortgage Loans in compliance with the terms of this Agreement based upon an
opinion of counsel (at the expense of the Master Servicer) delivered to the
Trustee and the Certificate Insurer. The provisions of this Section 8.05 shall
survive the termination of this Agreement and the payment of the outstanding
Certificates.
(c) None of the Depositor, the Master Servicer, or any of the directors,
officers, employees or agents of the Depositor or the Master Servicer shall be
under any liability to the Trust Estate or the Owners for any action taken, or
for refraining from the taking of any action, in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Depositor or Master Servicer or any such Person against
any breach of warranties or representations made herein, or against any specific
liability imposed on the Master Servicer for a breach of the Servicing Standard,
or against any liability which would otherwise be imposed by reason of its
respective willful misfeasance, bad faith, fraud or negligence in the
performance of its duties or by reasons of negligent disregard of its respective
obligations or duties hereunder.
85
<PAGE>
The Depositor, the Master Servicer, and any director, officer, employee or
agent of the Depositor or the Master Servicer, may rely in good faith on any
document of any kind which, prima facie, is properly executed and submitted by
any appropriate Person with respect to any matters arising hereunder. Pursuant
to Section 7.03(c)(iii)(G), the Depositor, the Master Servicer and any director,
officer, employee or agent of the Depositor or the Master Servicer shall be
indemnified and held harmless by the Trust Estate against any loss, liability or
expense incurred in connection with any legal action relating to this Agreement
or the Certificates, other than any loss, liability or expense incurred in
connection with any legal action incurred by reason of its respective
misfeasance, bad faith, fraud or negligence, a breach of a representation or
warranty hereunder or (in the case of the Master Servicer) a breach of the
Servicing Standard in the performance of its respective duties or by reason of
negligent disregard or its respective obligations or duties hereunder. Neither
the Depositor nor the Master Servicer shall be under any obligation to appear
in, prosecute or defend any legal action unless such action is related to its
respective duties under this Agreement and in its opinion does not expose it to
any expense or liability; provided, however, that the Depositor or the Master
Servicer may in its discretion undertake any action related to its obligations
hereunder which it may deem necessary or desirable with respect to this
Agreement and the rights and duties of the parties hereto and the interests of
the Owners hereunder.
Section 8.06 No Contractual Relationship Between Sub-Servicer, Trustee or
the Owners.
Any Sub-Servicing Agreement and any other transactions or services relating
to the Mortgage Loans involving a Sub-Servicer shall be deemed to be between the
Sub-Servicer and the Master Servicer alone and the Trustee and the Owners shall
not be deemed parties thereto and shall have no claims, rights, obligations,
duties or liabilities with respect to any Sub-Servicer except as set forth in
Section 8.07.
Section 8.07 Assumption or Termination of Sub-Servicing Agreement by
Trustee.
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Master Servicer
hereunder by the Trustee pursuant to Section 8.20, it is understood and agreed
that the Master Servicer's rights and obligations under any Sub- Servicing
Agreement then in force between the Master Servicer and a Sub-Servicer shall be
assumed simultaneously by the Trustee without act or deed on the part of the
Trustee; provided, however, that the successor Master Servicer may terminate the
Sub-Servicer as provided in Section 8.03.
The terminated Master Servicer shall, upon the reasonable request of the
Trustee, but at the expense of the Master Servicer, deliver to the assuming
party documents and records relating to each Sub-Servicing Agreement and an
accounting of amounts collected and held by it and otherwise use its best
reasonable efforts to effect the orderly and efficient transfer of the Sub-
Servicing Agreements to the assuming party.
86
<PAGE>
Section 8.08 Collection Account.
(a) The Master Servicer shall establish and maintain or cause to be
established and maintained the Collection Account to be held as an Eligible
Account on behalf of the Trustee for the benefit of the Owners and the
Certificate Insurer. The Collection Account shall be entitled "Bankers Trust
Company of California, N.A., as Trustee under the Pooling and Servicing
Agreement dated as of January 1, 1998". The Master Servicer shall notify the
Trustee (who will in turn notify the Owners) and the Certificate Insurer if
there is a change in the name, account number or institution holding the
Collection Account.
Subject to subsection (c) below, the Master Servicer shall deposit or cause
to be deposited all receipts pursuant to subsection (c) below and related to the
Mortgage Loans to the Collection Account on a daily basis (but no later than the
second Business Day after receipt).
(b) All funds in the Collection Account shall be held (i) uninvested or
(ii) invested in Permitted Investments. Any investments of funds in the
Collection Account shall mature or be withdrawable at par no later than one
Business Day prior to the immediately succeeding Monthly Remittance Date. The
Collection Account shall be held in trust in the name of the Trustee for the
benefit of the Owners. Any investment earnings on funds held in the Collection
Account shall be for the account of the Master Servicer and may only be
withdrawn from the Collection Account by the Master Servicer immediately
following the remittance of the Monthly Remittance Amount (and the Total Monthly
Excess Spread included therein) by the Master Servicer. Prior to each Monthly
Remittance Date, the Master Servicer shall deposit into the Collection Account
the net amount of any investment losses on such funds during the related Due
Period. Any references herein to amounts on deposit in the Collection Account
shall refer to amounts net of such investment earnings.
(c) The Master Servicer shall deposit into the Collection Account no later
than the second Business Day after receipt all principal and interest
collections on the Mortgage Loans received after the Cut-Off Date (other than
scheduled monthly payments on Actuarial Loans due on or prior to the Cut-Off
Date) including any Prepayments, Curtailments and Net Liquidation Proceeds,
other recoveries or amounts related to the Mortgage Loans received by the Master
Servicer and any income from REO Properties, but net of (i) the Servicing Fee
with respect to each Mortgage Loan and other servicing compensation to the
Master Servicer as permitted by Section 8.15 hereof, (ii) Net Liquidation
Proceeds to the extent such Net Liquidation Proceeds exceed the sum of (I) the
Loan Balance of the related Mortgage Loan immediately prior to liquidation, plus
(II) accrued and unpaid interest on such Mortgage Loan (net of the Servicing
Fee) to the date of such liquidation, (iii) reimbursements for Delinquency
Advances from late collections or Liquidation Proceeds on the Mortgage Loans
which gave rise to such Delinquency Advances and (iv) reimbursements for amounts
deposited in the Collection Account representing payments of principal and/or
interest on a Note by a Mortgagor which are subsequently returned by a
depository institution as unpaid.
87
<PAGE>
(d) (i) The Master Servicer may make withdrawals for its own account from
the amounts on deposit in the Collection Account, with respect to each Mortgage
Loan Group, for the following purposes:
(A) to withdraw investment earnings on amounts on deposit in the Collection
Account:
(B) to the extent not reimbursed or paid pursuant to any other clause of
this Section 8.08(d)(i), to reimburse or pay the Master Servicer, the
Trustee and/or the Depositor for unpaid items incurred by or on behalf
of such Person pursuant to any provision of this Agreement pursuant to
which such Person is entitled to reimbursement or payment from the
Trust Estate, in each case only to the extent reimbursable under such
Section, it being acknowledged that this clause (B) shall not be deemed
to modify the substance of any such Section, including the provisions
of such Section that set forth the extent to which one of the foregoing
Persons is or is not entitled to payment or reimbursement;
(C) to withdraw amounts that have been deposited to the Collection Account
in error; and
(D) to clear and terminate the Collection Account following the termination
of the Trust pursuant to Article IX.
(ii) The Master Servicer shall (a) remit to the Trustee for deposit in the
Distribution Account by wire transfer, or otherwise make funds available in
immediately available funds, without duplication, the Monthly Remittance Amount
allocable to a Due Period not later than the related Monthly Remittance Date and
Loan Purchase Prices and Substitution Adjustments two Business Days following
the related purchase or substitution, and (b) no later than by 12:00 noon, New
York time on the second Business Day after the Determination Date immediately
preceding the related Distribution Date, deliver to the Trustee and the
Certificate Insurer a monthly servicing report via electronic medium, with
respect to each Mortgage Loan Group, containing the following information: (i)
principal and interest collected, Liquidated Loans, summary and detailed
delinquency reports, Liquidation Proceeds and other similar information
concerning the servicing of the Mortgage Loans and (ii) the information
described in Section 7.09(b). In addition, the Master Servicer shall inform the
Trustee and the Certificate Insurer on each Monthly Remittance Date, with
respect to each Mortgage Loan Group, of the amounts of any Loan Purchase Prices
or Substitution Adjustments so remitted during the related Due Period.
Section 8.09 Delinquency Advances and Servicing Advances.
(a) Subject to the second paragraph of this subsection (a), the Master
Servicer will be obligated on each Monthly Remittance Date to remit to the
Trustee from its own funds for deposit into the Distribution Account an amount
equal to interest on the Mortgage Loans due during the related Due Period (net
of the Servicing Fee) but uncollected (i) with respect to Simple
88
<PAGE>
Interest Loans, as of the end of the related Due Period, and (ii) with respect
to Actuarial Loans, as of the related Determination Date (such amount, a
"Delinquency Advance"). For purposes of calculating the amount of a Delinquency
Advance for a Simple Interest Loan, the amount "due" during the Due Period will
be deemed to be 30 days' interest at the Mortgage Rate for such Mortgage Loan.
Delinquency Advances are recoverable from (i) late collections on the Mortgage
Loan which gave rise to the Delinquency Advance, (ii) Liquidation Proceeds for
the Mortgage Loan which gave rise to such Delinquency Advance and (iii) pursuant
to Section 7.03(c)(ii)(C).
Notwithstanding the foregoing, the Master Servicer shall not be obligated
to make a Delinquency Advance as to any Mortgage Loan if the Master Servicer
determines that such Delinquency Advance, if made, would be a Nonrecoverable
Advance. The Master Servicer shall give written notice of such determination to
the Trustee and the Certificate Insurer; and the Trustee shall promptly furnish
a copy of such notice to the Owners; provided, that the Master Servicer shall be
entitled to recover any unreimbursed Delinquency Advances from the aforesaid
Liquidation Proceeds prior to the payment of the Liquidation Proceeds to any
other party to this Agreement.
(b) The Master Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations (each such expenditure,
a "Servicing Advance") including, but not limited to, the cost of (i)
Preservation Expenses, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of REO Property and (iv)
advances required by Section 8.13(a), but the Master Servicer shall not be
obligated to make any such Servicing Advance if the Master Servicer determines
that such Servicing Advance, if made, would be a Nonrecoverable Advance. The
Master Servicer may recover Servicing Advances (x) from the Mortgagors to the
extent permitted by the Mortgage Loans or, if not recovered from the Mortgagor
on whose behalf such Servicing Advance was made, from Liquidation Proceeds
realized upon the liquidation of the related Mortgage Loan and (y) as provided
in Section 7.03(c)(ii)(C). The Master Servicer shall be entitled to recover the
Servicing Advances from the aforesaid Liquidation Proceeds prior to the payment
of the Liquidation Proceeds to any other party to this Agreement. Except as
provided in the previous sentence, in no case may the Master Servicer recover
Servicing Advances from the principal and interest payments on any Mortgage Loan
or from any amounts relating to any other Mortgage Loan except as provided in
Section 7.03(c)(ii)(C).
Section 8.10 Compensating Interest; Repurchase of Mortgage Loans.
(a) If, during any Prepayment Period, the aggregate Prepayment Interest
Shortfalls exceed the aggregate Prepayment Interest Excesses, the Master
Servicer shall deposit into the Collection Account on the related Monthly
Remittance Date an amount equal to such difference but not in excess of one-half
of the Servicing Fee for the related Due Period on the Mortgage Loans giving
rise to such Prepayment Interest Shortfalls ("Compensating Interest"). Such
amount shall be included in the Monthly Remittance to be made available to the
Trustee on such Monthly Remittance Date.
89
<PAGE>
(b) The Master Servicer, and in the absence of the exercise thereof by
the Master Servicer, the Certificate Insurer, has the right and the option, but
not the obligation, to purchase for its own account any Mortgage Loan which
becomes Delinquent, in whole or in part, as to four consecutive monthly
installments or any Mortgage Loan as to which enforcement proceedings have been
brought by the Master Servicer pursuant to Section 8.13; provided, however, that
(i) the Master Servicer or the Certificate Insurer, as the case may be, may not
purchase any such Mortgage Loan unless the Master Servicer or the Certificate
Insurer, as the case may be, has delivered to the Trustee an opinion of counsel
experienced in federal income tax matters acceptable to the Master Servicer or
the Certificate Insurer, as the case may be, and the Trustee to the effect that
such a purchase would not constitute a Prohibited Transaction for the Trust or
otherwise subject the Trust to tax and would not jeopardize the status of the
Trust as a REMIC. Any such Mortgage Loan so purchased shall be purchased by the
Master Servicer or the Certificate Insurer as the case may be on a Monthly
Remittance Date at a purchase price equal to the Loan Purchase Price thereof,
which purchase price shall be deposited in the Collection Account and the Master
Servicer shall provide the Certificate Insurer and the Trustee with a
Liquidation Report in the form of Exhibit L hereto with respect to each such
Mortgage Loan.
(c) The Net Liquidation Proceeds from the disposition of any REO Property
shall be deposited in the Collection Account and remitted to the Trustee as part
of the Monthly Remittance Amount remitted by the Master Servicer to the Trustee
for the Prepayment Period in which such liquidation occurred.
Section 8.11 Maintenance of Insurance.
(a) The Master Servicer on behalf of the Trustee, as mortgagee, shall use
its reasonable efforts in accordance with the Servicing Standard to cause the
related Mortgagor to maintain for each Mortgage Loan (other than any Mortgage
Loan as to which the related Mortgaged Property has become an REO Property), and
if the Mortgagor does not so maintain, shall itself maintain (subject to the
provisions of this Agreement concerning Nonrecoverable Advances), to the extent
the Trustee as mortgagee has an insurable interest, (A) fire and hazard
insurance with extended coverage on the related Mortgaged Property in an amount
which is at least equal to the least of (i) 100% of the then "full replacement
cost" of the improvements and equipment (excluding foundations, footings and
excavation costs), without deduction for physical depreciation, (ii) the
outstanding principal balance of the related Mortgage Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal balance of the
Senior Lien) or such other amount as is necessary to prevent any reduction in
such policy by reason of the application of co-insurance and to prevent the
Trustee thereunder from being deemed to be a co-insurer and (iii) the full
insurable value of such Mortgaged Property, and (B) such other insurance as
provided in the related Mortgage Loan. The Master Servicer shall maintain fire
and hazard insurance with extended coverage from a Qualified Insurer on each REO
Property in an amount which is at least equal to 100% of the then "full
replacement cost" of the improvements and equipment (excluding foundations,
footings and excavation costs), without deduction for
90
<PAGE>
physical depreciation. The Master Servicer shall maintain, from a Qualified
Insurer, with respect to each REO Property, such other insurance as provided in
the related Mortgage Loan. Any amounts collected by the Master Servicer under
any such policies (other than amounts to be applied to the restoration and
repair of the related Mortgaged Property or amounts to be released to the
Mortgagor in accordance with the terms of the related Mortgage) shall be
deposited into the Collection Account pursuant to Section 8.08(c), subject to
withdrawal pursuant to Section 8.08(d). Any cost incurred by the Master Servicer
in maintaining any such insurance shall not, for the purpose of calculating
distributions to Owners, be added to the unpaid principal balance of the related
Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit.
It is understood and agreed that no earthquake or other additional insurance
other than flood insurance is to be required of any Mortgagor or to be
maintained by the Master Servicer other than pursuant to the terms of the
related Mortgage, Note or other Mortgage Loan documents and pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Mortgaged Property is located in a
federally designated special flood hazard area, the Master Servicer will use its
reasonable efforts in accordance with the Servicing Standard to cause the
related Mortgagor to maintain or will itself obtain (subject to the provisions
of this Agreement concerning Nonrecoverable Advances) flood insurance in respect
thereof. Such flood insurance shall be in an amount equal to the least of (i)
the outstanding principal balance of the related Mortgage Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal balance of the
Senior Lien), (ii) the maximum amount of such insurance required by the terms of
the related Mortgage and as is available for the related property under the
Flood Disaster Protection Act of 1973 (assuming that the area in which such
property is located is participating in such program) and (iii) the minimum
amount required to compensate for damage or loss on a replacement cost basis. If
an REO Property is located in a federally designated special flood hazard area,
the Master Servicer will obtain flood insurance in respect thereof providing
substantially the same coverage as described in the preceding sentences. If at
any time during the term of this Agreement a recovery under a flood or fire and
hazard insurance policy in respect of an REO Property is not available but would
have been available if such insurance were maintained thereon in accordance with
the standards applied to Mortgaged Properties described herein, the Master
Servicer shall either (i) immediately deposit into the Collection Account from
its own funds the amount that would have been recovered or (ii) apply to the
restoration and repair of the property from its own funds the amount that would
have been recovered, if such application would be consistent with the servicing
standard set forth in Section 8.01; provided, however, that the Master Servicer
shall not be responsible for any shortfall in insurance proceeds resulting from
an insurer's refusal or inability to pay a claim. Costs of the Master Servicer
of maintaining insurance policies pursuant to this Section 8.11 shall be paid by
the Master Servicer as a Servicing Advance and shall be reimbursable to the
Master Servicer.
The Master Servicer agrees to prepare and present, on behalf of itself, the
Trustee and the Owners, claims under each related insurance policy maintained
pursuant to this Section 8.11 in a timely fashion in accordance with the terms
of such policy and to take such reasonable steps as are necessary to receive
payment or to permit recovery thereunder.
91
<PAGE>
The Master Servicer shall require that all insurance policies required
hereunder shall name the Trustee, the Master Servicer or the Sub-Servicer as
loss payee and that all such insurance policies require that 30 days' notice be
given to the Master Servicer before termination to the extent required by the
related Mortgage, Note, or other Mortgage Loan documents.
(b) (I) If the Master Servicer obtains and maintains a blanket insurance
policy with a Qualified Insurer at its own expense insuring against fire and
hazard losses or other required insurance on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations concerning the
maintenance of such insurance coverage set forth in Section 8.11(a), it being
understood and agreed that such policy may contain a deductible clause, in which
case the Master Servicer shall, in the event that (i) there shall not have been
maintained on one or more of the related Mortgaged Properties a policy otherwise
complying with the provisions of Section 8.11(a), and (ii) there shall have been
one or more losses which would have been covered by such a policy had it been
maintained, immediately deposit into the Collection Account from its own funds
the amount not otherwise payable under the blanket policy because of such
deductible clause. In connection with its activities as Master Servicer
hereunder, the Master Servicer agrees to prepare and present, in a timely
fashion in accordance with the terms of such policy, on behalf of itself, the
Trustee and Owners, claims under any such blanket policy which it maintains and
to take such reasonable steps as are necessary to receive payment or permit
recovery thereunder.
(II) If the Master Servicer causes any Mortgaged Property or REO Property
to be covered by a master force placed insurance policy, which policy is issued
by a Qualified Insurer and provides no less coverage in scope and amount for
such Mortgaged Property or REO Mortgaged Property than the insurance required to
be maintained pursuant to Section 8.11(a), the Master Servicer shall
conclusively be deemed to have satisfied its obligations to maintain insurance
pursuant to Section 8.11(a). Such policy may contain a deductible clause, in
which case the Master Servicer shall, in the event that (i) there shall not have
been maintained on the related Mortgaged Property or REO Property a policy
otherwise complying with the provisions of Section 8.11(a), and (ii) there shall
have been one or more losses which would have been covered by such a policy had
it been maintained, immediately deposit into the Collection Account from its own
funds the amount not otherwise payable under such policy because of such
deductible.
Section 8.12 Due-on-Sale Clauses; Assumption and Substitution Agreements.
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall, to the extent an Authorized Officer
thereof has actual knowledge of such conveyance or prospective conveyance,
exercise its rights to accelerate the maturity of the related Mortgage Loan
under any "due-on-sale" clause contained in the related Mortgage or 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 or if the Master Servicer reasonably
believes in good faith it is not in the best interests of the Trust. An opinion
of counsel at the expense of the Master Servicer delivered to the Trustee, the
92
<PAGE>
Depositor and the Certificate Insurer to the foregoing effect shall conclusively
establish the reasonableness of such belief. In such event, the Master Servicer
shall make reasonable efforts to 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 becomes liable under the Note and,
unless prohibited by applicable law or the Mortgage Documents, the Mortgagor
remains liable thereon. If the foregoing is not permitted under applicable law,
the Master Servicer is authorized to enter into a substitution of liability
agreement with such person, pursuant to which the original Mortgagor is released
from liability and such person is substituted as Mortgagor and becomes liable
under the Note; provided, however, that to the extent any such substitution of
liability agreement would be delivered by the Master Servicer outside of its
usual procedures for mortgage loans held in its own portfolio the Master
Servicer shall, prior to executing and delivering such agreement, obtain the
prior written consent of the Certificate Insurer. The Trustee shall execute any
agreements to effectuate the foregoing. The Mortgage Loan, as assumed, shall
conform in all respects to the requirements, representations and warranties of
this Agreement. The Master Servicer shall notify the Trustee that any such
assumption or substitution agreement has been completed by forwarding to the
Trustee the original copy of such assumption or substitution agreement
(indicating the File to which it relates) which copy shall be added by the
Trustee to the related File and which shall, for all purposes, be considered a
part of such File to the same extent as all other documents and instruments
constituting a part thereof. The Master Servicer shall be responsible for
recording any such assumption or substitution agreements. In connection with any
such assumption or substitution agreement, the required monthly payment on the
related Mortgage Loan shall not be changed but shall remain as in effect
immediately prior to the assumption or substitution, the stated maturity or
outstanding principal amount of such Mortgage Loan shall not be changed nor
shall any required monthly payments of principal or interest be deferred or
forgiven, except to the extent permitted by Section 8.02. Any fee collected by
the Master Servicer or the Sub-Servicer for consenting to any such conveyance or
entering into an assumption or substitution agreement shall be retained by or
paid to the Master Servicer as additional servicing compensation.
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 Mortgage Loan by operation of law or any assumption which the Master Servicer
may be restricted by law from preventing, for any reason whatsoever.
Section 8.13 Realization upon Defaulted Mortgage Loans; Inspection.
(a) The Master Servicer shall foreclose upon or otherwise comparably effect
the ownership in the name of the Trustee on behalf of the Trust of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of Delinquent payments and which the
Master Servicer has not purchased pursuant to Section 8.10(b). Subject to
Section 8.09, in connection with such foreclosure or other conversion, the
Master Servicer shall exercise such of the rights and powers vested in it
hereunder, and use the
93
<PAGE>
same degree of care and skill in their exercise or use, as prudent mortgage
lenders would exercise or use under the circumstances in the conduct of their
own affairs and consistent with the Servicing Standard, including, but not
limited to, advancing funds for the payment of taxes, amounts due with respect
to Senior Liens, and insurance premiums. Any amounts so advanced shall
constitute "Servicing Advances" within the meaning of Section 8.09(b) hereof.
The Master Servicer shall sell any REO Property within 23 months of its
acquisition by the Trust, at such price as the Master Servicer deems necessary
to comply with this covenant unless, at least 61 days prior to the second
anniversary of the Trust's acquisition of such property, the Trustee has
requested an extension of time from the IRS in which to dispose of such property
and the Trustee obtains for the Certificate Insurer, Trustee and the Master
Servicer an opinion of counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee, addressed to the
Certificate Insurer, the Trustee and the Master Servicer, to the effect that the
holding by the Trust of such REO Property for any greater period will not result
in the imposition of taxes on "Prohibited Transactions" of the Trust or any
REMIC therein as defined in Section 860F of the Code or cause the Trust to fail
to qualify as a REMIC under the REMIC Provisions at any time that any
Certificates are outstanding. Notwithstanding the generality of the foregoing
provisions, the Master Servicer shall manage, conserve, protect and operate each
REO Property for the Owners solely for the purpose of its prompt disposition and
sale in a manner which does not cause such REO 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 income from "non-permitted assets"
within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from
foreclosure property" which is subject to taxation under the REMIC Provisions.
Pursuant to its efforts to sell such REO Property, the Master Servicer shall
either itself or through an agent selected by the Master Servicer protect and
conserve such REO Property in the same manner and to such extent as is customary
in the locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Owners, rent the same, or
any part thereof, as the Master Servicer deems to be in the best interest of the
Owners for the period prior to the sale of such REO Property. The Master
Servicer shall take into account the existence of any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation, on or under a Mortgaged Property in determining whether to
foreclose upon or otherwise comparably convert the ownership of such Mortgaged
Property. The Master Servicer shall not take any such action with respect to any
Mortgaged Property known by the Master Servicer to contain such wastes or
substances or to be within one mile of the site of such wastes or substances,
without the prior written consent of the Certificate Insurer.
(b) The Master Servicer shall determine, with respect to each defaulted
Mortgage Loan and in accordance with the Servicing Standard, when it has
recovered, whether through trustee's sale, foreclosure sale or otherwise, all
amounts it expects to recover from or on account of such defaulted Mortgage Loan
(exclusive of any possibility of a deficiency judgment), whereupon such Mortgage
Loan shall become a "Liquidated Loan". After a Mortgage Loan has become a
Liquidated Loan, the Master Servicer shall promptly prepare and forward to the
Depositor, the
94
<PAGE>
Trustee and the Certificate Insurer a report detailing the Liquidation Proceeds
received from the Liquidated Loan, expenses incurred with respect thereto, and
any loss incurred in connection therewith, such report in the form attached
hereto as Exhibit L.
(c) The Master Servicer shall not acquire any personal property pursuant to
this Section 8.13 unless either: (i) such personal property is incident to real
property (within the meaning of Section 856(e)(1) of the Code) so acquired by
the Master Servicer; or (ii) the Master Servicer shall have obtained an opinion
of counsel experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee addressed to the Certificate Insurer, the
Trustee and the Master Servicer, to the effect that the holding of such personal
property as part of the Trust will not cause the imposition of taxes on a
Prohibited Transaction or cause the Trust Fund to fail to qualify as a REMIC
under the REMIC provisions.
Section 8.14 Trustee to Cooperate; Release of Files.
(a) Upon the payment in full of any Mortgage Loan (including any
liquidation of such Mortgage Loan through foreclosure or otherwise), or the
receipt by the Master Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Master Servicer shall
deliver to the Trustee a completed "Request for Release of Documents". Upon
receipt of such Request for Release of Documents, the Trustee shall promptly
release the related File, in trust to (i) the Master Servicer or (ii) such other
party identified in the related Request for Release. Upon any such payment in
full, or the receipt of such notification that such funds have been placed in
escrow, the Master Servicer is authorized to give, as attorney-in-fact for the
Trustee as the mortgagee under the Mortgage which secured the Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Mortgaged Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In lieu of executing any such satisfaction
or assignment, as the case may be, the Master Servicer may prepare and submit to
the Trustee a satisfaction (or assignment without recourse, if requested by the
Person or Persons entitled thereto) in form for execution by the Trustee with
all requisite information completed by the Master Servicer; in such event, the
Trustee shall execute and acknowledge such satisfaction or assignment, as the
case may be, and deliver the same with the related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of any Mortgage
Loan, including, without limitation, foreclosure or other comparable conversion
of a Mortgage Loan or collection under any applicable Insurance Policy, the
Trustee shall (except in the case of the payment or liquidation pursuant to
which the related File is released to an escrow agent or an employee, agent or
attorney of the Trustee), upon request of the Master Servicer and delivery to
the Trustee of a Request for Release signed by an Authorized Officer of the
Master Servicer, release the related File to the Master Servicer and shall
execute such documents as shall be
95
<PAGE>
necessary to the prosecution of any such proceedings, including, without
limitation, an assignment without recourse of the related Mortgage to the Master
Servicer; provided that there shall not be released and unreturned at any one
time more than 10% of the entire number of Files. Such receipt shall obligate
the Master Servicer to return the File to the Trustee when the need therefor by
the Master Servicer no longer exists unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of a Request for Release evidencing such
liquidation, the receipt shall be released by the Trustee to the Master
Servicer.
(c) The Master Servicer shall have the right to accept applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations,
(iii) removal, demolition or division of properties subject to Mortgages and
(iv) second mortgage subordination agreements. No application for approval shall
be considered by the Master Servicer unless: (x) the provisions of the related
Note and Mortgage have been complied with; (y) the Loan-to-Value Ratio and
debt-to- income ratio after any release does not exceed the maximum
Loan-to-Value Ratio and debt-to-income ratio established in accordance with the
underwriting standards of the Mortgage Loans and any increase in the
Loan-to-Value Ratio shall not exceed 15% unless approved in writing by the
Certificate Insurer; and (z) the lien priority of the related Mortgage is not
affected. Upon receipt by the Trustee of an Officer's Certificate executed on
behalf of the Master Servicer setting forth the action proposed to be taken in
respect of a particular Mortgage Loan and certifying that the criteria set forth
in the immediately preceding sentence have been satisfied, the Trustee shall
execute and deliver to the Master Servicer the consent or partial release so
requested by the Master Servicer. A proposed form of consent or partial release,
as the case may be, shall accompany any Officer's Certificate delivered by the
Master Servicer pursuant to this paragraph. The Master Servicer shall notify the
Certificate Insurer and the Rating Agencies if an application is approved under
clause (y) above without approval in writing by the Certificate Insurer.
Section 8.15 Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Mortgage
Loan. The Master Servicer shall be entitled to retain additional servicing
compensation in the form of prepayment charges, release fees, bad check charges,
assumption fees, late payment charges, prepayment penalties, or any other
servicing-related fees, Prepayment Interest Excess (to the extent not used to
offset Prepayment Interest Shortfalls), Net Liquidation Proceeds not required to
be deposited in the Collection Account pursuant to Section 8.08(c)(ii) (to the
extent not required to be paid to the related Mortgagor under the related
Mortgage Loan or applicable law) and similar items, to the extent collected from
Mortgagors.
Section 8.16 Annual Statement as to Compliance.
The Master Servicer, at its own expense, will deliver to the Trustee, the
Depositor, the Certificate Insurer and the Rating Agencies, on or before March
31 of each year, commencing in 1999, an Officer's Certificate stating, as to
each signer thereof, that (i) a review of the
96
<PAGE>
activities of the Master Servicer during such preceding calendar year and of
performance under this Agreement has been made under such officers' supervision,
(ii) to the best of such officers' knowledge, based on such review, the Master
Servicer has fulfilled all its obligations under this Agreement for such year,
or, if there has been a default in the fulfillment of all such obligations,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by the Master Servicer to remedy such
default, and (iii) the Master Servicer's short-term commercial paper rating.
Section 8.17 Annual Independent Certified Public Accountants' Reports.
(a) On or before March 31 of each year, commencing in 1998, the Master
Servicer, at its own expense (or if the Trustee is then acting as Master
Servicer, at the expense of the Depositor, which in no event shall exceed $1,000
per annum), shall cause to be delivered to the Trustee, the Certificate Insurer
and the Rating Agencies a letter or letters of a firm of independent, nationally
recognized certified public accountants reasonably acceptable to the Certificate
Insurer and dated as of the date of the Master Servicer's audit for its most
recent fiscal year, stating that such firm has examined the Master Servicer's
overall servicing operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto.
(b) As long as Block Financial Corporation is acting as Master Servicer,
all references in subsection (a) above to the "Master Servicer" shall be deemed
to be references to each Sub- Servicer.
(c) The Master Servicer shall, on behalf of the Trust, prepare, sign and
file with the Securities and Exchange Commission any and all reports, statements
and information respecting the Trust which the Master Servicer or the Trustee
determines are required to be filed with the Securities and Exchange Commission
pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, each such report, statement and information to be filed on or prior to
the required filing date for such report, statement or information.
Notwithstanding the foregoing, the Depositor shall file with the Securities and
Exchange Commission, within fifteen days of the Startup Day, a Current Report on
Form 8-K together with this Agreement.
Section 8.18 Access to Certain Documentation and Information Regarding the
Mortgage Loans.
The Master Servicer shall provide to the Trustee, the Certificate Insurer
and the supervisory agents and examiners of each of the foregoing (which, in the
case of supervisory agents and examiners, may be required by applicable state
and federal regulations) access to the documentation regarding the Mortgage
Loans, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer
designated by it.
97
<PAGE>
Section 8.19 Merger or Consolidation of the Master Servicer; Assignment.
Subject to the following paragraph, the Master Servicer will keep in full
effect its existence, rights and good standing as a corporation under the laws
of the State of Delaware and will not jeopardize its ability to do business in
each jurisdiction in which one or more of the Mortgaged Properties are located
or to protect the validity and enforceability of this Agreement, the
Certificates or any of the Mortgage Loans and to perform its respective duties
under this Agreement.
The Master Servicer may be merged or consolidated with or into any Person,
or transfer all or substantially all of its assets to any Person, in which case
any Person resulting from any merger or consolidation to which it shall be a
party, or any Person succeeding to its business, shall be the successor of the
Master Servicer and shall be deemed to have assumed all of the liabilities of
the Master Servicer hereunder, if each of the Rating Agencies has confirmed in
writing that such merger, consolidation or transfer and succession shall not
result, in and of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of Certificates.
Section 8.20 Removal of Master Servicer; Resignation of Master Servicer.
(a) The Certificate Insurer (or the Owners, with the consent of the
Certificate Insurer pursuant to Section 6.11 hereof) may direct the Trustee to
remove the Master Servicer upon the occurrence of any of the following events:
(i) The Master Servicer shall (I) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian or similar entity with
respect to itself or its property, (II) admit in writing its inability to
pay its debts generally as they become due, (III) make a general assignment
for the benefit of creditors, (IV) be adjudicated a bankrupt or insolvent,
(V) commence a voluntary case under the federal bankruptcy laws of the
United States of America or file a voluntary petition or answer seeking
reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer admitting
the material allegations of a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding or (VI) take corporate action for
the purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent of the Master
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of the Master
Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of a
trustee, receiver, liquidator or custodian or similar entity with respect
to the Master Servicer or of all or any substantial part of its assets, or
other like relief in respect thereof under any bankruptcy or insolvency
law, and,
98
<PAGE>
if such proceeding is being contested by the Master Servicer in good faith, the
same shall (A) result in the entry of an order for relief or any such
adjudication or appointment or (B) continue undismissed or pending and unstayed
for any period of seventy-five (75) consecutive days; or
(iii) The Master Servicer shall fail to perform in any material respect any
one or more of its obligations hereunder and shall continue in default
thereof for a period of thirty (30) days (or with respect to a failure by
the Master Servicer to remit the Monthly Remittance Amount to the Trustee
as provided in Section 8.08(d)(ii)(a)) which failure continues unremedied
for two Business Days following the receipt of written notice by an
Authorized Officer of such servicer from the Trustee or from any Owner
after the earlier of (a) actual knowledge of an officer of the Master
Servicer or (b) receipt of notice from the Trustee or the Certificate
Insurer of said failure; provided, however, that if the Master Servicer can
demonstrate to the reasonable satisfaction of the Certificate Insurer that
it is diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Certificate Insurer; or
(iv) The Master Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 3.02 which materially
and adversely affects the interests of the Owners or the Certificate
Insurer for a period of sixty (60) days after the earlier of the Master
Servicer's discovery or receipt of notice thereof; provided, however, that
if the Master Servicer can demonstrate to the reasonable satisfaction of
the Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(v) The merger, consolidation or other combination of the Master Servicer
with or into any other entity, unless such merger, consolidation or other
combination is in accordance with Section 8.19; or
(vi) The breach by the Seller, as long as the Seller is an affiliate of
the Master Servicer, of the covenant to (I) substitute a Qualified
Replacement Mortgage Loan and deliver the Substitution Adjustment to the
Master Servicer for deposit in the Collection Account or (II) purchase a
Mortgage Loan, pursuant to Section 3.04(b).
(b) The Certificate Insurer may instruct the Trustee to remove the Master
Servicer upon (i) the failure by the Master Servicer to make any required
Servicing Advance when due or (ii) the failure of the Master Servicer to make
any required Delinquency Advance or to pay any Compensating Interest when due.
The Certificate Insurer may also remove the Master Servicer upon the
failure of the Master Servicer to satisfy the Servicer Termination Test.
99
<PAGE>
(c) If any event described in subsection (b) above occurs and is
continuing, the Certificate Insurer may terminate the Master Servicer in
accordance with this Section and the Trustee shall act as successor Master
Servicer.
The Certificate Insurer agrees to use its best efforts to inform the
Trustee of any materially adverse information regarding the Master Servicer's
servicing activities that comes to the attention of the Certificate Insurer from
time to time.
(d) If any event described in sections (a) and (b) above occurs and is
continuing, the Certificate Insurer shall notify the Owners of the Class R
Certificates in writing if the Certificate Insurer intends to terminate the
Master Servicer in its capacity as Master Servicer under this Agreement.
(e) The Master Servicer may assign its rights and delegate its duties and
obligations under this Agreement in connection with the sale or transfer of a
substantial portion of its mortgage servicing or asset management portfolio,
provided that: (i) the purchaser or transferee accepting such assignment and
delegation (A) shall be satisfactory to the Trustee and the Certificate Insurer,
(B) shall be (I) an established mortgage finance institution, bank or mortgage
servicing institution, organized and doing business under the laws of the United
States, any state thereof or the District of Columbia, authorized under such
laws to perform the duties of a servicer of mortgage loans or (II) a Person
resulting from a merger, consolidation or succession that is permitted under
Section 8.19, and (C) shall execute and deliver to the Trustee and the
Certificate Insurer an agreement, in form and substance reasonably satisfactory
to the Trustee and the Certificate Insurer, which contains an assumption by such
Person of the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Master Servicer under this
Agreement from and after the date of such agreement; (ii) as evidenced by a
letter from each Rating Agency delivered to the Trustee and the Certificate
Insurer, each Rating Agency's rating or ratings of the Certificates in effect
immediately prior to such assignment and delegation will not be qualified,
downgraded or withdrawn as a result of such assignment and delegation; (iii) the
Master Servicer shall not be released from its obligations under this Agreement
that arose prior to the effective date of such assignment and delegation under
this Section 8.20(e); and (iv) the rate at which the Servicing Fee (or any
component thereof) is calculated shall not exceed the rate in effect prior to
such assignment and delegation. Upon acceptance of such assignment and
delegation, the purchaser or transferee shall be the successor Master Servicer
hereunder. The Master Servicer shall not resign from the obligations and duties
imposed on it pursuant to this Agreement, except upon determination that its
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, the other activities of the Master Servicer so causing such a conflict
being of a type and nature carried on by the Master Servicer at the date of this
Agreement. Any such determination permitting the resignation of the Master
Servicer shall be evidenced by an opinion of counsel to such effect which shall
be delivered to the Trustee and the Certificate Insurer.
100
<PAGE>
(f) No removal or resignation of the Master Servicer shall become effective
until the Trustee or a successor Master Servicer (such successor Master Servicer
to be reasonably approved by the Certificate Insurer) shall have assumed the
Master Servicer's responsibilities and obligations in accordance with this
Section.
(g) Upon removal or resignation of the Master Servicer, the Master Servicer
at its own expense also shall promptly deliver or cause to be delivered to a
successor servicer or the Trustee all the books and records (including, without
limitation, records kept in electronic form) that the Master Servicer has
maintained for the Mortgage Loans, including all tax bills, assessment notices,
insurance premium notices and all other documents as well as all original
documents then in the Master Servicer's possession.
(h) Any collections then being held by the Master Servicer prior to its
removal and any collections received by the Master Servicer after removal or
resignation shall be endorsed by it to the Trustee and remitted directly and
immediately to the successor Master Servicer.
(i) Upon removal or resignation of the Master Servicer, the Trustee (x) may
solicit bids for a successor servicer as described below, and (y) pending the
appointment of a successor servicer as a result of soliciting such bids, shall
serve as Master Servicer. The Trustee shall, if it is unable to obtain a
qualifying bid and is prevented by law from acting as Master Servicer, appoint,
or petition a court of competent jurisdiction to appoint, any housing and home
finance institution, bank or mortgage servicing institution which has been
designated as an approved seller-servicer by FNMA or FHLMC for first and second
mortgage loans and having equity of not less than $1,500,000 (or such lower
level as may be acceptable to the Certificate Insurer), as determined in
accordance with generally accepted accounting principles and acceptable to the
Certificate Insurer and the Owners of the Class R Certificates (provided that if
the Certificate Insurer and such Owners cannot agree within a reasonable period
of time as to the acceptability of such successor Master Servicer, the decision
of the Certificate Insurer shall control) 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. The compensation of any
successor Master Servicer (including, without limitation, the Trustee) so
appointed shall be the aggregate Servicing Fee, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in Sections 8.08 and 8.15; provided, however, that if the
Trustee acts as successor Master Servicer then the Seller agrees to pay to the
Trustee at such time that the Trustee becomes such successor Master Servicer a
set-up fee of twenty-five dollars ($25.00) for each Mortgage Loan then included
in the Trust Estate. The Trustee shall be obligated to serve as successor Master
Servicer whether or not the fee described in the preceding sentence is paid by
the Seller, but shall in any event be entitled to receive, and to enforce
payment of, such fee from the Seller.
(j) In the event the Trustee solicits bids as provided above, the Trustee
shall solicit, by public announcement, bids from housing and home finance
institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall
101
<PAGE>
specify that the successor Master Servicer shall be entitled to the full amount
of the aggregate Servicing Fees as servicing compensation, together with the
other servicing compensation in the form of assumption fees, late payment
charges or otherwise as provided in Sections 8.08 and 8.15. Within thirty days
after any such public announcement, the Trustee shall negotiate and effect the
sale, transfer and assignment of the servicing rights and responsibilities
hereunder to the qualified party submitting the highest satisfactory bid as to
the price they will pay to obtain servicing. The Trustee shall deduct from any
sum received by the Trustee from the successor Master Servicer in respect of
such sale, transfer and assignment all costs and expenses of any public
announcement and of any sale, transfer and assignment of the servicing rights
and responsibilities hereunder. After such deductions, the remainder of such sum
less any amounts due the Trustee or the Trust from the Master Servicer shall be
paid by the Trustee to the removed Master Servicer at the time of such sale,
transfer and assignment to the successor Master Servicer.
(k) The Trustee and such successor Master Servicer shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing. The Master Servicer agrees to cooperate with the Trustee and any
successor Master Servicer in effecting the termination of the Master Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
Trustee or such successor Master Servicer, as applicable, all documents and
records reasonably requested by it to enable it to assume the Master Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor Master Servicer, as applicable, all amounts which then have been or
should have been deposited in the Collection Account by the Master Servicer or
which are thereafter received with respect to the Mortgage Loans. Neither the
Trustee nor any other successor Master Servicer shall be held liable by reason
of any failure to make, or any delay in making, any distribution hereunder or
any portion thereof caused by (i) the failure of the Master Servicer to deliver,
or any delay in delivering, cash, documents or records to it, or (ii)
restrictions imposed by any regulatory authority having jurisdiction over the
Master Servicer. Subject to subsection (j), if the Master Servicer resigns or is
replaced hereunder, the Master Servicer agrees to reimburse the Trust, the
Owners and the Certificate Insurer for the costs and expenses associated with
the transfer of servicing to the replacement Master Servicer, but subject to a
maximum reimbursement to all such parties in the amount of twenty-five dollars
($25.00) for each Mortgage Loan then included in the Trust Estate.
(l) The Trustee or any other successor Master Servicer, upon assuming the
duties of Master Servicer hereunder, shall immediately make all required
Delinquency Advances and deposit them to the Collection Account which the Master
Servicer has theretofore failed to remit with respect to the Mortgage Loans;
provided, however, that if the Trustee is acting as successor Master Servicer,
the Trustee shall only be required to make Delinquency Advances (including the
Delinquency Advances described in this clause (l)) if, in the Trustee's
reasonable good faith judgment, such Delinquency Advances will ultimately be
recoverable from the Mortgage Loans.
102
<PAGE>
(m) The Trustee shall give notice to the Certificate Insurer, to the
Mortgagors, to Moody's and to Standard & Poor's of the transfer of the servicing
to the successor Master Servicer.
(n) The Trustee shall give notice to the Certificate Insurer, the Owners,
the Trustee, the Seller, Moody's and Standard & Poor's of the occurrence of any
event described in paragraphs (a) or (b) above of which the Trustee is aware.
Section 8.21 Inspections by Certificate Insurer; Errors and Omissions
Insurance. (a) Upon reasonable notice, the Trustee, the Certificate Insurer or
any agents thereof may inspect the Master Servicer's servicing operations and
discuss the servicing operations of the Master Servicer during the Master
Servicer's normal business hours with any of its officers or directors;
provided, however, that the costs and expenses incurred by the Master Servicer
or its agents or representatives in connection with any such examinations or
discussions shall be paid by the Master Servicer.
(b) The Master Servicer agrees to maintain errors and omissions coverage
and a fidelity bond, each at least to the extent required by Section 305 of Part
I of the FNMA Guide or any successor provision thereof; provided, however, that
if the Trustee shall become the Master Servicer, any customary insurance
coverage that the Trustee maintains shall be deemed sufficient hereunder;
provided, further, that in the event that the fidelity bond or the errors and
omissions coverage is no longer in effect, the Trustee shall promptly give such
notice to the Certificate Insurer and the Owners. Upon the request of the
Trustee or the Certificate Insurer, the Master Servicer shall cause to be
delivered to such requesting Person a certified true copy of such fidelity bond
or errors and omissions policy.
ARTICLE IX
TERMINATION OF TRUST
Section 9.01 Termination of Trust.
The Trust created hereunder and all obligations created by this Agreement
will terminate upon the payment to the Owners of all Certificates, from amounts
other than those available under the Certificate Insurance Policy, of all
amounts held by the Trustee and required to be paid to such Owners pursuant to
this Agreement upon the latest to occur of (a) the final payment or other
liquidation of the last Mortgage Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Mortgage Loan remaining in the Trust
Estate, (c) at any time when a Qualified Liquidation of both Mortgage Loan
Groups included within the Trust is effected as described below and (d) the
final payment to the Certificate Insurer of all amounts then owing to it. To
effect a termination of this Agreement pursuant to clause (c) above, the Owners
of a majority in Percentage Interest represented by the Class A Certificates
then Outstanding shall (i)
103
<PAGE>
direct the Trustee on behalf of the Trust to adopt a plan of complete
liquidation for each of the Mortgage Loan Groups, as contemplated by Section
860F(a)(4) of the Code and (ii) provide to the Trustee an opinion of counsel
experienced in federal income tax matters acceptable to the Certificate Insurer
and the Trustee to the effect that each such liquidation constitutes a Qualified
Liquidation, and the Trustee either shall sell the Mortgage Loans and distribute
the proceeds of the liquidation of the Trust Estate, or shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates each in accordance with such plan, so that the liquidation
or distribution of the Trust Estate, the distribution of any proceeds of the
liquidation and the termination of this Agreement occur no later than the close
of the 90th day after the date of adoption of the plan of liquidation and such
liquidation qualifies as a Qualified Liquidation. In no event, however, will the
Trust created by this Agreement continue beyond the earlier of (i) the
expiration of twenty-one (21) years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of Saint James's, living on the date hereof and (ii) the Latest
Possible Maturity Date. The Trustee shall give written notice of termination of
this Agreement to each Owner in the manner set forth in Section 11.05.
Section 9.02 Termination upon Option of Owners of Class R Certificates and
Master Servicer. (a) On any Monthly Remittance Date on or after the Optional
Termination Date, the Class R Optionholder may determine to purchase and may
cause the purchase from the Trust of all (but not fewer than all) Mortgage Loans
and all property theretofore acquired in respect of any Mortgage Loan by
foreclosure, deed in lieu of foreclosure, or otherwise then remaining in the
Trust Estate on terms agreed upon between the Certificate Insurer and the Class
R Optionholder at a price no less than the Minimum Termination Amount. In
connection with such purchase, the Master Servicer shall remit to the Trustee
all amounts then on deposit in the Collection Account for deposit to the
Distribution Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. The Master Servicer shall indemnify the Certificate
Insurer for any claims under the Certificate Insurance Policies for the exercise
of such option.
(b) In addition to the foregoing, following the Optional Termination Date,
on or after the first Monthly Remittance Date on which the aggregate of the Loan
Balances of the Mortgage Loans is less than 5% of the Original Aggregate Loan
Balance, the Master Servicer may determine to purchase and may cause the
purchase from the Trust of all (but not fewer than all) Mortgage Loans and all
property theretofore acquired in respect of any Mortgage Loan by foreclosure,
deed in lieu of foreclosure, or otherwise then remaining in the Trust Estate at
terms agreed upon between the Certificate Insurer and the Master Servicer, at a
price no less than the Minimum Termination Amount. The Master Servicer shall
indemnify the Certificate Insurer for any claims under the Certificate Insurance
Policies for the exercise of such option.
(c) In connection with any such purchase, such Class R Optionholder or the
Master Servicer, as applicable, shall adopt and the Trustee shall adopt, as to
the Trust, a plan of complete liquidation for both of the Mortgage Loan Groups
as contemplated by Section 860F(a)(4) of the
104
<PAGE>
Code and shall provide to the Trustee an opinion of counsel experienced in
federal income tax matters acceptable to the Trustee to the effect that such
purchase and liquidation constitutes, as to the Trust, a Qualified Liquidation.
In addition, such Class R Optionholder, the Master Servicer or the Certificate
Insurer, as applicable, shall provide to the Trustee an opinion of counsel
acceptable to the Trustee to the effect that such purchase and liquidation does
not constitute a preference payment pursuant to the United States Bankruptcy
Code.
(d) Promptly following any purchase described in this Section 9.02, the
Trustee will release the Files to the Owners of such Class R Certificates or the
Master Servicer, as the case may be, or otherwise upon their order, in a manner
similar to that described in Section 8.14 hereof.
Section 9.03 Termination Auction.
The Trustee shall, in accordance with the procedures and schedule set forth
in Exhibit K hereto (the "Auction Procedures") and upon written notice from the
Master Servicer, make a commercially reasonable effort to sell at fair market
value in a commercially reasonable manner and upon commercially reasonable
terms, by conducting an auction (the "Termination Auction") of the Mortgage
Loans remaining in the Trust in order to effect a termination of the Trust on a
date selected by the Trustee (the "Auction Date"), but in any case within ninety
days following the Optional Termination Date. The Seller and the Master Servicer
may, but shall not be required to, bid at the Termination Auction. The Trustee
shall be entitled to retain counsel of its choice to represent it in the
Termination Auction, and the fees and expenses of such counsel shall be paid by
the Seller. The Trustee shall sell and transfer the Mortgage Loans to the
highest bidder therefor at the Termination Auction provided that:
(1) the Termination Auction has been conducted in accordance with
the Auction Procedures;
(2) the Trustee has received good faith bids for the Mortgage Loans
from at least two prospective purchasers that are considered by the
Trustee, in its sole discretion, to be competitive participants in the
market for mortgage loans similar to the Mortgage Loans and willing and
able purchasers of the Mortgage Loans; provided, that at least one of such
prospective purchasers shall not be the Seller or an affiliate of the
Seller;
(3) a financial advisor selected by the Trustee, the fees of whom shall
be an expense of the Seller, as advisor to the Trustee (in such capacity,
the "Advisor"), shall have advised the Trustee in writing that at least two
of such bidders are participants in the market for mortgage loans and are
willing and able to purchase the Mortgage Loans (the Trustee may in its
discretion select itself or an affiliate thereof as Advisor);
105
<PAGE>
(4) the highest bid in respect of the Mortgage Loans is not less than
the aggregate fair market value of the Mortgage Loans (as determined by the
Trustee in its sole discretion);
(5) any bid submitted by the Seller or any affiliate thereof shall be
independently verified and represented in writing by a qualified
independent third party evaluator (which may include the Advisor or an
investment banking firm) selected by the Trustee and may only be considered
if such evaluator determines that the bid reasonably represents the fair
market value of the Mortgage Loans;
(6) the highest bid would result in proceeds from the sale of the
Mortgage Loans which will be at least equal to the Minimum Termination
Amount;
(7) such sale and consequent termination of the Trust must constitute a
"qualified liquidation" of the Trust under Section 860F of the Code,
including the requirement that such qualified liquidation take place over a
period not to exceed 90 days (the Trustee may, in its discretion, require
that the purchaser of such Mortgage Loans provide an opinion of counsel to
that effect); and
(8) the terms of the Termination Auction must be made available to all
bidders and must stipulate that the Master Servicer be retained to service
the Mortgage Loans on terms substantially similar to those in this
Agreement.
Provided that all of the conditions set forth in clauses (1) through (8)
have been met, the Trustee shall sell and transfer the Mortgage Loans, without
representation, warranty or recourse of any kind whatsoever, to such highest
bidder in accordance with and upon completion of the Auction Procedures. The
Trustee shall deposit the purchase price for the Mortgage Loans in the
Distribution Account at least one Business Day prior to the fourth Distribution
Date following the Optional Termination Date. In the event that any of such
conditions are not met or such highest bidder fails or refuses to comply with
any of the Auction Procedures, the Trustee shall decline to consummate such sale
and transfer. In such case, the Termination Auction shall be concluded and the
Trustee shall be under no further duty to solicit bids for or otherwise to
attempt to sell the Mortgage Loans. The Master Servicer shall indemnify the
Certificate Insurer for any claim under the Certificate Insurance Policies due
to the exercise of this sale right.
Section 9.04 Termination upon Loss of REMIC Status.
(a) Following a final determination by the Internal Revenue Service or by a
court of competent jurisdiction, in either case from which no appeal is taken
within the permitted time for such appeal or, if any appeal is taken, following
a final determination of such appeal from which no further appeal can be taken,
to the effect that the Trust does not and will no longer qualify as a REMIC
pursuant to Section 860D of the Code (the "Final Determination"), at any time on
or after the date which is 30 calendar days following such Final Determination
(i) the Certificate
106
<PAGE>
Insurer or the Owners of a majority in Percentage Interests represented by the
Class A Certificates then Outstanding with the consent of the Certificate
Insurer may direct the Trustee on behalf of the Trust to adopt a plan of
complete liquidation, as contemplated by Section 860F(a)(4) of the Code or (ii)
the Master Servicer or the Certificate Insurer may notify the Trustee of the
Master Servicer's or the Certificate Insurer's, as applicable, determination to
purchase from the Trust all (but not fewer than all) Mortgage Loans and all
property theretofore acquired by foreclosure, deed in lieu of foreclosure, or
otherwise then remaining in the Trust Estate at a price equal to the sum of (w)
the greater of (I) 100% of the aggregate Loan Balances of the Mortgage Loans as
of the day of purchase minus amounts remitted from the Collection Account
representing collections of principal on the Mortgage Loans during the current
Due Period, and (II) the fair market value of such Mortgage Loans (disregarding
accrued interest), (x) one month's interest on such amount computed at the
Adjusted Pass-Through Rate, (y) the aggregate amount of any unreimbursed
Delinquency Advances and Servicing Advances and the interest portion of any
Delinquency Advances which the Master Servicer has theretofore failed to remit
and (z) any Reimbursement Amounts due and owing to the Certificate Insurer.
Upon receipt of such direction or notice, the Trustee shall notify the
Owners of the Class R Certificates of such election to liquidate or such
determination to purchase, as the case may be (the "Termination Notice"). The
Owners of a majority of the Percentage Interests of the Class R Certificates
then Outstanding may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the Trust
all (but not fewer than all) Mortgage Loans and all property theretofore
acquired by foreclosure, deed in lieu of foreclosure, or otherwise then
remaining in the Trust Estate at a purchase price equal to the aggregate Loan
Balances of all Mortgage Loans as of the date of such purchase, plus (a) one
month's interest on such amount at the Adjusted Pass-Through Rate, (b) the
aggregate amount of any unreimbursed Delinquency Advances and Servicing Advances
and (c) the interest portion of any Delinquency Advances which the Master
Servicer has theretofore failed to remit. If, during the Purchase Option Period,
the Owners of the Class R Certificates have not exercised the option described
in the immediately preceding sentence, then upon the expiration of the Purchase
Option Period (i) in the event that neither the Master Servicer nor the
Certificate Insurer have elected to purchase the Mortgage Loans, the Trustee
shall sell the Mortgage Loans and distribute the proceeds of the liquidation of
the Trust Estate, each in accordance with the plan of complete liquidation, such
that, if so directed, the liquidation of the Trust Estate, the distribution of
the proceeds of the liquidation and the termination of this Agreement occur no
later than the close of the 60th day, or such later day as the Certificate
Insurer or the Owners of the Class A Certificates with the consent of the
Certificate Insurer shall permit or direct in writing, after the expiration of
the Purchase Option Period and (ii) in the event that the Master Servicer or the
Certificate Insurer, as applicable, has given the Trustee notice of the Master
Servicer's or the Certificate Insurer's determination to purchase the Trust
Estate, the Master Servicer or the Certificate Insurer shall, within 60 days,
purchase all (but not fewer than all) Mortgage Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure or otherwise
then remaining in the Trust Estate for the price calculated as described in
clause (ii) of the first paragraph of this Section 9.04(a). In connection with
such purchase, the Master Servicer shall
107
<PAGE>
remit to the Trustee all amounts then on deposit in the Collection Account for
deposit to the Distribution Account, which deposit shall be deemed to have
occurred immediately preceding such purchase.
(b) Following a Final Determination, the Owners of a majority of the
Percentage Interests of the Class R Certificates then Outstanding may, at their
option and upon delivery to the Certificate Insurer of an opinion of counsel
experienced in federal income tax matters acceptable to the Certificate Insurer
selected by the Owners of the Class R Certificates, which opinion shall be
reasonably satisfactory in form and substance to the Certificate Insurer, to the
effect that the effect of the Final Determination is to increase substantially
the probability that the gross income of the Trust will be subject to federal
taxation, purchase from the Trust all (but not fewer than all) Mortgage Loans
and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise then remaining in the Trust Estate at a purchase price
equal to the aggregate Loan Balances of all Mortgage Loans as of the date of
such purchase, plus (a) one month's interest on such amount computed at the
Adjusted Pass-Through Rate, (b) the aggregate amount of unreimbursed Delinquency
Advances and (c) any Delinquency Advances which the Master Servicer has
theretofore failed to remit and any Reimbursement Amounts due the Certificate
Insurer. In connection with such purchase, the Master Servicer shall remit to
the Trustee all amounts then on deposit in the Collection Account for deposit to
the Distribution Account, which deposit shall be deemed to have occurred
immediately preceding such purchase. The foregoing opinion shall be deemed
satisfactory unless the Certificate Insurer gives the Owners of a majority of
the Percentage Interests of the Class R Certificates notice that such opinion is
not satisfactory within thirty days after receipt of such opinion. In connection
with any such purchase, such Owners shall direct the Trustee to adopt a plan of
complete liquidation as contemplated by Section 860F(a)(4) of the Code and shall
provide to the Trustee an opinion of counsel experienced in federal income tax
matters to the effect that such purchase constitutes a Qualified Liquidation.
Section 9.05 Disposition of Proceeds.
The Trustee shall, upon receipt thereof, deposit the proceeds of any
liquidation of the Trust Estate pursuant to this Article IX to the Distribution
Account; provided, however, that any amounts representing unreimbursed
Delinquency Advances and Servicing Advances theretofore funded by the Master
Servicer from the Master Servicer's own funds shall be paid by the Trustee to
the Master Servicer from the proceeds of the Trust Estate.
108
<PAGE>
ARTICLE X
THE TRUSTEE
Section 10.01 Certain Duties and Responsibilities.
(a) The Trustee (i) undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Trustee and the
banking institution that is the Trustee shall serve as the Trustee at all times
under this Agreement, and (ii) in the absence of bad faith on its part, may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished pursuant to
and conforming to the requirements of this Agreement; but in the case of any
such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Agreement.
(b) Notwithstanding the appointment of the Master Servicer hereunder, the
Trustee is hereby empowered to perform the duties of the Master Servicer, it
being expressly understood, however, that the foregoing describes a power and
not an obligation of the Trustee, and that all parties hereto agree that, prior
to any termination of the Master Servicer, the Master Servicer and, thereafter,
the Trustee or any other successor Master Servicer shall perform such duties.
Specifically, and not in limitation of the foregoing, the Trustee shall, upon
termination or resignation of the Master Servicer and pending the appointment of
any other Person as successor Master Servicer, have the power and duty during
its performance as successor Master Servicer:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into assumption and
substitution agreements as permitted by Section 8.12 hereof;
(iv) to deliver instruments of satisfaction pursuant to Section 8.14;
(v) to enforce the Mortgage Loans; and
(vi) to make Delinquency Advances and Servicing Advances and to pay
Compensating
Interest.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
109
<PAGE>
(i) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(ii) the Trustee shall not be personally liable for any error of
judgment made in good faith by an Authorized Officer of the Trustee,
unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
any direction given pursuant to Section 6.11.
(d) Whether or not therein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
(e) No provision of this Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. 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.
(f) The permissive right of the Trustee to take actions enumerated in this
Agreement shall not be construed as a duty and the Trustee shall not be
answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any suit, or to
take any remedial proceeding under this Agreement, or to take any steps in the
execution of the trusts hereby created or in the enforcement of any rights and
powers hereunder until it shall be indemnified to its satisfaction against any
and all costs and expenses, outlays and counsel fees and other reasonable
disbursements and against all liability, except liability which is adjudicated
to have resulted from its negligence or willful misconduct, in connection with
any action so taken.
(h) Upon the direction of the Certificate Insurer, the Trustee hereby
agrees to oppose any attempt to treat the Mortgage Loans as the property of the
estate of Companion Mortgage Corporation, the Master Servicer or the
Depositor.
110
<PAGE>
Section 10.02 Removal of Trustee for Cause.
(a) The Trustee may be removed pursuant to paragraph (b) hereof upon the
occurrence of any of the following events (whatever the reason for such event
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners entitled hereto
on any Distribution Date amounts available for distribution in accordance
with the terms hereof; provided, however, that any such failure which is
due to circumstances beyond the control of the Trustee shall not be a cause
for removal hereunder; or
(2) the Trustee shall breach or fail in the performance of any covenant
or agreement of the Trustee in this Agreement, or if any representation or
warranty of the Trustee made in this Agreement or in any certificate or
other writing delivered pursuant hereto or in connection herewith shall
prove to be incorrect in any material respect as of the time when the same
shall have been made, and such failure or breach shall continue or not be
cured for a period of 30 days after there shall have been given, by
registered or certified mail, to the Trustee by the Seller, the Certificate
Insurer, or by the Owners of at least 25% of the aggregate Percentage
Interests in the Trust Estate represented by the Class A Certificates then
Outstanding, or, if there are no Class A Certificates then Outstanding, by
the Owners of such Percentage Interests represented by Class R
Certificates, a written notice specifying such failure or breach and
requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Trustee,
and such decree or order shall have remained in force undischarged or
unstayed for a period of 75 days; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Trustee or relating to all or
substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, voluntarily suspend payment of its obligations, or take
corporate action for the purpose of any of the foregoing.
111
<PAGE>
The Depositor shall give to the Certificate Insurer, Moody's and Standard &
Poor's notice of the occurrence of any such event of which the Depositor is
aware.
(b) If any event described in paragraph (a) occurs and is continuing, then
and in every such case (i) the Certificate Insurer or (ii) with the prior
written consent (which shall not be unreasonably withheld) of the Certificate
Insurer, the Master Servicer and the Owners of a majority of the Percentage
Interests represented by the Class A Certificates or if there are no Class A
Certificates then Outstanding by the Owners of a majority of the Percentage
Interests represented by the Class R Certificates, may, whether or not the
Trustee resigns pursuant to Section 10.09(b) hereof, concurrently with the
giving of notice to the Trustee, and without delaying the 30 days required for
notice therein, appoint a successor Trustee pursuant to the terms of Section
10.09 hereof.
(c) To the extent of any costs incurred in removing the Trustee which are
not recovered from the former Trustee, such costs will be payable pursuant to
Section 2.05 hereof.
Section 10.03 Certain Rights of the Trustee.
Except as otherwise provided in Section 10.01 hereof:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting based upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Depositor, the Seller, the Certificate
Insurer, or the Owners of any Class of Certificates mentioned herein shall be
sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officer's Certificate;
(d) the Trustee may consult with counsel, and the written advice of such
counsel (selected in good faith by the Trustee) shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Agreement at the request or direction of any of
the Owners pursuant to this Agreement, unless such Owners shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
112
<PAGE>
(f) 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, direction, consent, order, bond, note or other
paper or document, but the Trustee in its discretion may make such further
inquiry or investigation into such facts or matters as it may see fit;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys
or custodians;
(h) the Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized by the
Authorized Officer of any Person or within its rights or powers under this
Agreement other than as to validity and sufficiency of its authentication of the
Certificates;
(i) 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;
(j) pursuant to the terms of this Agreement, the Master Servicer is
required to furnish to the Trustee from time to time certain information and to
make various calculations which are relevant to the performance of the Trustee's
duties under this Agreement. The Trustee shall be entitled to rely in good faith
on any such information and calculations in the performance of its duties
hereunder, (i) unless and until an Authorized Officer of the Trustee has actual
knowledge, or is advised by any Owner of a Certificate (either in writing or
orally with prompt written or facsimile confirmation), that such information or
calculations is or are incorrect, or (ii) unless there is a manifest error in
any such information; and
(k) the Trustee shall not be required to give any bond or surety in respect
of the execution of the Trust Estate created hereby or the powers granted
hereunder.
Section 10.04 Not Responsible for Recitals or Issuance of Certificates.
The recitals and representations contained herein and in the Certificates,
except any such recitals and representations relating to the Trustee, shall be
taken as the statements of the Depositor and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or sufficiency of this Agreement, of the Certificates, or any
Mortgage Loan or document related thereto other than as to validity and
sufficiency of its authentication of the Certificates. The Trustee shall not be
accountable for the use or application by the Depositor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Depositor, the Seller or the Master
Servicer in respect of the Mortgage Loans or deposited into or withdrawn from
the Collection Account by the Depositor, the Master Servicer or the Seller, and
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or otherwise to perfect or maintain the
perfection of any security interest or lien or to prepare or file any Securities
and
113
<PAGE>
Exchange Commission filings for the Trust or to record this Agreement. The
Trustee shall not be required to take notice or be deemed to have notice or
knowledge of any default unless an Authorized Officer of the Trustee shall have
received written notice thereof or an Authorized Officer has actual knowledge
thereof. In the absence of receipt of such notice, the Trustee may conclusively
assume that no default has occurred.
Section 10.05 May Hold Certificates.
The Trustee, any Paying Agent, Registrar or any other agent of the Trust,
in its individual or any other capacity, may become an Owner or pledgee of
Certificates and may otherwise deal with the Trust with the same rights it would
have if it were not Trustee, any Paying Agent, Registrar or such other agent.
Section 10.06 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other trust funds except to the extent required herein or required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Seller and except to the extent of
income or other gain on investments which are deposits in or certificates of
deposit of the Trustee in its commercial capacity.
Section 10.07 Compensation and Reimbursement; No Lien for Fees.
The Trustee shall receive compensation for fees and reimbursement for
expenses pursuant to Section 2.05, Section 7.03(c)(iii)(B) and Section 7.06
hereof. The Trustee shall have no lien on the Trust Estate for the payment of
such fees and expenses.
Section 10.08 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation or association, organized and doing business under the laws of the
United States of America or of any State, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by the United States of
America or of such State of organization, acceptable to the Certificate Insurer
and having a deposit rating of at least A- from Standard & Poor's (or such lower
rating as may be acceptable to Standard & Poor's) and A2 by Moody's (or such
lower rating as may be acceptable to Moody's). If such Trustee publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation or association
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall, upon
the request of the Depositor with the consent of the Certificate Insurer
114
<PAGE>
(which consent shall not be unreasonably withheld) or of the Certificate
Insurer, resign immediately in the manner and with the effect hereinafter
specified in this Article X.
Section 10.09 Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until the
acceptance of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed, may resign
at any time by giving written notice of resignation to the Master Servicer and
by mailing notice of resignation by first-class mail, postage prepaid, to the
Certificate Insurer and the Owners at their addresses appearing on the Register;
provided, that the Trustee cannot resign solely for the failure to receive the
Trustee Fee. A copy of such notice shall be sent by the resigning Trustee to the
Rating Agencies. Upon receiving notice of resignation, the Master Servicer shall
promptly appoint a successor trustee or trustees acceptable to the Certificate
Insurer by written instrument, in duplicate, executed on behalf of the Trust by
an Authorized Officer of the Seller, one copy of which instrument shall be
delivered to the Trustee so resigning, one copy to the successor trustee or
trustees. If no successor trustee shall have been appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Owner may, on behalf of himself and
all others similarly situated, petition any such court for the appointment of a
successor trustee. A copy of any such petition shall be promptly delivered to
the Master Servicer. Such court may thereupon, after such notice, if any, as it
may deem proper and appropriate, appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible under Section
10.08 hereof and shall fail to resign after written request therefor by the
Master Servicer or by the Certificate Insurer, the Certificate Insurer or the
Master Servicer with the written consent of the Certificate Insurer may remove
the Trustee and appoint a successor trustee acceptable to the Certificate
Insurer by written instrument, in duplicate, executed on behalf of the Trust by
an Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(d) The Owners of a majority of the Percentage Interests represented by the
Class A Certificates with the consent of the Certificate Insurer, or, if there
are no Class A Certificates then Outstanding, by the Owners of a majority of the
Percentage Interests represented by the Class R Certificates, may at any time
remove the Trustee and appoint a successor trustee acceptable to the Certificate
Insurer by delivering to the Trustee to be removed, to the successor trustee so
appointed, to the Depositor, to the Master Servicer and to the Certificate
Insurer, copies of the record of the act taken by the Owners, as provided for in
Section 11.03 hereof.
115
<PAGE>
(e) If the Trustee fails to perform its duties in accordance with the terms
of this Agreement, or becomes ineligible pursuant to Section 10.08 to serve as
Trustee, the Certificate Insurer may remove the Trustee and appoint a successor
trustee by written instrument, in triplicate, signed by the Certificate Insurer
duly authorized, one complete set of which instruments shall be delivered to the
Depositor, one complete set to the Trustee so removed, one complete set to the
successor Trustee so appointed.
(f) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee for any cause, the
Master Servicer shall promptly appoint a successor trustee acceptable to the
Certificate Insurer. If within one year after such resignation, removal or
incapability or the occurrence of such vacancy, a successor trustee shall be
appointed by act of the Certificate Insurer or the Owners of a majority of the
Percentage Interests represented by the Class A Certificates then Outstanding
with the consent of the Certificate Insurer, the successor trustee so appointed
shall forthwith upon its acceptance of such appointment become the successor
trustee and supersede the successor trustee appointed by the Master Servicer. If
no successor trustee shall have been so appointed by the Master Servicer or the
Owners and shall have accepted appointment in the manner hereinafter provided,
any Owner may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
(g) The Depositor shall give notice of any removal of the Trustee by
mailing notice of such event by first-class mail, postage prepaid, to the
Certificate Insurer, to the Rating Agencies and to the Owners as their names and
addresses appear in the Register. Each notice shall include the name of the
successor Trustee and the address of its corporate trust office.
Section 10.10 Acceptance of Appointment by Successor
Trustee.
Every successor trustee appointed hereunder shall execute, acknowledge and
deliver to the Depositor on behalf of the Trust and to its predecessor Trustee
an instrument accepting such appointment hereunder and stating its eligibility
to serve as Trustee 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 vested with all the rights,
powers, trusts, duties and obligations of its predecessor hereunder; but, on
request of the Depositor or the successor Trustee, such predecessor Trustee
shall, upon payment of its charges then unpaid, execute and deliver an
instrument transferring to such successor trustee all of the rights, powers and
trusts of the Trustee so ceasing to act, and shall duly assign, transfer and
deliver to such successor trustee all property and money held by such Trustee so
ceasing to act hereunder. Upon request of any such successor trustee, the
Depositor on behalf of the Trust shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor trustee all such
rights, powers and trusts.
116
<PAGE>
Upon acceptance of appointment by a successor Trustee as provided in this
Section, the Successor Trustee shall mail notice thereof by first-class mail,
postage prepaid, to the Owners at their last addresses appearing upon the
Register.
No successor trustee shall accept its appointment unless at the time of
such acceptance such successor shall be qualified and eligible under this
Article X.
Section 10.11 Merger, Conversion, Consolidation or
Succession to Business of the Trustee.
Any corporation or association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto; provided, however,
that such corporation or association shall be otherwise qualified and eligible
under this Article X. In case any Certificates have been executed, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such Trustee may adopt such execution and deliver the
Certificates so executed with the same effect as if such successor Trustee had
itself executed such Certificates.
Section 10.12 Reporting; Withholding.
(a) The Trustee shall timely provide to the Owners the Internal Revenue
Service's Form 1099 and any other statement required by applicable Treasury
regulations as determined by the Tax Matters Person, and shall withhold, as
required by applicable law, federal, state or local taxes, if any, applicable to
distributions to the Owners, including but not limited to backup withholding
under Section 3406 of the Code and the withholding tax on distributions to
foreign investors under Sections 1441 and 1442 of the Code.
(b) As required by law or upon request of the Tax Matters Person and except
as otherwise specifically set forth in subsection (a) above, the Trustee shall
prepare and timely file all reports required to be filed by the Trust with any
federal, state or local governmental authority having jurisdiction over the
Trust, including other reports that must be filed with the Owners, such as the
Internal Revenue Service's Form 1066 and Schedule Q and the form required under
Section 6050K of the Code, if applicable to REMICs. Furthermore, the Trustee
shall report to Owners, if required, with respect to the allocation of expenses
pursuant to Section 212 of the Code. The Trustee shall collect any forms or
reports from the Owners it determines to be required under applicable federal,
state and local tax laws.
117
<PAGE>
Section 10.13 Liability of the Trustee.
The Trustee shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Trustee herein.
Neither the Trustee nor any of the directors, officers, employees or agents of
the Trustee shall be under any liability on any Certificate or otherwise to the
Certificate Insurer, the Depositor, the Seller, the Master Servicer or any Owner
for any action taken or for refraining from the taking of any action in good
faith pursuant to this Agreement, or for errors in judgment; provided, however,
that this provision shall not protect the Trustee, its directors, officers,
employees or agents or any such Person against any liability which would
otherwise be imposed by reason of negligent action, negligent failure to act or
willful misconduct in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. Subject to the foregoing
sentence, the Trustee shall not be liable for losses on investments of amounts
in the Distribution Account (except for any losses on obligations on which the
bank serving as Trustee is the obligor). In addition, the Depositor, the Seller
and the Master Servicer covenant and agree to indemnify the Trustee, and when
the Trustee is acting as Master Servicer, the Master Servicer, from, and hold it
harmless against, any and all losses, liabilities, damages, claims or expenses
(including legal fees and expenses) of whatsoever kind arising out of or in
connection with the performance of its duties hereunder other than those
resulting from the negligence or bad faith of the Trustee and the Depositor
shall pay all amounts not otherwise paid pursuant to Sections 2.05 and 7.06
hereof. The Trustee and any director, officer, employee or agent of the Trustee
may rely and shall be protected in acting or refraining from acting in good
faith on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the Authorized Officer of any Person
respecting any matters arising hereunder.
Section 10.14 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 Estate or Mortgaged Property may at the time be located, the
Master Servicer and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Trustee and reasonably acceptable to the Certificate Insurer to act as
co-Trustee or co-Trustees, jointly with the Trustee, of all or any part of the
Trust Estate or separate Trustee or separate Trustees of any part of the Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Owners, such title to the Trust Estate, or any part thereof, and,
subject to the other provisions of this Section 10.14, such powers, duties,
obligations, rights and trusts as the Master Servicer and the 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,
or in the case any event indicated in Section 8.20(a) shall have occurred and be
continuing, the Trustee, subject to reasonable approval of the Certificate
Insurer, alone shall have the power to make such appointment. No co-Trustee or
separate Trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 10.08 and no notice
118
<PAGE>
to Owners of the appointment of any co-Trustee or separate Trustee shall be
required under Section 10.09.
Every separate Trustee and co-Trustee shall, to the extent permitted, 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 Estate 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 co-Trustee hereunder shall be held personally liable by
reason of any act or omission of any other co-Trustee hereunder; and
(iii) The Master Servicer, the Certificate Insurer and the 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 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 Section 10.14. 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
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.
119
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates and Opinions.
Upon any application or request by the Depositor, the Seller, the
Certificate Insurer or the Owners to the Trustee to take any action under any
provision of this Agreement, the Depositor, the Seller, the Certificate Insurer
or the Owners, as the case may be, shall furnish to the Trustee a certificate
stating that all conditions precedent, if any, provided for in this Agreement
relating to the proposed action have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate need be furnished.
Except as otherwise specifically provided herein, each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Agreement (including one furnished pursuant to specific requirements of
this Agreement relating to a particular application or request) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) 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; and
(c) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with in all material respects.
Section 11.02 Form of Documents Delivered to the
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 Trustee may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such Authorized 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 certificate
120
<PAGE>
or opinion is based are erroneous. Any such certificate or opinion of an
Authorized Officer of the Trustee or any opinion of counsel may be based,
insofar as it relates to factual matters upon a certificate or opinion of, or
representations by, one or more Authorized Officers of the Depositor, the Seller
or the Master Servicer, stating that the information with respect to such
factual matters is in the possession of the Depositor, the Seller or the Master
Servicer, unless such Authorized Officer or counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous. Any opinion of counsel may also be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an Authorized Officer of the Trustee, stating that
the information with respect to such matters is in the possession of the
Trustee, 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. Any opinion of counsel may be based on the written
opinion of other counsel, in which event such opinion of counsel shall be
accompanied by a copy of such other counsel's opinion and shall include a
statement to the effect that such counsel believes that such counsel and the
Trustee may reasonably rely upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 11.03 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by the Owners
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Owners in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Depositor. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "act" of the Owners 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
Agreement and conclusive in favor of the Trustee and the Trust, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Whenever such execution is
by an officer of a corporation or a member of a partnership on behalf of such
corporation or partnership, such certificate or affidavit shall also constitute
sufficient proof of his authority.
121
<PAGE>
(c) The ownership of Certificates shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Owner of any Certificate shall bind the Owner of every
Certificate issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Trustee or the Trust in reliance thereon, whether or not notation
of such action is made upon such Certificates.
Section 11.04 Notices, etc. to Trustee.
Any request, demand, authorization, direction, notice, consent, waiver or
act of the Owners or other documents provided or permitted by this Agreement to
be made upon, given or furnished to, or filed with the Trustee by any Owner, the
Certificate Insurer, the Depositor or the Seller shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing to or with and
received by the Trustee at the Corporate Trust Office.
Section 11.05 Notices and Reports to Owners; Waiver of Notices.
Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided. Notwithstanding the foregoing, if the Master
Servicer is removed or resigns or the Trust is terminated, notice of any such
events shall be made by overnight courier, registered mail or telecopy followed
by a telephone call.
Where this Agreement 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 Owners shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Owners when such notice is required to be given pursuant
to any provision of this Agreement, 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.
122
<PAGE>
Where this Agreement provides for notice to any Rating Agency that rated
any Certificates, failure to give such notice shall not affect any other rights
or obligations created hereunder.
Section 11.06 Rules by Trustee.
The Trustee may make reasonable rules for any meeting of Owners.
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 Severability.
In case any provision in this Agreement or in the Certificates 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 11.09 Benefits of Agreement.
Nothing in this Agreement or in the Certificates, expressed or implied,
shall give to any Person, other than the Owners, the Certificate Insurer and the
parties hereto and their successors hereunder, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
Section 11.10 Legal Holidays.
In any case where the date of any Monthly Remittance Date, any Distribution
Date, any other date on which any distribution to any Owner is proposed to be
paid, or any date on which a notice is required to be sent to any Person
pursuant to the terms of this Agreement shall not be a Business Day, then
(notwithstanding any other provision of the Certificates or this Agreement)
payment or mailing 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 or mailed on
the nominal date of any such Monthly Remittance Date, such Distribution Date, or
such other date for the payment of any distribution to any Owner or the mailing
of such notice, as the case may be, and no interest shall accrue for the period
from and after any such nominal date, provided such payment is made in full on
such next succeeding Business Day.
Section 11.11 Governing Law; Submission to Jurisdiction.
(a) In view of the fact that Owners are expected to reside in many states
and outside the United States and the desire to establish with certainty that
this Agreement will be governed by and construed and interpreted in accordance
with the law of a state having a well-developed body
123
<PAGE>
of commercial and financial law relevant to transactions of the type
contemplated herein, this Agreement and each Certificate shall be construed in
accordance with and governed by the laws of the State of New York applicable to
agreements made and to be performed therein, without giving effect to the
conflicts of law principles thereof.
(b) The parties hereto hereby irrevocably submit to the jurisdiction of the
United States District Court for the Southern District of New York and any court
in the State of New York located in the City and County of New York, and any
appellate court from any thereof, in any action, suit or proceeding brought
against them or in connection with this Agreement or any of the related
documents or the transactions contemplated hereunder or for recognition or
enforcement of any judgment, and the parties hereto hereby irrevocably and
unconditionally agree that all claims in respect of any such action or
proceeding may be heard or determined in such New York State court or, to the
extent permitted by law, in such federal court. The parties hereto agree that a
final judgment in any such action, suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. To the extent permitted by applicable law, the parties
hereto hereby waive and agree not to assert by way of motion, as a defense or
otherwise in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that the related documents or the subject
matter thereof may not be litigated in or by such courts.
(c) Each of the Depositor, the Seller and the Master Servicer hereby
irrevocably appoints and designates the Trustee as its true and lawful attorney
and duly authorized agent for acceptance of service of legal process with
respect to any action, suit or proceeding set forth in paragraph (b) hereof.
Each of the Seller and the Master Servicer agrees that service of such process
upon the Trustee shall constitute personal service of such process upon it.
(d) Nothing contained in this Agreement shall limit or affect the right of
the Depositor, the Seller, the Master Servicer or the Certificate Insurer or any
third-party beneficiary hereunder, as the case may be, to serve process in any
other manner permitted by law or to start legal proceedings relating to any of
the Mortgage Loans against any Mortgagor in the courts of any jurisdiction.
Section 11.12 Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
124
<PAGE>
Section 11.13 Usury.
The amount of interest payable or paid on any Certificate under the terms
of this Agreement shall be limited to an amount which shall not exceed the
maximum nonusurious rate of interest allowed by the applicable laws of the State
of New York or any applicable law of the United States permitting a higher
maximum nonusurious rate that preempts such applicable New York laws, which
could lawfully be contracted for, charged or received (the "Highest Lawful
Rate"). In the event any payment of interest on any Certificate exceeds the
Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed
to have been paid to the Owner of such Certificate as a result of an error on
the part of the Trustee acting on behalf of the Trust and the Owner receiving
such excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Trustee on behalf of the Trust, refund the amount of such
excess or, at the option of such Owner, apply the excess to the payment of
principal of such Certificate, if any, remaining unpaid. In addition, all sums
paid or agreed to be paid to the Trustee for the benefit of Owners of
Certificates for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Certificates.
Section 11.14 Amendment.
(a) The Trustee, the Depositor, the Seller and the Master Servicer may, at
any time and from time to time, and without notice to or the consent of the
Owners but with the consent of the Certificate Insurer, amend this Agreement,
subject to the provisions of Sections 11.16 and 11.17, and the Trustee shall
consent to such amendment, for the purpose of (i) curing any ambiguity or error,
correcting or supplementing any provision hereof which may be inconsistent with
any other provision hereof, to evidence a succession to the Master Servicer, or
adding provisions hereto which are not inconsistent with the provisions hereof;
(ii) upon receipt of an opinion of counsel experienced in federal income tax
matters to the effect that no entity-level tax will be imposed on the Trust or
upon the transferor of a Class R Certificate as a result of the ownership of any
Class R Certificate by a Disqualified Organization, removing the restriction on
transfer set forth in Section 5.08(b) hereof, or (iii) to the extent necessary,
complying with the requirements of the Code and the regulations proposed or
promulgated thereunder including any amendments necessary to maintain REMIC
status or avoiding, or minimizing the risk of, the imposition of any tax on the
Trust Estate under the Code that would be a claim against the assets in the
Trust Estate; or (iv) for any other purpose, provided that in the case of this
clause (iv) the Person requesting such amendment delivers (A) an opinion of
counsel acceptable to the Trustee and the Certificate Insurer that such
amendment will not adversely affect in any material respect the interest of the
Owners and (B) such amendment will not result in a withdrawal or reduction of
the rating of the Class A Certificates without regard to the Certificate
Insurance Policies. Notwithstanding anything to the contrary herein, no such
amendment shall (a) change in any manner the amount of, or change the timing of,
payments which are required to be distributed to any Owner without the consent
of the Owner of such Certificate, or (b) which affects in any the manner the
terms or provisions of the Certificate Insurance Policy without the consent of
not
125
<PAGE>
less than a majority of the aggregate Class Certificate Balance of the Classes
of Certificates affected by such amendment, or (c) reduce the aforesaid
percentages required to consent to any such amendments without the consent of
the Owners of all Certificates then outstanding.
(b) Promptly after the execution of any such amendment, the Trustee shall
furnish written notification of the substance of such amendment to each Owner in
the manner set forth in Section 11.05, and to the Rating Agencies.
(c) The Certificate Insurer and the Rating Agencies shall be provided with
copies of any amendments to this Agreement, together with copies of any opinions
or other documents or instruments executed in connection therewith.
Section 11.15 Paying Agent; Appointment and Acceptance of Duties.
The Trustee is hereby appointed Paying Agent. The Trustee may, subject to
the eligibility requirements for the Trustee set forth in Section 10.08 hereof,
appoint one or more other Paying Agents or successor Paying Agents.
Each Paying Agent, immediately upon such appointment, shall signify its
acceptance of the duties and obligations imposed upon it by this Agreement by
written instrument of acceptance deposited with the Trustee.
Each such Paying Agent other than the Trustee shall execute and deliver to
the Trustee an instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of Section 6.02, that such Paying Agent will:
(a) allocate all sums received for distribution to the Owners of
Certificates of each Class for which it is acting as Paying Agent on each
Distribution Date among such Owners in the proportion specified by the Trustee;
and
(b) hold all sums held by it for the distribution of amounts due with
respect to the Certificates in trust for the benefit of the Owners entitled
thereto until such sums shall be paid to such Owners or otherwise disposed of as
herein provided and pay such sums to such Persons as herein provided.
Any Paying Agent other than the Trustee may at any time resign and be
discharged of the duties and obligations created by this Agreement by giving at
least sixty (60) days, written notice to the Trustee. Any such Paying Agent may
be removed at any time by an instrument filed with such Paying Agent and signed
by the Trustee.
In the event of the resignation or removal of any Paying Agent other than
the Trustee, such Paying Agent shall pay over, assign and deliver any moneys
held by it as Paying Agent to its successor or, if there be no successor, to the
Trustee.
126
<PAGE>
Upon the appointment, removal or notice of resignation of any Paying Agent,
the Trustee shall notify the Certificate Insurer and the Owners by mailing
notice thereof at their addresses appearing on the Register.
Section 11.16 REMIC Status.
(a) The parties hereto intend that the Trust constitute, and that the
affairs of the Trust shall be conducted so as to qualify as, a REMIC in
accordance with the REMIC Provisions. In furtherance of such intention, the
Trustee or such other person designated pursuant to Section 11.18 hereof shall
act as agent for the Trust and as "tax matters person" (as defined in the REMIC
Provisions) for the Trust and in such capacity it shall: (i) prepare or cause to
be prepared and filed, in a timely manner, annual tax returns and any other tax
return required to be filed by the Trust established hereunder using a calendar
year as the taxable year for the Trust established hereunder; (ii) in the first
such tax return, make (or cause to be made) an election satisfying the
requirements of the REMIC Provisions, on behalf of the Trust, for it to be
treated as a REMIC; (iii) prepare and forward, or cause to be prepared and
forwarded, to the Owners all information, reports or tax returns required with
respect to the Trust as, when and in the form required to be provided to the
Owners, and to the Internal Revenue Service and any other relevant governmental
taxing authority in accordance with the REMIC Provisions and any other
applicable federal, state or local laws, including without limitation
information reports relating to "original issue discount" as defined in the Code
based upon the prepayment assumption and calculated by using the "Issue Price"
(within the meaning of Section 1273 of the Code) of the Certificates of the
related Class; (iv) not take any action or omit to take any action that would
cause the termination of the REMIC status of the Trust, except as provided under
this Agreement; (v) 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 a taxable year of the
Trust, enter into settlement agreements with any governmental taxing agency,
extend any statute of limitations relating to any tax item of the Trust, and
otherwise act on behalf of the Trust or any REMIC therein in relation to any tax
matter involving the Trust or any REMIC therein; (vi) comply with all statutory
or regulatory requirements with regard to its conduct of activities pursuant to
the foregoing clauses of this Section 11.16, including, without limitation,
providing all notices and other information to the Internal Revenue Service and
Owners of Class R Certificates required of a "tax matters person" pursuant to
subtitle F of the Code and the Treasury regulations thereunder; (vii) make
available information necessary for the computation of any tax imposed (A) on
transferors of residual interests to certain Disqualified Organizations or (B)
on pass-through entities, any interest in which is held by a Disqualified
Organization; and (viii) acquire and hold the Tax Matters Person Residual
Interest. The obligations of the Trustee or such other designated Tax Matters
Person pursuant to this Section 11.16 shall survive the termination or discharge
of this Agreement.
(b) The Seller, the Depositor, the Trustee and the Master Servicer covenant
and agree for the benefit of the Owners and the Certificate Insurer (i) to take
no action which would result in the termination of "REMIC" status for the Trust,
(ii) not to engage in any "prohibited
127
<PAGE>
transaction", as such term is defined in Section 860F(a)(2) of the Code, subject
to the exceptions set forth in Section 860F(a)(5) of the Code, and (iii) not to
engage in any other action which may result in the imposition on the Trust of
any other taxes under the Code.
(c) The Trust shall, for federal income tax purposes, maintain books on a
calendar year basis and report income on an accrual basis.
(d) Except as otherwise permitted by Section 7.05(b), no Permitted
Investment shall be sold prior to its stated maturity (unless sold pursuant to a
plan of liquidation in accordance with Article IX hereof).
(e) None of the Depositor, the Seller or the Trustee shall enter into any
arrangement by which the Trustee will receive a fee or other compensation for
services rendered pursuant to this Agreement, other than as expressly
contemplated by this Agreement.
(f) Notwithstanding the foregoing clauses (d) and (e), the Trustee,
Depositor, Master Servicer or the Seller may engage in any of the transactions
prohibited by such clauses, provided that the Trustee shall have received an
opinion of counsel experienced in federal income tax matters acceptable to the
Certificate Insurer to the effect that such transaction does not result in a tax
imposed on the Trustee or cause a termination of "REMIC" status for the Trust;
provided, however, that such transaction is otherwise permitted under this
Agreement.
(g) The Master Servicer, Trustee and Tax Matters Person agree to indemnify
the Trust for any tax imposed on the Trust as a result of their negligence.
Section 11.17 Additional Limitation on Action and Imposition of Tax.
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained an opinion of counsel experienced in
federal income tax matters acceptable to the Certificate Insurer to the effect
that such transaction does not result in a tax imposed on the Trust or cause a
termination of REMIC status for the Trust, (i) sell any assets in the Trust
Estate (notwithstanding the repurchase pursuant to a breach of representation
and warranty), (ii) accept any contribution of assets after the Startup Day or
(iii) agree to any modification of this Agreement. To the extent that sufficient
amounts cannot be so retained to pay or provide for the payment of such tax, the
Trustee is hereby authorized to and shall segregate, into a separate
non-interest bearing account, the net income from any such Prohibited
Transactions of the Trust and use such income, to the extent necessary, to pay
such tax; provided that, to the extent that any such income is paid to the
Internal Revenue Service, the Trustee shall retain an equal amount from future
amounts otherwise distributable to the Owners of Class R Certificates and shall
distribute such retained amounts to the Owners of Class A Certificates to the
extent they are fully reimbursed and then to the Owners of the Class R
Certificates. If any tax, including interest, penalties or assessments,
additional amounts or additions to tax, is imposed on the Trust, such tax shall
be charged against amounts otherwise distributable to the Owners of
128
<PAGE>
the Class R Certificates on a pro rata basis unless otherwise paid pursuant to
Section 11.16(g) hereof. The Trustee is hereby authorized to and shall retain
from amounts otherwise distributable to the Owners of the Class R Certificates
sufficient funds to pay or provide for the payment of, and to actually pay, such
tax as is legally owed by the Trust unless otherwise paid pursuant to Section
11.16(g) hereof (but such authorization shall not prevent the 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).
Section 11.18 Appointment of Tax Matters Person.
A Tax Matters Person will be appointed for the Trust 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 Trust 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 H. The Trustee shall notify any subsequent Trustee and the
Master Servicer in writing of the name and address of another Person who accepts
a designation as Tax Matters Person hereunder.
Section 11.19 The Certificate Insurer.
Any right conferred to the Certificate Insurer hereunder shall be suspended
and shall run to the benefit of the Owners during any period in which the
Certificate Insurer is in default in its payment obligations under the
Certificate Insurance Policy. At such time as the Class A Certificates are no
longer Outstanding hereunder and all Reimbursement Amounts due the Certificate
Insurer have been paid in full, the Certificate Insurer's rights hereunder shall
terminate.
Section 11.20 [Reserved].
Section 11.21 Third-Party Rights.
The Trustee, the Seller, the Depositor, the Master Servicer and the Owners
agree that the Certificate Insurer shall be deemed a third-party beneficiary as
if it were a party hereto with the right to enforce the provisions hereof.
129
<PAGE>
Section 11.22 Notices.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
The Trustee: Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, California 92614
Attention: Block Mortgage Finance Asset Backed
Certificates, Series 1998-1
Tel: 714-253-7575
Fax: 714-253-7577
The Depositor: Block Mortgage Finance, Inc.
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: Vice President
Tel: 816-932-4913
Fax: 816-561-0673
The Master Servicer: Block Financial Corporation
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: Mark Keller
Tel: 816-932-4913
Fax: 816-561-0673
The Seller: Companion Mortgage Corporation
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: Vice President
Tel: 816-932-4913
Fax: 816-561-0673
The Rating Agencies: Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Tel: 212-553-0376
Fax: 212-208-0030
130
<PAGE>
Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies
26 Broadway
New York, New York 10004
Tel: 212-208-8000
Fax: 212-208-0030
Owners: As set forth in the Register.
The Certificate
Insurer: MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio Management--
Structured Finance (IPM-SF)
Block Mortgage Finance Asset
Backed Certificates, Series 1998-1
131
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Seller, the Master Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
BLOCK MORTGAGE FINANCE, INC.,
as Depositor
By: _______________________________________
Title: ____________________________________
BLOCK FINANCIAL CORPORATION,
as Master Servicer
By: _______________________________________
Title: ____________________________________
COMPANION MORTGAGE CORPORATION,
as Seller
By: _______________________________________
Title: ____________________________________
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By: _______________________________________
Title: ____________________________________
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On the _____ day of January, 1998, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he is a _____ President of Block Mortgage Finance, Inc., a Delaware
corporation; and that he signed his name thereto by order of the Board of
Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the _____ day of January, 1998, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he is a ______ President of Block Financial Corporation, a Delaware
corporation; and that he signed his name thereto by order of the Board of
Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the _____ day of January, 1998, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he is a ______ President of Companion Mortgage Corporation, a
Delaware corporation; and that he signed his name thereto by order of the Board
of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ______ day of ______________, 1998, before me personally came
_____________________, to me known, who, being by me duly sworn, did depose and
say that she is a ______ President of Bankers Trust Company of California, N.A.,
a national banking association, and that she signed her name thereto by order of
the Board of Directors of said national banking association.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
SCHEDULE I
REPRESENTATIONS AND WARRANTIES AS TO THE MORTGAGE LOANS
All percentages herein reflect the Mortgage Pool disclosed in the Prospectus
Supplement. The actual percentages will vary based on the actual Mortgage Loans
transferred to the Trust.
(i) The information with respect to each Mortgage Loan set forth in the
related Schedule of Mortgage Loans is true and correct as of the Cut-Off
Date;
(ii) All the original or certified documentation set forth in Section
3.05 (including all material documents related thereto) with respect to each
Mortgage Loan has been or will be delivered to the Trustee on the Startup
Day or as otherwise provided in Section 3.05 and is true and accurate in all
material respects and does not omit to state a fact necessary to make the
statements contained therein not misleading and the documents, instruments
and agreements submitted by each Mortgagor for loan underwriting were not
falsified and contain no untrue statement of a material fact and do not omit
to state a material fact required to be stated therein or necessary to make
the information and statements therein not misleading;
(iii) Each Mortgage Loan being transferred to the Trust is a Qualified
Mortgage;
(iv) Each Mortgaged Property consists of a fee simple or leasehold
estate in real property and is improved by a single (1 to 4) family
residential dwelling, which may include condominiums and townhouses, small
multifamily or mixed-use property or manufactured homes (provided that such
manufactured home is attached to the property and the manufactured home is
encumbered by and secured by a Mortgage) but shall not include
co-operatives; provided, however, that as of the Cut-Off Date not more than
0.64% and 0.25% of the aggregate Loan Balance of the Mortgage Loans in the
Fixed Rate Group and Adjustable Rate Group, respectively, are secured by
condominiums and all of the Mortgage Loans secured in part by manufactured
homes are "land and home contracts" (and the certificate of title for each
manufactured home, noting the Trustee as lienholder, will be delivered to
the Trustee), not more than 1.32% and 1.32% of the aggregate Loan Balance of
the Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group,
respectively, are secured by 2 to 4 family residential dwellings, not more
than 0.50% and 1.29% of the aggregate Loan Balance of the Mortgage Loans in
the Fixed Rate Group and the Adjustable Rate Group, respectively, are
secured by units in planned unit developments, not more than 0.02% and none
of the aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Group
and the Adjustable Rate Group, respectively, are secured by townhomes and
not more than 5.0% and 5.0% of the aggregate Loan Balance of the Mortgage
Loans in the Fixed Rate Group and the Adjustable Rate Group, respectively,
are secured by a leasehold estate in real property.
I-1
<PAGE>
(v) As of the Cut-Off Date no Mortgage Loan in the Adjustable Rate
Group has a Loan-to-Value Ratio greater than 100%. Each Mortgage Loan which
is not a First Mortgage Loan has a combined Loan-to-Value Ratio not greater
than 103%.
(vi) Each Mortgage Loan is being master serviced by the Master Servicer
and serviced by a Sub-Servicer;
(vii) The Note related to each Mortgage Loan in the Fixed Rate Group
bears a fixed Mortgage Rate of at least 7.500% per annum, and the Note
related to each Mortgage Loan in the Adjustable Rate Group bears a current
Mortgage Rate of at least 6.990% per annum. The weighted average Mortgage
Rate of the Mortgage Loans in the Fixed Rate Group is at least 11.758% and
the current weighted average Mortgage Rate of the Mortgage Loans in the
Adjustable Rate Group is at least 10.291%;
(viii) Each Note with respect to the Mortgage Loans will provide for a
schedule of substantially level and equal monthly Scheduled Payments which
are sufficient to amortize fully the principal balance of such Note on or
before its maturity date (other than Notes representing not more than 40.86%
and 57.29% of the aggregate Loan Balance as of the Cut-Off Date of the
Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group,
respectively, which may provide for a "balloon" payment due at the end of
the 15th year, which maturity date is not more than 15 years from the date
of origination);
(ix) As of the Startup Day, each Mortgage is a valid, enforceable,
perfected and subsisting first or second lien of record on the Mortgaged
Property subject in the case of any Second Mortgage Loan only to a Senior
Lien on such Mortgaged Property and subject in all cases to the exceptions
to title set forth in the title insurance policy or attorney's opinion of
title with respect to the related Mortgage Loan, which exceptions are
generally acceptable to banking institutions in connection with their
regular mortgage lending activities, and such other exceptions to which
similar properties are commonly subject and which do not individually, or in
the aggregate, materially and adversely affect the benefits of the security
intended to be provided by such Mortgage;
(x) Immediately prior to the transfer and assignment of the Mortgage
Loans by the Seller to the Depositor and by the Depositor to the Trust
herein contemplated, the Seller and the Depositor, as the case may be, held
good, indefeasible and marketable title to, and was the sole owner of record
and holder of, each Mortgage Loan (including the related Note) conveyed by
the Seller subject to no liens, charges, mortgages, encumbrances or rights
of others except liens which will be released simultaneously with such
transfer and assignment; and immediately upon the transfer and assignment
herein contemplated, the Trustee will hold good, indefeasible and marketable
title to, and be the sole owner of, each Mortgage Loan subject to no liens,
charges, mortgages, encumbrances or rights of others, except liens which
will be released simultaneously with such transfer and assignment;
I-2
<PAGE>
(xi) As of January 21, 1998, (a) none of the Mortgage Loans is more
than 59 days Delinquent, (b) no more than 5.0% of the aggregate Loan Balance
of Mortgage Loans as of the Cut-Off Date have been 30 days or more
Delinquent more than once during the 12 months immediately preceding the
Startup Day and (c) no more than 5% of the aggregate Loan Balance of
Mortgage Loans as of the Cut-off Date have been 90 or more days Delinquent
during the 12 months immediately preceding the Startup Day.
(xii) There is no delinquent tax or assessment lien on any Mortgaged
Property, and each Mortgaged Property is free of substantial damage and is
in good repair;
(xiii) There is no valid and enforceable offset, defense or
counterclaim to any Note or Mortgage, including the obligation of the
related Mortgagor to pay the unpaid principal of or interest on such Note;
(xiv) There is no mechanics' lien or claim for work, labor or material
affecting any Mortgaged Property which is or may be a lien prior to, or
equal with, the lien of the related Mortgage (and no rights are outstanding
as of the Cut-Off Date which could give rise to such liens) except those
which are insured against by any title insurance policy referred to in
paragraph (xvi) below;
(xv) Each Mortgage Loan at the time it was made complied in all
material respects with applicable state, federal or local laws and
regulations, including, without limitation, the federal Truth in Lending Act
and other consumer protection laws, usury, equal credit opportunity,
disclosure, real estate settlement procedures and recording laws;
(xvi) With respect to each Mortgage Loan either (a) an attorney's
opinion of title has been obtained but no title policy has been obtained
(provided that no title policy has been obtained with respect to not more
than 3.0% of the aggregate Loan Balance of the Mortgage Loans as of the
Cut-Off Date), or (b) a lender's title insurance policy, issued in standard
American Land Title Association form (or other state approved form) by a
title insurance company authorized to transact business in the state in
which the related Mortgaged Property is situated, in an amount at least
equal to the original balance of such Mortgage Loan together, in the case of
a Second Mortgage Loan, with the then-current principal balance of the
mortgage note relating to the Senior Lien, insuring the mortgagee's interest
(and any successors or assignees of such mortgagee) under the related
Mortgage Loan as the holder of a valid first or second mortgage lien of
record on the real property described in the related Mortgage, as the case
may be, subject only to exceptions of the character referred to in paragraph
(ix) above, was effective on the date of the origination of such Mortgage
Loan, and, as of the Startup Day, such policy is valid and thereafter such
policy shall continue in full force and effect;
(xvii) Each Sub-Servicer, if any, is a qualified servicer as defined in
Section 8.03 with respect to the Mortgage Loans serviced by it;
I-3
<PAGE>
(xviii) The improvements upon each Mortgaged Property are covered by a
valid and existing hazard insurance policy with a generally acceptable
carrier that provides for fire and extended coverage representing coverage
not less than the least of (a) the outstanding principal balance of the
related Mortgage Loan (together, in the case of a Second Mortgage Loan, with
the outstanding principal balance of the Senior Lien), (b) the minimum
amount required to compensate for damage or loss on a replacement cost basis
or (c) the full insurable value of the Mortgaged Property. All such
insurance policies meet the originator's underwriting requirements and are
of standard type and quality for the locale where the related property is
located. All acts required to be performed to preserve the rights and
remedies of the Trustee in any such insurance policies have been performed,
including, without limitation, any necessary information of insurers and
assignments of policies or interests therein;
(xix) If any Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration is in effect with
respect to such Mortgaged Property with a generally acceptable carrier in an
amount representing coverage not less than the least of (a) the outstanding
principal balance of the related Mortgage Loan (together, in the case of a
Second Mortgage Loan, with the outstanding principal balance of the Senior
Lien), (b) the minimum amount required to compensate for damage or loss on a
replacement cost basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973;
(xx) Each Mortgage and Note and any other agreement, if any, executed
and delivered by the applicable Mortgagor in connection with each Mortgage
Loan is the legal, valid and binding obligation of the maker thereof and is
enforceable in accordance with its terms, except only as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether considered in a proceeding or
action in equity or at law), and, to the best of the Seller's knowledge, all
parties to each Mortgage Loan had full legal capacity to execute all
documents relating to such Mortgage Loan and convey the estate therein
purported to be conveyed;
(xxi) As of the Cut-Off Day, no more than 0.98% and 1.08% of the
aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Group and the
Adjustable Rate Group, respectively, will be secured by Properties located
within any single ZIP code area;
(xxii) Each original Mortgage was recorded or is in the process of
being recorded. There is only one originally executed Note or Lost Note
Affidavit attached to a duplicate Note for each Mortgage Loan and each
Mortgage and assignment of Mortgage is in recordable form and is acceptable
for recording under the laws of the jurisdiction where the property securing
the Mortgage Loan is located;
I-4
<PAGE>
(xxiii) The terms of each Note and each 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 interest of the Owners
and the Certificate Insurer and which has been delivered to the Trustee. The
substance of any such alteration or modification has been approved by the
applicable title insurer, to the extent required on the applicable title
insurance policy, and is reflected on the related Schedule of Mortgage
Loans;
(xxiv) The proceeds of each Mortgage Loan have been fully disbursed,
and there is no obligation on the part of the mortgagee to make future
advances thereunder. 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 or closing or recording such Mortgage Loans were paid;
(xxv) The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
corresponding Mortgage;
(xxvi) No Mortgage Loan has a graduated payment feature, a buydown
provision, shared appreciation feature, or other contingent interest
feature;
(xxvii) Each Mortgaged Property is located in the state identified in
the respective Schedule of Mortgage Loans and consists of one or more
parcels of real property with a residential dwelling, as that term is
defined in item (iv) of this Schedule I, erected thereon;
(xxviii) Each Mortgage contains a provision for the acceleration,
subject to federal law, of the payment of the unpaid principal balance of
the related Mortgage Loan in the event the related Mortgaged Property is
sold without the prior consent of the mortgagee thereunder;
(xxix) Any advances made after the date of origination of a Mortgage
Loan but prior to the Cut-Off Date have been consolidated with the
outstanding principal amount secured by the related Mortgage, and the
secured principal amount, as consolidated, bears a single interest rate and
single repayment term reflected on the respective Schedule of Mortgage
Loans. The consolidated principal amount does not exceed the original
principal amount of the related Mortgage Loan. No Note permits or obligates
the Master Servicer to make future advances to the related Mortgagor at the
option of the Mortgagor;
(xxx) 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 each Mortgaged Property is undamaged by waste,
fire, water, flood, earthquake or earth movement.
(xxxi) All of the improvements which were included for the purposes of
determining the Appraised Value of any Mortgaged Property lie wholly within
the
I-5
<PAGE>
boundaries and building restriction lines of such Mortgaged Property, and no
improvements on adjoining properties encroach upon such Mortgaged Property,
and are stated in the title insurance policy and affirmatively insured;
(xxxii) 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 each 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 such Mortgaged Property is
lawfully occupied under the applicable law;
(xxxiii) 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 Owners or the
Trust to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the related Mortgagor;
(xxxiv) Each Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including (A) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (B) otherwise by judicial foreclosure. There is
no homestead or other exemption available to the related Mortgagor which
would materially interfere with the right to sell all the related Mortgaged
Property at a trustee's sale or the right to foreclose the related Mortgage;
(xxxv) There is no default, breach, violation or event of acceleration
existing under any Mortgage or the related Note and, to the best of the
Seller's knowledge, no event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration; and neither the Master Servicer
nor the Seller has waived any default, breach, violation or event of
acceleration;
(xxxvi) No instrument of release or waiver has been executed in
connection with any Mortgage 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;
(xxxvii) The maturity date of each Second Mortgage Loan is prior to the
maturity date of the related first mortgage loan if such first mortgage loan
provides for a balloon payment;
I-6
<PAGE>
(xxxviii) Each Mortgage Loan conforms, and all such Mortgage Loans in
the aggregate conform, in all material respects to the description thereof
set forth in the Prospectus Supplement;
(xxxix) Each Mortgage Loan was originated in accordance with the
credit underwriting guidelines of the originator of such Mortgage Loan
(except for certain exceptions to such credit underwriting guidelines
approved by the originator in accordance with its established corporate
policies), which credit underwriting guidelines conform in all material
respects to the descriptions thereof set forth in the Prospectus or the
Prospectus Supplement, as applicable;
(xl) Each Mortgage Loan (other than the Mortgage Loans originated
in connection with the Seller's "high LTV program") was originated based
upon a full appraisal, which included an interior inspection of the subject
property;
(xli) The Mortgage Loans are representative of the Seller's
portfolio of fixed and variable rate mortgage loans and the Mortgage Loans
were not selected for inclusion in the Trust by the Seller on any basis
intended to adversely affect the Trust or the Certificate Insurer;
(xlii) As of the Cut-Off Date, no more than 5.45% and 2.59% of the
aggregate Loan Balances of the Mortgage Loans in the Fixed Rate Group and
the Adjustable Rate Group, respectively, are secured by Mortgaged Properties
that are non-owner occupied Mortgage Properties (investor-owned and
vacation);
(xliii) As of the Cut-Off Date, no more than 6.92% and 4.84% of the
aggregate Loan Balances of the Mortgage Loans in the Fixed Rate Group and
the Adjustable Rate Group, respectively, were originated under programs
requiring less than full documentation;
(xliv) The Seller has no actual knowledge that there exist any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and
Liability Act, the Resource Conservation and Recovery Act of 1976, or other
federal, state or local environmental legislation, on any Mortgaged
Property;
(xlv) The Seller was properly licensed or otherwise authorized, to
the extent required by applicable law, to originate or purchase each
Mortgage Loan and the consummation of the transactions herein contemplated,
including, without limitation, the receipt of interest by the Owners and the
ownership of the Mortgage Loans by the Trustee as trustee of the Trust will
not involve the violation of such laws and Companion Mortgage Corporation
was in compliance with any and all applicable licensing requirements of the
laws of the state wherein the Mortgaged Property securing the Mortgage Loan
is located;
I-7
<PAGE>
(xlvi) With respect to each Mortgaged Property subject to a ground
lease (a) the current ground lessor has been identified and all ground rents
which have previously become due and owing have been paid; (b) the ground
lease term extends, or is automatically renewable, for at least five years
beyond the maturity date of the related Mortgage Loan; (c) the ground lease
has been duly executed and recorded; (d) the amount of the ground rent and
any increases therein are clearly identified in the lease and are for
predetermined amounts at predetermined times; (e) the ground rent payment is
included in the borrower's monthly payment as an expense item; (f) the Trust
has the right to cure defaults on the ground lease; and (g) the terms and
conditions of the leasehold do not prevent the free and absolute
marketability of the Mortgaged Property. As of the Cut-Off Date, the
aggregate Loan Balance of the Mortgage Loans with related Mortgage
Properties subject to ground leases does not exceed 5.0% of the aggregate
Loan Balance of all of the Mortgage Loans;
(xlvii) All taxes, governmental assessments, insurance premiums,
water, sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid or are not yet delinquent, or
an escrow of funds has been established in an amount sufficient to pay for
every such item which remains unpaid and which has been assessed but is not
yet delinquent. No one other than the applicable Mortgagor has advanced
funds, directly or indirectly, for the payment of any amount required under
any Mortgage Loan;
(xlviii) With respect to any Second Mortgage Loan, as of the Startup
Day, the Seller has not received a notice of default of any first mortgage
loan secured by any Mortgaged Property which has not been cured by a party
other than the Seller;
(xlix) All of the Mortgage Loans in the Adjustable Rate Group are in a
first lien position;
(l) As of the Cut-Off Date, each Mortgage Loan has an outstanding
balance of less than $633,000;
(li) Each Mortgage Loan is secured by a Mortgage on Mortgaged
Property which, at the time of origination of the related Mortgage Loan, had
an appraised value of less than $850,000;
(lii) No more than 28.94% of the aggregate Loan Balances of the Fixed
Rate Group Mortgage Loans are in a second priority position;
(liii) The weighted average margin of the Adjustable Rate Group
Mortgage Loans is 5.927% and with respect to each Adjustable Rate Group
Mortgage Loan, the applicable interest rate is adjusted in accordance with
the terms of the Note and all required notices of interest rate adjustments
have been sent to the Mortgagor on a timely basis, the
I-8
<PAGE>
computations of such adjustments were properly calculated and all interest
rate adjustments have been made in accordance with all applicable law;
(liv) The aggregate Loan Balance of all Mortgage Loans in the Fixed
Rate Group as of the Cut-Off Date is $92,008,401.16 and the aggregate Loan
Balance of all Mortgage Loans in the Adjustable Rate Group as of the Cut-Off
Date is $92,320,469.73;
(lv) Each Mortgage Loan is a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code;
(lvi) No more than 80% of the Original Aggregate Loan Balance
consists of Simple Interest Loans and no more than 20% of the Original
Aggregate Loan Balance consists of Actuarial Loans;
(lvii) With respect to Second Mortgage Loans, either (a) no consent
for the Second Mortgage Loan is required by the holder of the related first
mortgage loan or (b) such consent has been obtained and delivered to the
Trustee;
(lviii) With respect to Second Mortgage Loans, the related first
mortgage loan does not provide for negative amortization;
(lix) As of the Cut-Off Date, no more than 10.1% of the aggregate
Loan Balance of the Mortgage Loans in the Adjustable Rate Group as of the
Cut-Off Date had interest rates that were within 0.125% of the fully indexed
rate;
(lx) The margins for the Mortgage Loans in the Adjustable Rate
Group (which margins, when added to the applicable current indices,
establish the interest rates applicable to such Mortgage Loans) ranges from
2.000% to 9.250%;
(lxi) No Mortgage Loan has a term in excess of 360 months;
(lxii) No property securing a Mortgage Loan is damaged by water,
fire, earthquake or earth movement, windstorm, flood, other types of water
damage, tornado or other casualty so as to affect adversely the value of
such property as security for such Mortgage Loan or the use for which the
premises were intended. Each property securing a Mortgage Loan is in good
repair;
(lxiii) The first date upon which the applicable Mortgagor must make
a payment on each Mortgage Loan is no later than 60 days after the Cut-Off
Date;
(lxiv) All information regarding a Mortgage Loan of which the Seller
has knowledge that could reasonably be expected to affect adversely the
value or marketability of any property securing such Mortgage Loan has been
disclosed to the Certificate Insurer;
I-9
<PAGE>
(lxv) As of the Cut-Off Date, none of the Mortgage Loans is a
retail installment contract for goods or services, which loans are either
"consumer credit contracts" or "purchase money loans" as such terms are
defined in 16 C.F.R. ss.433.1; and
(lxvi) As of the Cut-Off Date, no more than 21.95% of the aggregate
Loan Balance of the Mortgage Loans in the Fixed Rate Group and 50.27% of the
aggregate Loan Balance of the Mortgage Loans in the Adjustable Rate Group
are Purchase Mortgage Loans, 39.96% of the aggregate Loan Balance of the
Mortgage Loans in the Fixed Rate Group and 42.21% of the aggregate Loan
Balance of the Mortgage Loans in the Adjustable Rate Group are Rate/Term
Refinance Mortgage Loans and 38.09% of the aggregate Loan Balance of the
Mortgage Loans in the Fixed Rate Group and 7.52% of the aggregate Loan
Balance of the Mortgage Loans in the Adjustable Rate Group are Cashout
Refinance Mortgage Loans.
I-10
<PAGE>
SCHEDULE I-A
SCHEDULE OF FIXED RATE GROUP MORTGAGE LOANS
I-A-1
<PAGE>
SCHEDULE I-B
SCHEDULE OF ADJUSTABLE RATE GROUP MORTGAGE LOANS
I-B-1
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS
OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC")
AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH
THE REMIC PROVISIONS OF THE CODE.
BLOCK MORTGAGE FINANCE
ASSET BACKED CERTIFICATES, SERIES 1998-1
CLASS A-[ ]
( % Pass-Through Rate)
Representing Certain Interests in a Pool of [Fixed]
[Adjustable] Rate Group
Mortgage Loans Formed by Block Mortgage Finance, Inc.
and Serviced by
BLOCK FINANCIAL CORPORATION
This Certificate does not represent an interest in, or an obligation of, nor
are the underlying Mortgage Loans insured or guaranteed by, Block Mortgage
Finance, Inc., Block Financial Corporation or Companion Mortgage Corporation.
This Certificate represents a fractional ownership interest in the [Fixed]
[Adjustable] Rate Group Mortgage Loans and certain other property held by the
Trust.
Unless this Certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Depositor 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.
A-1
<PAGE>
No: A-[ ]-[ ]
CUSIP
$
Original Date Final Scheduled
Certificate Distribution
Principal Date
Balance
CEDE & Co.
Registered Owner
Trustee Execution
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
By:__________________________________
Name: _______________________________
Title: ______________________________
Date of Execution ______________
Trustee Authentication
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
By:__________________________________
Name: _______________________________
Title: ______________________________
Date of Authentication ______________
A-2
<PAGE>
The registered Owner named above is the registered beneficial Owner of a
fractional interest in (a) the Mortgage Loans in the [Fixed] [Adjustable] Rate
Group (other than any principal and interest payments received or, with respect
to an Actuarial Loan, due thereon on or prior to the Cut-Off Date) listed in
Schedule I-[A][B] to the Pooling and Servicing Agreement which the Seller has
caused to be delivered to the Depositor and the Depositor has caused to be
delivered to the Trustee (and all substitutions therefor as provided by Sections
3.03, 3.04 and 3.06 of the Pooling and Servicing Agreement), together with the
related Mortgage Loan documents and the Seller's and Depositor's interest in any
Mortgaged Property which secured a Mortgage Loan in the [Fixed] [Adjustable]
Rate Group but which has been acquired by foreclosure or deed in lieu of
foreclosure, and all payments thereon and proceeds of the conversion, voluntary
or involuntary, of the foregoing; (b) such amounts as may be held by the Trustee
in the Distribution Account, exclusive of investment earnings on such amounts
(except as otherwise provided in the Pooling and Servicing Agreement), and such
amounts as may be held by the Master Servicer in the name of the Trustee in the
Collection Account, if any, exclusive of investment earnings thereon (except as
otherwise provided in the Pooling and Servicing Agreement), whether in the form
of cash, instruments, securities or other properties (including any Permitted
Investments held by the Master Servicer); (c) the [Fixed] [Adjustable] Rate
Group Certificate Insurance Policy; and (d) proceeds of all the foregoing
(including, but not by way of limitation, all proceeds of any mortgage
insurance, hazard insurance and title insurance policy relating to the Mortgage
Loans in the [Fixed] [Adjustable] Rate Group, cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any and every kind, and other forms of obligations and
receivables which at any time constitute all or part of or are included in the
proceeds of any of the foregoing) to pay the Certificates as specified in the
Pooling and Servicing Agreement.
THE OWNER HEREOF IS ENTITLED TO PRINCIPAL PAYMENTS ON EACH DISTRIBUTION
DATE, AS HEREINAFTER DESCRIBED, WHICH WILL FULLY AMORTIZE SUCH ORIGINAL
CERTIFICATE PRINCIPAL BALANCE OVER THE PERIOD FROM THE DATE OF INITIAL ISSUANCE
OF THE CERTIFICATES TO THE FINAL DISTRIBUTION DATE FOR THE CLASS A-[ ]
CERTIFICATES. THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS
CERTIFICATE MAY, ON ANY DATE SUBSEQUENT TO FEBRUARY 25, 1998 (THE FIRST
DISTRIBUTION DATE), BE LESS THAN THE ORIGINAL CERTIFICATE PRINCIPAL BALANCE SET
FORTH ABOVE.
Upon receiving the final distribution hereon, the Owner hereof is required
to send this Certificate to the Trustee. The Pooling and Servicing Agreement (as
defined below) provides that, in any event, upon the making of the final
distribution due on this Certificate, this Certificate shall be deemed cancelled
for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
A-3
<PAGE>
THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND, NOTWITHSTANDING
REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY PERSON IS
REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Block Mortgage Finance Asset Backed Certificates, Series 1998-1,
Class A-[ ] (the "Class A-[ ] Certificates") and issued under and subject to the
terms, provisions and conditions of that certain Pooling and Servicing Agreement
dated as of January 1, 1998 (the "Pooling and Servicing Agreement") by and among
Block Mortgage Finance, Inc., in its capacity as the Depositor (the
"Depositor"), Companion Mortgage Corporation, in its capacity as the Seller (the
"Seller"), Block Financial Corporation, in its capacity as the Master Servicer
(the "Master Servicer"), and Bankers Trust Company of California, N.A., in its
capacity as the Trustee (the "Trustee"), to which Pooling and Servicing
Agreement the Owner of this Certificate by virtue of acceptance hereof assents
and by which such Owner is bound. Also issued under the Pooling and Servicing
Agreement are Certificates designated as Block Mortgage Finance Asset Backed
Certificates, Series 1998-1, Class A-[ ] (the "Class A-[ ] Certificates"), Class
A-[ ] (the "Class A-[ ] Certificates"), Class A-[ ] (the "Class A-[ ]
Certificates"), Class A-[ ] (the "Class A-[ ] Certificates"), Class A-[ ] (the
"Class A-[ ] Certificates") and Class R (Residual Interest) (the "Class R
Certificates"). The Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates
and the Class A-6 Certificates are together referred to as the "Class A
Certificates" and the Class A Certificates and the Class R Certificates are
together referred to herein as the "Certificates." Terms capitalized herein and
not otherwise defined herein shall have the respective meanings set forth in the
Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day, then
the next succeeding Business Day (each such day being a "Distribution Date")
commencing February 25, 1998, the Owners of the Class A-[ ] Certificates as of
the close of business on the [last day of the calendar month immediately
preceding the calendar month in which a Distribution Date occurs] [day
immediately preceding such Distribution Date] (the "Record Date") will be
entitled to receive the Class A-[ ] Distribution Amount relating to such
Certificate on such Distribution Date. Distributions will be made in immediately
available funds to Owners of Certificates having an aggregate original Class A-[
] Certificate Principal Balance of at least $1,000,000 (by wire transfer or
otherwise) to the account of an Owner at a domestic bank or other entity having
appropriate facilities therefor, if such Owner has so notified the Trustee, or
by check mailed to the address of the Person entitled thereto as it appears on
the Register.
Each Owner of record of a Class A-[ ] Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-[ ] Certificates. The Percentage Interest of
each Class A-[ ] Certificate as of any date of determination will be equal to
the percentage obtained by dividing the original Certificate Principal Balance
of such Class A-[ ] Certificate on the Startup Day by the aggregate Class A-[ ]
Certificate Principal Balance on the Startup Day.
A-4
<PAGE>
The Certificate Insurer is required, subject to the terms of the Certificate
Insurance Policies, to make Insured Payments available to the Trustee on the
related Distribution Date for distribution to the Owners. "Insured Payment"
means with respect to either Mortgage Loan Group and any Distribution Date,
without duplication, (A) the excess, if any, of (i) the sum of (a) the aggregate
amount of interest accrued at the related Pass-Through Rate during the preceding
Accrual Period on the Class A Certificate Principal Balance of the related Class
A Certificates (net of any Prepayment Interest Shortfall and the interest
portion of reductions due to the Relief Act), (b) the Preference Amount as it
relates to interest previously paid on each Class of the related Class A
Certificates prior to the Distribution Date, (c) the portion of the Carry
Forward Amount related to interest with respect to each Class of the related
Class A Certificates (net of any Prepayment Interest Shortfall and the interest
portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the Trust plus (B) an amount equal to the principal portion of the Preference
Amount with respect to the Related Loan Group.
Upon receipt of amounts under the Certificate Insurance Policies on behalf
of the Owners of the Class A Certificates, the Trustee shall distribute in
accordance with the Pooling and Servicing Agreement such amounts (directly or
through a Paying Agent) to the Owners of the appropriate Class of the Class A
Securities.
The Trustee or any duly-appointed Paying Agent will duly and punctually pay
distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Mortgage Loans will be serviced by the Master Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Master Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub- Servicer shall release the
Master Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of, or an
interest in, nor are the underlying Mortgage Loans insured or guaranteed by,
Block Mortgage Finance, Inc., Block Financial Corporation, Companion Mortgage
Corporation or any of their affiliates. This Certificate is limited in right of
payment to certain collections and recoveries relating to the Mortgage Loans and
amounts on deposit in the Distribution Account and the Collection Account
(except as otherwise provided in the Pooling and Servicing Agreement) and
payments received by the Trustee pursuant to the [Fixed] [Adjustable] Rate Group
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
A-5
<PAGE>
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing Agreement,
the Owner of any Certificate shall have the right which is absolute and
unconditional to receive distributions to the extent provided in the Pooling and
Servicing Agreement with respect to such Certificate or to institute suit for
the enforcement of any such distribution, and such right shall not be impaired
without the consent of such Owner. The Owner of this Certificate, by its
acceptance hereof, agrees, however, that to the extent the Certificate Insurer
makes Insured Payments, either directly or indirectly (as by paying through the
Trustee or Paying Agent), to the Owners of such Class A-[ ] Certificates, the
Certificate Insurer will be subrogated to the rights of such Owners of Class A-[
] Certificates with respect to such Insured Payment, shall be deemed to the
extent of the payments so made to be a registered Owner of such Class A-[ ]
Certificates and shall receive all future distributions of the Class A-[ ]
Distribution Amount until all such Insured Payments by the Certificate Insurer
have been fully reimbursed.
The Pooling and Servicing Agreement provides that the obligations created
thereby will terminate upon the payment to the Owners of all Certificates from
amounts other than those available under the Certificate Insurance Policies of
all amounts held by the Trustee and required to be paid to such Owners pursuant
to the Pooling and Servicing Agreement upon the latest to occur of (a) the final
payment or other liquidation (or any advance made with respect thereto) of the
last Mortgage Loan in the Trust Estate, (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate, (c) at
any time when a Qualified Liquidation of the Trust Estate is effected as
described below, and (d) the final payment to the Certificate Insurer of all
amounts then owing to it. To effect a termination of the Pooling and Servicing
Agreement pursuant to clause (c) above, the Owners of a majority in Percentage
Interest represented by the Class A Certificates then Outstanding shall direct
the Trustee on behalf of the Trust to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code, and the Trustee shall either
sell the Mortgage Loans and distribute the proceeds of the liquidation of the
Trust, or shall distribute equitably in kind all of the assets of the Trust
Estate to the remaining Owners of the Certificates, each in accordance with such
plan, so that the liquidation or distribution of the Trust Estate, the
distribution of any proceeds of the liquidation and the termination of the
Pooling and Servicing Agreement occur no later than the close of the 90th day
after the date of adoption of the plan of liquidation and such liquidation
qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that (i) certain
Owners of the Class R Certificates and the Master Servicer may, at their option,
purchase, and the Trustee may sell at auction, from the Trust all remaining
Mortgage Loans and other property then constituting the Trust Estate, and
thereby effect early retirement of the Certificates, on any Monthly Remittance
Date on or after the Optional Termination Date and (ii) under certain
circumstances
A-6
<PAGE>
relating to the qualification of the Trust Estate as a REMIC under the Code the
Mortgage Loans may be sold, thereby effecting the early retirement of the
Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth and referred to on the face hereof, the transfer
of this Certificate is registrable in the Register upon surrender of this
Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Master Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided, that in certain circumstances provided for in the Pooling and
Servicing Agreement, such consent of the Owners will be required prior to
amendments. Any such consent by the Owner, at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate 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 Certificate.
The Trustee is required to furnish certain information on each Distribution
Date to the Owner of this certificate as more fully described in the Pooling and
Servicing Agreement.
The Class A-[ ] Certificates are issuable only as registered Certificates in
minimum denominations of $25,000 original Certificate Principal Balance and
multiples of $1,000 in excess thereof (except that one Class A-[__] Certificate
may be issued in an amount less than $25,000 or in an integral multiple other
than $1,000). As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class A-[ ] Certificates are exchangeable
for new Class A-[ ] Certificates of authorized denominations evidencing the same
aggregate principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
A-7
<PAGE>
The Trustee and any agent of the Trustee may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Trustee or any such agent shall be affected by notice to the contrary,
except as may otherwise be specifically provided in the Pooling and Servicing
Agreement with respect to the Certificate Insurer.
A-8
<PAGE>
EXHIBIT B
[RESERVED]
B-1
<PAGE>
EXHIBIT C
FORM OF CLASS R CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN ONE CLASS OF "RESIDUAL INTERESTS" IN ONE "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" (____, A "REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY,
IN SECTION 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. ANY
RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE SUCH
REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION
5.08 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R CERTIFICATE MAY BE
MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860E(e)(5) OF THE
CODE. SUCH TERM INCLUDES THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION
THEREOF, ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR
INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE
INSTRUMENTALITIES), ANY COOPERATIVE ORGANIZATION FURNISHING ELECTRIC ENERGY OR
PROVIDING TELEPHONE SERVICE TO PERSONS IN RURAL AREAS, OR ANY ORGANIZATION
(OTHER THAN A FARMERS' COOPERATIVE) THAT IS EXEMPT FROM FEDERAL INCOME TAX
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON UNRELATED BUSINESS INCOME. NO
TRANSFER OF THIS CLASS R CERTIFICATE WILL BE REGISTERED BY THE REGISTRAR UNLESS
THE PROPOSED TRANSFEREE HAS DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER
THINGS, THAT THE PROPOSED TRANS- FEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS
NOT ACQUIRING THE CLASS R CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED
ORGANIZATION. A COPY OF THE FORM OF AFFIDAVIT REQUIRED OF EACH PROPOSED
TRANSFEREE IS ON FILE AND AVAILABLE FROM THE TRUSTEE.
C-1
<PAGE>
A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE TO A
SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT ACTING
FOR THE TRANSFEREE. A PASS-THROUGH ENTITY THAT HOLDS THIS CLASS R CERTIFICATE
AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN ANY TAXABLE YEAR
GENER- ALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL TO THE PRODUCT OF
(A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF THIS
CERTIFICATE OWNED THROUGH SUCH PASS-THROUGH ENTITY BY SUCH DISQUALIFIED
ORGANIZATION, AND (B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORATIONS. FOR
PURPOSES OF THE PRECEDING SENTENCE, THE TERM "PASS-THROUGH" ENTITY INCLUDES
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, COMMON TRUST
FUNDS, PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I OF SUBCHAPTER
1T OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS, NOMINEES.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
BLOCK MORTGAGE FINANCE
ASSET BACKED CERTIFICATES, SERIES 1998-1
CLASS R
(Residual Interest)
Representing Certain Interests Relating to a Pool of
Mortgage Loans formed by Block Mortgage Finance, Inc.
and Serviced by
BLOCK FINANCIAL CORPORATION
(This Certificate does not represent an interest in, or an obligation of,
nor are the underlying Mortgage Loans insured or guaranteed by, Block Mortgage
Finance, Inc., Block Financial Corporation or Companion Mortgage Corporation.
This Certificate represents a fractional residual ownership interest in the
Trust Estate as defined below.)
No: R-__ _________________
Date
Percentage Interest ________% ______________________
C-2
<PAGE>
Final Scheduled Distribution Date
-----------------------
Registered Owner
Trustee Execution
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:_______________________________
Name:_____________________________
Title:______________________________
Date of Execution:___________________
Trustee Authentication
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
By:________________________________
Name:______________________________
Title:_______________________________
Date of Authentication_________________
C-3
<PAGE>
The registered Owner named above is the registered Owner of a fractional
interest in (a) the Mortgage Loans (other than any principal and interest
payments received or, with respect to Actuarial Loans, due thereon on or prior
to the Cut-Off Date) listed in Schedule I-A and Schedule I-B to the Pooling and
Servicing Agreement which the Seller has caused to be delivered to the Depositor
and the Depositor has caused to be delivered to the Trustee (and all
substitutions therefor as provided by Sections 3.03, 3.04 and 3.06 of the
Pooling and Servicing Agreement), together with the related Mortgage Loan
documents and the Seller's and Depositor's interest in any Property which
secured a Mortgage Loan but which has been acquired by foreclosure or deed in
lieu of foreclosure, and all payments thereon and proceeds of the conversion,
voluntary or involuntary, of the foregoing; (b) such amounts as may be held by
the Trustee in the Distribution Account, exclusive of investment earnings on
such amounts (except as otherwise provided in the Pooling and Servicing
Agreement) and such amounts may be held by the Master Servicer in the name of
the Trustee in the Collection Account, if any, exclusive of investment earnings
thereon (except as otherwise provided in the Pooling and Servicing Agreement),
whether in the form of cash, instruments, securities or other properties
(including any Permitted Investments held by the Master Servicer); and (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, hazard insurance and title insurance policy
relating to the Mortgage Loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing) to pay the Certificates as specified in the Pooling and
Servicing Agreement.
This Certificate is one of a Class of duly-authorized Certificates
designated as Block Mortgage Finance Asset Backed Certificates, Series 1998-1,
Class R (Residual Interest) (the "Class R Certificates") and issued under and
subject to the terms, provisions and conditions of that certain Pooling and
Servicing Agreement dated as of January 1, 1998 (the "Pooling and Servicing
Agreement") by and among Block Mortgage Finance, Inc., in its capacity as the
Depositor (the "Depositor"), Companion Mortgage Corporation, in its capacity as
the Seller (the "Seller"), Block Financial Corporation, in its capacity as the
Master Servicer (the "Master Servicer"), and Bankers Trust Company of
California, N.A., in its capacity as the Trustee (the "Trustee"), to which
Pooling and Servicing Agreement the Owner of this Certificate by virtue of
acceptance hereof assents and by which such Owner is bound. Also issued under
the Pooling and Servicing Agreement are Certificates designated as Block
Mortgage Finance, Inc., Asset Backed Certificates, Series 1998-1, Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates
(collectively, the "Class A Certificates"). The Class A Certificates and the
Class R Certificates are together referred to herein as the "Certificates."
Terms capitalized herein and not otherwise defined herein shall have the
respective meanings set forth in the Pooling and Servicing Agreement.
C-4
<PAGE>
On the 25th day of each month, or, if such day is not a Business Day, then
the next succeeding Business Day (each such day being a "Distribution Date")
commencing February 25, 1998, each Owner of a Class R Certificate as of the
close of business on the last day of the calendar month immediately preceding
the calendar month in which a Distribution Date occurs (the "Record Date") will
be entitled to receive the Residual Net Monthly Excess Cashflow relating to such
Certificate on such Distribution Date.
Distributions will be made in immediately available funds to Owners of
Class R Certificates having an aggregate Percentage Interest of at least 10% by
wire transfer to the account of such Owner at a domestic bank or other entity
having appropriate facilities therefor, if such Owner has so notified the
Trustee, or otherwise by check mailed to the address of the person entitled
thereto as it appears on the Register.
The Trustee or any duly-appointed Paying Agent will duly and punctually pay
distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement.
Amounts properly withheld under the Code by any Person from a distribution
to any Owner shall be considered as having been paid by the Trustee to such
Owner for all purposes of the Pooling and Servicing Agreement.
The Mortgage Loans will be serviced by the Master Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Master Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub- Servicer shall release the
Master Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of, or an
interest in, nor are the underlying Mortgage Loans insured or guaranteed by,
Block Mortgage Finance, Inc., Block Financial Corporation, Companion Mortgage
Corporation or any of their affiliates. This Certificate is limited in right of
payment to certain collections and recoveries relating to the Mortgage Loans and
amounts on deposit in the Distribution Account and the Collection Account, all
as more specifically set forth hereinabove and in the Pooling and Servicing
Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
C-5
<PAGE>
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations created
thereby will terminate upon the payment to the Owners of all Certificates from
amounts other than those available under the Certificate Insurance Policies of
all amounts held by the Trustee and required to be paid to such Owners pursuant
to the Pooling and Servicing Agreement upon the latest to occur of (a) the final
payment or other liquidation (or any advance made with respect thereto) of the
last Mortgage Loan in the Trust Estate, (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate, (c) at
any time when a Qualified Liquidation of the Trust Estate is effected as
described below, and (d) the final payment to the Certificate Insurer of all
amounts owing to it. To effect a termination of the Pooling and Servicing
Agreement pursuant to clause (c) above, the Owners of a majority in Percentage
Interest represented by the Class A Certificates then Outstanding shall direct
the Trustee on behalf of the Trust to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code, and the Trustee shall either
sell the Mortgage Loans and distribute the proceeds of the liquidation of the
Trust, or shall distribute equitably in kind all of the assets of the Trust
Estate to the remaining Owners of the Certificates, each in accordance with such
plan, so that the liquidation or distribution of the Trust Estate, the
distribution of any proceeds of the liquidation and the termination of the
Pooling and Servicing Agreement occur no later than the close of the 90th day
after the date of adoption of the plan of liquidation and such liquidation
qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that (i) certain
Owners of the Class R Certificates or the Master Servicer may at their option,
purchase, and the Trustee may sell at auction, from the Trust all remaining
Mortgage Loans and other property then constituting the Trust Estate, and
thereby effect early retirement of the Certificates, on any Monthly Remittance
Date on or after the Optional Termination Date and (ii) under certain
circumstances relating to the qualification of Trust Estate as a REMIC under the
Code the Mortgage Loans may be sold, thereby effecting the early retirement of
the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
prior written consent of the Certificate Insurer, or, if there are no longer any
Class A Certificates then Outstanding, by such majority of
C-6
<PAGE>
the Percentage Interests represented by the Class R Certificates then
outstanding, have the right to exercise any trust or power set forth in Section
6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth and referred to on the face hereof, the transfer
of this Certificate is registrable in the Register upon surrender of this
Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Master Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and not less than a majority of the
Percentage Interest represented by each affected Class of Certificates then
Outstanding, and in certain other circumstances provided for in the Pooling and
Servicing Agreement may be amended without the consent of the Owners. Any such
consent by the Owner, at the time of the giving thereof, of this Certificate
shall be conclusive and binding upon such Owner and upon all future Owners of
the Certificate and of any Certificate 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 Certificate.
The Trustee is required to furnish certain information on each Distribution
Date to the Owner of this Certificates as more fully described in the Pooling
and Servicing Agreement.
The Class R Certificates are issuable only as registered Certificates. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class R Certificates are exchangeable for new
Class R Certificates evidencing the same Percentage Interest as the Class R
Certificates exchanged.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Trustee nor any such agent shall be affected by notice to the contrary,
except as may otherwise be specifically provided in the Pooling and Servicing
Agreement with respect to the Certificate Insurer.
C-7
<PAGE>
EXHIBIT D
PAYOFF CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of Block Mortgage Finance,
Inc., a Delaware corporation, in its capacity as Depositor (the "Depositor") of
a certain pool of mortgage loans heretofore conveyed in trust to Bankers Trust
Company of California, N.A, a national banking association (the "Trustee"),
pursuant to that certain Pooling and Servicing Agreement dated as of January 1,
1998, (the "Pooling and Servicing Agreement") among the Depositor, Block
Financial Corporation, as Master Servicer, Companion Mortgage Corporation, as
Seller, and the Trustee; and
WHEREAS, the Depositor is required, pursuant to Section 3.05(c) of the
Pooling and Servicing Agreement to deliver this Payoff Certification to the
Trustee with respect to all Mortgage Loans which have been prepaid in full after
the Cut-Off Date and prior to the Startup Day (as those terms are defined in the
Pooling and Servicing Agreement).
NOW, THEREFORE, the Depositor hereby certifies that each Mortgage Loan
identified on the attached Schedule I has been prepaid in full after the Cut-Off
Date and prior to the Startup Day (as those terms are defined in the Pooling and
Servicing Agreement).
BLOCK MORTGAGE FINANCE, INC.,
as Depositor
By: __________________________________________________
Name: ________________________________________________
Title: _______________________________________________
Dated February __, 1998
D-1
<PAGE>
SCHEDULE I
D-2
<PAGE>
EXHIBIT E
FORM OF TRUSTEE'S RECEIPT
TRUSTEE'S ACKNOWLEDGEMENT OF RECEIPT
Bankers Trust Company of California, N.A., a national banking association,
in its capacity as trustee (the "Trustee") under that certain Pooling and
Servicing Agreement dated as of January 1, 1998 (the "Pooling and Servicing
Agreement") among Block Mortgage Finance, Inc., as Depositor, Block Financial
Corporation, as Master Servicer, Companion Mortgage Corporation, as Seller, and
the Trustee, hereby acknowledges receipt (subject to review as required by
Section 3.06(a) of the Pooling and Servicing Agreement) of the items delivered
to it by the Seller and the Depositor with respect to the Mortgage Loans
pursuant to Section 3.05(b)(i) (A) and (B) of the Pooling and Servicing
Agreement.
The Schedules of Mortgage Loans are attached to this Receipt.
The Trustee hereby additionally acknowledges that it shall review such items
as required by Section 3.06(a) of the Pooling and Servicing Agreement and shall
otherwise comply with Section 3.06(b) of the Pooling and Servicing Agreement as
required thereby.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:_________________________________________________
Title:______________________________________________
Dated: January__, 1998
E-1
<PAGE>
EXHIBIT F
FORM OF POOL CERTIFICATION
POOL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of Bankers Trust Company
of California, N.A., a national banking association, acting in its capacity as
trustee (the "Trustee") of a certain pool of mortgage loans (the "Pool")
heretofore conveyed in trust to the Trustee, pursuant to that certain Pooling
and Servicing Agreement dated as of January 1, 1998 (the "Pooling and Servicing
Agreement") among Block Mortgage Finance, Inc., as Depositor (the "Depositor"),
Block Financial Corporation, as Master Servicer, Companion Mortgage Corporation,
as Seller, and the Trustee; and
WHEREAS, the Trustee is required, pursuant to Section 3.06(a) of the Pooling
and Servicing Agreement, to review the Files relating to the Pool within a
specified period following the Startup Day and to notify the Seller promptly of
any defects with respect to the Pool, and the Seller is required to remedy such
defects or take certain other action, all as set forth in Section 3.06(b) of the
Pooling and Servicing Agreement; and
WHEREAS, Section 3.06(a) of the Pooling and Servicing Agreement requires the
Trustee to deliver this Pool Certification upon the satisfaction of certain
conditions set forth therein.
NOW, THEREFORE, the Trustee hereby certifies that it has determined that all
required documents (or certified copies of documents listed in Section 3.05(b)
of the Pooling and Servicing Agreement) have been executed or received, and that
such documents relate to the Mortgage Loans identified in (i), (ii) and (viii)
of the definition of the Schedules of Mortgage Loans pursuant to Section 3.06(a)
of the Pooling and Servicing Agreement or, in the event that such documents have
not been executed and received or do not so relate to such Mortgage Loans, other
than as set forth on Schedule I hereto. The Trustee makes no certification
hereby, however, with respect to any intervening assignments or assumption and
modification agreements.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:_________________________________________________
Title:______________________________________________
Dated: January ___, 1998
F-1
<PAGE>
EXHIBIT G
FORM OF DELIVERY ORDER
DELIVERY ORDER
BLOCK MORTGAGE FINANCE
Asset Backed Certificates,
Series 1998-1
Depositor's Order to the Trustee for
Execution and Delivery of the Certificates
Dated: January __, 1998
---------------------------
Pursuant to Section 4.01 of the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as of _____________, 1998, among the
Depositor, Block Financial Corporation, as Master Servicer, Companion Mortgage
Corporation, as Seller and the Trustee (each as defined in the Pooling and
Servicing Agreement), the Depositor hereby requests that the Trustee execute and
authenticate the Block Mortgage Finance Asset Backed Certificates, Series 1998-1
(the "Certificates"), and register said Certificates in the denominations or
percentages, as applicable, as set forth on Exhibit A hereto.
The Depositor further requests that the Trustee deliver all of the Class
A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates to
The Depository Trust Company in New York, New York, on behalf of Morgan Stanley
& Co. Incorporated and Salomon Brothers Inc (the "Underwriters") or at such
other location as Morgan Stanley & Co. Incorporated, on behalf of the
Underwriters, advises the Trustee.
BLOCK MORTGAGE FINANCE, INC.
By: _________________________________________________
Name:
Title:
G-1
<PAGE>
EXHIBIT H
FORM OF AFFIDAVIT FOR CLASS R TRANSFER
AFFIDAVIT PURSUANT TO SECTION
860E(e) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED
STATE OF )
) ss:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of __________] [the United States], on behalf of
which he makes this affidavit.
2. That (i) the Investor is not a "disqualified organization" and will
not be a "disqualified organization" as of [date of transfer] (For this purpose,
a "disqualified organiza- tion" means the United States, any state or political
subdivision thereof, any foreign govern- ment, any international organization,
any agency or instrumentality of any of the foregoing (other than certain
taxable instrumentalities), any cooperative organization furnishing electric
energy or providing telephone service to persons in rural areas, or any
organization (other than a farmers' cooperative) that is exempt from federal
income tax unless such organization is subject to the tax on unrelated business
income); (ii) it is not acquiring the Class R Certificate for the account of a
disqualified organization; (iii) it consents to any amendment of the Pooling and
Servicing Agreement that shall be deemed necessary by the Trustee (upon advice
of counsel) to constitute a reasonable arrangement to ensure that the Class R
Certifi- cates will not be owned directly or indirectly by a disqualified
organization; and (iv) it will not transfer such Class R Certificate unless (a)
it has received from the transferee an affidavit in substantially the same form
as this affidavit containing these same four representations and (b) as of the
time of the transfer, it does not have actual knowledge that such affidavit is
false.
H-1
<PAGE>
IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] and its corporate seal to be hereunto attached, attested by
its [Assistant] Secretary, this ____ day of ________, __________.
[NAME OF INVESTOR]
By:___________________________
[Name of Officer]
[Title of Officer]
H-2
<PAGE>
EXHIBIT I
FORM OF LOST NOTE AFFIDAVIT
LOST NOTE AFFIDAVIT
We, as _____________________ (title) of Companion Mortgage Corporation (the
"Seller") and as _____________________ (title) of Block Financial Corporation
(the "Master Servicer"), are authorized to make this Affidavit. Capitalized
terms used but not otherwise defined herein shall have the meanings assigned to
such terms in that certain Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement"), dated as of January 1, 1998, by and among Block Mortgage
Finance, Inc., Block Financial Corporation, Companion Mortgage Corporation and
Bankers Trust Company of California, N.A. In connection with (i) the
administration of the Mortgage Loans held by Bankers Trust Company of
California, N.A. as Trustee on behalf of the Owners (the "Trustee") and (ii)
issuance of the Certificate Insurance Policies by MBIA Insurance Corporation,
___________________ and __________________ (hereinafter called "Deponents"),
being duly sworn, depose and say that:
(a) Seller previously delivered to the Trustee a signed Initial
Certification with respect to a certain Note;
(b) Such Note was assigned or sold to the Trustee pursuant to the terms and
provisions of the Pooling and Servicing Agreement;
(c) Such Note is not outstanding pursuant to a request for release of
documents;
(d) The aforesaid Note (hereinafter called the "Original") has been lost;
(e) The Seller has made or caused to be made diligent search for the
Original and has been unable to find or recover the same;
(f) The Seller was the owner of the Original at the time of loss and has
good title to the Original and has the right to convey good title thereto;
(g) The Original has not been cancelled or assigned or pledged to anyone
other than the Depositor and Trustee;
I-1
<PAGE>
(h) The Seller has assigned all of its interest in the Original to the
Depositor pursuant to the Pooling and Servicing Agreement and the Depositor has
assigned all of its interest in the Original to the Trustee pursuant to the
Pooling and Servicing Agreement;
(i) Following the assignment of the Original to the Depositor and the
assignment of the Original by the Depositor to the Trustee, the Trustee will be
the party entitled to enforce the Original pursuant to Section 3-309 of the
Uniform Commercial Code;
(j) Deponents agree that, if said Original should ever come into the
possession, custody or power of either Seller or the Master Servicer, such party
will immediately and without consideration surrender said Original to the
Trustee;
(k) Attached hereto is a true and correct copy of the Original, endorsed in
blank by the mortgagee;
(l) Deponents hereby agree that the Seller and the Master Servicer (a)
shall indemnify and hold harmless the Trustee and MBIA Insurance Corporation,
their successors and assigns, against any loss, liability or damage, including
reasonable attorney's fees, resulting from the unavailability of any Originals,
including but not limited to any loss, liability or damage arising from (i) any
false statement contained in this Affidavit, (ii) any claim of any party that
has already purchased the Mortgage Loan evidenced by the lost Original or any
interest in such Mortgage Loan, (iii) any claim of any borrower with respect to
the existence of terms of a Mortgage Loan evidenced by the lost Original, (iv)
the issuance of a new instrument in lieu thereof and (v) any claim whether or
not based upon or arising from honoring or refusing to honor the Original when
presented by any person (items (i) through (iv) above are hereinafter referred
to as the "Losses");
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
I-2
<PAGE>
(m) This Affidavit is intended to be relied on by the Trustee, its
successors and assigns and each of the Seller and the Master Servicer represent
and warrant that it has the authority to perform its respective obligations
under this Affidavit.
Executed this ______ day of _______, 199__,
on behalf of the Seller
By: _________________________________________________
Name: _______________________________________________
Title: ______________________________________________
Executed this ______ day of _______, 199__,
on behalf of the Master Servicer
By: _________________________________________________
Name: _______________________________________________
Title: ______________________________________________
I-3
<PAGE>
State of _________ )
) ss.
County of ________ )
On this ____ day of ________, 199__, before me appeared
___________________, to me personally know, who being duly sworn did say that
he/she is the ____________________ of Companion Mortgage Corporation, and the
above Affidavit was signed and sealed on behalf of such corporation and said
_________________________ acknowledged this instrument to be the free act and
deed of said corporation.
_____________________________________________
Notary Public
in and for the State of _________________
My Commission Expires: ____________________
State of _________ )
) ss.
County of ________ )
On this ____ day of ________, 199__, before me appeared
___________________, to me personally know, who being duly sworn did say that
he/she is the ____________________ of Block Financial Corporation, and the above
Affidavit was signed and sealed on behalf of such corporation and said
_________________________ acknowledged this instrument to be the free act and
deed of said corporation.
_____________________________________________
Notary Public
in and for the State of _________________
My Commission Expires: ____________________
I-4
<PAGE>
EXHIBIT J
[RESERVED]
J-1
<PAGE>
EXHIBIT K
TERMINATION AUCTION PROCEDURES
The following sets forth the auction procedures to be followed in connection
with a sale effected pursuant to Section 9.03 of the Pooling and Servicing
Agreement (the "Agreement"), dated as of January 1, 1998 among Block Mortgage
Finance, Inc., as Depositor, Block Financial Corporation, as Master Servicer,
Companion Mortgage Corporation, as Seller, and Bankers Trust Company of
California, N.A., as Trustee. Capitalized terms used herein that are not
otherwise defined shall have the meanings described thereto in the Agreement.
1. Pre-Auction Process
(a) Upon receiving notice of the Auction Date, the Advisor will initiate
its general Termination Auction procedures consisting of the
following: (i) with the assistance of the Master Servicer, prepare a
general solicitation package along with a confidentiality agreement;
(ii) develop a list of qualified bidders, in a commercially reasonable
manner; (iii) initiate contact with all qualified bidders; (iv) send a
confidentiality agreement to all qualified bidders; (v) upon receipt
of a signed confidentiality agreement, send solicitation packages to
all interested bidders on behalf of the Trustee; and (vi) notify the
Master Servicer and Trustee of all potential bidders and anticipated
timetable.
(b) The general solicitation package will include: (i) the prospectus
supplement and prospectus from the initial public offering of any of
the Class A Certificates; (ii) copies of the prior year's monthly
servicing reports; (i) a form of a Sale and Servicing Agreement
prepared by the Trustee and the Master Servicer (or prepared by the
Advisor and approved by the Trustee and the Master Servicer) which
Agreement shall provide that the Mortgage Loans are being sold without
recourse to the Trustee and the Owners; (ii) a description of the
minimum purchase price required to cause the Trustee to sell the
Mortgage Loans as set forth in Section 9.03 of the Agreement; (iii) a
formal bidsheet; (iv) a detailed timetable; and (v) a preliminary data
tape of the aggregate Loan Balance of the Mortgage Loans as of a
recent Distribution Date reflecting the same data attributes used to
create the Cut-Off Date tables for the prospectus supplement dated
January 27, 1998 relating to the public offering of the Class A
Certifi- cates. None of the Trustee, the Master Servicer, the
Depositor or the Seller shall be required to produce an updated
prospectus or prospectus supplement, and the auction procedures shall
be carried out in a manner that does not constitute a public offering
of securities.
K-1
<PAGE>
(c) The Trustee, with the assistance of the Master Servicer and the
Advisor, will maintain an auction package beginning at the time of
closing of the transaction, which will contain the documents listed
under clauses (i)-(ii) of the preceding paragraph.
(d) The Advisor will send solicitation packages to all bidders at least 15
Business Days before the Auction Date. Bidders will be required to
submit any due diligence questions in writing to the Advisor for
determination of their relevan- cy, no later than 10 Business Days
before the Auction Date. The Master Servicer and the Advisor will be
required to satisfy all relevant questions at least five Business Days
prior to the Auction Date and distribute the questions and answers to
all bidders.
2. Auction Process
(a) The Advisor, any underwriter, the Certificate Insurer or any Owner
will be allowed to bid in the Auction, but will not be required to do
so.
(b) The Seller and the Master Servicer will also be allowed to bid in the
Termination Auction if it deems appropriate, but will not be required
to do so.
(c) On the Auction Date, all bids will be due by facsimile to the offices
of the Trustee by 1:00 p.m. New York City time, with the winning
bidder to be notified by 2:00 p.m. New York City time. All acceptable
bids (as described in Section 9.03 of the Agreement) will be due on a
conforming basis on the bid sheet contained in the solicitation
package.
(d) If the Trustee receives fewer than two market value bids from
participants in the market for mortgage loans willing and able to
purchase the Mortgage Loans, the Trustee shall decline to consummate
the sale.
(e) Upon notification to the winning bidder, a good faith deposit equal to
one percent (1%) of the aggregate Loan Balance of the Mortgage Loans
will be required to be wired to the Trustee upon acceptance of the
bid. This deposit, along with any interest income attributable to it,
will be credited to the pur- chase price but will not be refundable.
The Trustee will establish a separate account for the acceptance of
the good faith deposit, until such time as the account is fully funded
and all monies are transferred into the Collection Account, such time
not to be later than one Business Day before the related Distribution
Date (as described above).
K-2
<PAGE>
(f) The winning bidder will receive on the Auction Date a copy of the
draft Sale and Servicing Agreement.
(g) The Advisor will provide to the Trustee a letter concluding whether or
not the winning bid is a fair market value bid. The Advisor will also
provide such letter if it is the winning bidder. In the case where the
Advisor or the Master Servicer is the winning bidder it will provide
for market comparables and valuations in its letter.
(h) The Auction will stipulate that the Master Servicer be retained to
service the Mortgage Loans sold pursuant to the terms of the Sale and
Servicing Agreement.
(i) The Auction will stipulate that such sale and consequent termination
of the Trust must constitute a "qualified liquidation" of the Trust
under Section 860F of the Code, including the requirement that such
liquidation take place over a period not to exceed 90 days. The
Trustee may, in its discretion, require that the purchaser of the
Mortgage Loans provide the Trustee and the Certificate Insurer with an
opinion of counsel to that effect.
K-3
<PAGE>
EXHIBIT L
FORM OF LIQUIDATION REPORT
Customer Name:
Account Number:
Original Principal Balance:
1. Type of Liquidation (REO disposition/charge-off/short
pay-off)
- Date last paid
- Date of foreclosure
- Date of REO
- Date of REO Disposition
- Property Sale Price/Estimated Market Value at disposition
2. Liquidation Proceeds
Principal Prepayment $____________
Property Sale Proceeds ____________
Insurance Proceeds ____________
Other (itemize) ____________
Total Proceeds $____________
3. Liquidation Expenses
Servicing Advances $____________
Monthly Advances ____________
Contingency Fees ____________
Excess Servicing Fees ____________
Servicing Fees ____________
Annual Expense Escrow Amount ____________
Supplemental Fee (if any) ____________
Additional Interest (if any) ____________
Total Advances $____________
4. Net Liquidation Proceeds $____________
(Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $____________
6. Loss, if any (Item 5 minus Item 4) $____________
L-1
SPECIMEN
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS: $92,000,000
POLICY NUMBER:
Block Mortgage Finance
Asset Backed Certificates, Series 1998-1
Class A-1, Class A-2, Class A-3, Class A-4,
and Class A-5 Certificates
MBIA Insurance Corporation (the "Insurer"), in consideration of the payment
of the premium and subject to the terms of this Certificate Guaranty Insurance
Policy (this "Policy"), hereby unconditionally and irrevocably guarantees to any
Owner that an amount equal to each full and complete Insured Payment will be
received by Bankers Trust Company of California, N.A., or its successors, as
trustee for the Owners (the "Trustee"), on behalf of the Owners from the
Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Insurer's obligations hereunder
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 from
the Insurer, whether or not such funds are properly applied by the Trustee.
Insured Payments shall be made only at the time set forth in this Policy, and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Obligations, unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this 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).
The 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
such Preference Amount, (ii) an opinion of counsel satisfactory to the Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably required by the Insurer, irrevocably assigning to the
Insurer all rights and claims of the Owner relating to or arising under the
Obligations against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that, if such documents are received after
12:00 noon, New York City time, on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Obligations to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Insurer will pay any other amount payable hereunder no later than 12:00
noon, New York City time, on the later of the Distribution Date on which the
related Insured Payment is due or the second Business Day following receipt in
New York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as Fiscal Agent for the Insurer, or any successor fiscal agent appointed
by the 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 claim hereunder, it shall be
deemed not to have been received by the Fiscal Agent for purposes of this
paragraph, and the 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 hereunder, unless otherwise stated herein, 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 Insurer only, and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit, or cause to be deposited, sufficient funds to
make payments due under this Policy.
As used herein, the following terms shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of January
1, 1998 by and among Block Mortgage Finance, Inc., as Depositor, Block Financial
Corporation, as Master Servicer, Companion Mortgage Corporation, as Seller, and
the Trustee, as trustee, without regard to any amendment or supplement thereto
unless such amendment or supplement has been approved in writing by the Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Trustee under the Agreement is located
are authorized or obligated by law or executive order to close.
"Insured Payments" means, with respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to such Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the Trust Fund plus (B) an amount equal to the principal portion of the
Preference Amount with respect to the Related Loan Group.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached hereto, 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 Owner (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Obligations to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Obligations 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.
"Related Loan Group" means the Fixed Rate Group.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Agreement as of the date of execution
of this Policy, without giving effect to any subsequent amendment to or
modification of the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent of the
Insurer may be made at the address listed below for the Fiscal Agent of the
Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
This Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
This Policy is not cancelable for any reason. The premium on this Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Obligations.
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed and
attested this 28th day of January, 1998.
MBIA INSURANCE CORPORATION
By------------------------------
President
Attest: By-------------------------------
Assistant Secretary
<PAGE>
EXHIBIT A
TO CERTIFICATE GUARANTY INSURANCE POLICY
NUMBER 25621
NOTICE UNDER CERTIFICATE GUARANTY
INSURANCE POLICY NUMBER 25621
State Street Bank and Trust Company, N.A.,
as Fiscal Agent for MBIA Insurance Corporation
15th Floor
61 Broadway
New York, NY 10006
Attention: Municipal Registrar and Paying Agency
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
The undersigned, a duly authorized officer of ___________________________,
as trustee (the "Trustee"), hereby certifies to State Street Bank and Trust
Company, N.A. (the "Fiscal Agent") and MBIA Insurance Corporation (the
"Insurer"), with reference to Certificate Guaranty Insurance Policy Number:
25621 (the "Policy") issued by the Insurer in respect of the Block Mortgage
Finance Asset Backed Certificates, Series 1998-1, Class A-1, Class A-2, Class
A-3, Class A-4, and Class A-5 Certificates (the "Obligations"), that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of January 1, 1998 by and among Block Mortgage Finance
Inc., as Depositor, Block Financial Corporation, as Master Servicer,
Companion Mortgage Corporation, as Seller, and the Trustee, as trustee for
the Owners;
(ii) the Class A-1 interest accrued at the Pass-Through Rate during the
preceding Accrual Period (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) for the Distribution
Date occurring on ____________________ (the "Applicable Distribution Date")
is $____________________ (the "Class A-1 Interest");
(iii) the Class A-2 interest accrued at the Pass-Through Rate during
the preceding Accrual Period (net of any Prepayment Interest Shortfall and
the interest portion of reductions due to the Relief Act) for the
Applicable Distribution Date is $__________________(the "Class A-2
Interest");
(iv) the Class A-3 interest accrued at the Pass-Through Rate during the
preceding Accrual Period (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) for the Applicable
Distribution Date is $___________________(the "Class A-3 Interest");
(v) the Class A-4 interest accrued at the Pass-Through Rate during the
preceding Accrual Period (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) for the Applicable
Distribution Date is $___________________(the "Class A-4 Interest");
(vi) the Class A-5 interest accrued at the Pass-Through Rate during the
preceding Accrual Period (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) for the Applicable
Distribution Date is $___________________(the "Class A-5 Interest");
(vii) the sum of the Class A-1 Interest, Class A-2 Interest, the Class
A-3 Interest, the Class A-4 Interest, and the Class A-5 Interest in (ii),
(iii), (iv), (v), and (vi) above for the Applicable Distribution Date is
$________________ (the related "Class A Interest");
(viii) the interest portion of the Preference Amount related to Class
A-1 for the Applicable Distribution Date is $_________________(the "Class
A-1 Preference Interest");
(ix) the interest portion of the Preference Amount related to Class A-2
for the Applicable Distribution Date is $_______________(the "Class A-2
Preference Interest");
(x) the interest portion of the Preference Amount related to Class A-3
for the Applicable Distribution Date is $_______________(the "Class A-3
Preference Interest");
(xi) the interest portion of the Preference Amount related to Class A-4
for the Applicable Distribution Date is $_______________(the "Class A-4
Preference Interest");
(xii) the interest portion of the Preference Amount related to Class
A-5 for the Applicable Distribution Date is $_______________(the "Class A-5
Preference Interest");
(xiii) the sum of the Class A-1 Preference Interest, the Class A-2
Preference Interest, the Class A-3 Preference Interest, the Class A-4
Preference Interest, and the Class A-5 Preference Interest in (viii), (ix),
(x), (xi), and (xii) above for the Applicable Distribution Date is
$__________________(the "Preference Interest");
(xiv) the portion of the Carry Forward Amount related to interest with
respect to Class A-1 (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) (the "Class A-1 Carry
Forward Amount") for the Applicable Distribution Date is $______________;
(xv) the portion of the Carry Forward Amount related to interest with
respect to Class A-2 (net of Prepayment Interest Shortfall and the interest
portion of reductions due to the Relief Act) (the "Class A-2 Carry Forward
Amount") for the Applicable Distribution Date is $________________;
(xvi) the portion of the Carry Forward Amount related to interest with
respect to Class A-3 (net of Prepayment Interest Shortfall and the interest
portion of reductions due to the Relief Act) (the "Class A-3 Carry Forward
Amount") for the Applicable Distribution Date is $_______________;
(xvii) the portion of the Carry Forward Amount related to interest with
respect to Class A-4 (net of Prepayment Interest Shortfall and the interest
portion of reductions due to the Relief Act) (the "Class A-4 Carry Forward
Amount") for the Applicable Distribution Date is $_______________;
(xviii) the portion of the Carry Forward Amount related to interest
with respect to Class A-5 (net of Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) (the "Class A-5 Carry
Forward Amount") for the Applicable Distribution Date is $_______________;
(xix) the sum of the Class A-1 Carry Forward Amount, the Class A-2
Carry Forward Amount, the Class A-3 Carry Forward Amount, the Class A-4
Carry Forward Amount, and the Class A-5 Carry Forward Amount set forth in
(xiv), (xv), (xvi), (xvii), and (xviii) above is $_____________(the related
"Carry Forward Amount");
(xx) the Subordination Deficit for the Related Loan Group, if any, for
the Applicable Distribution Date is $____________________ (the
"Subordination Deficit");
(xxi) the sum of the Class A Interest in (vii), the Preference
Interest in (xiii), the Carry Forward Amount in (xix), and the
Subordination Deficit in (xx) is $____________________ (the "Required
Distribution");
(xxii) the amount of Total Available Funds for the Applicable
Distribution Date is $______________________(the "Total Available Funds")
(xxiii) the Required Distribution in (xxi) minus Total Available Funds
in (xxii) is $----------------;
(xxiv) the principal portion any Preference Amount which is payable
under the Policy and not heretofore paid is $____________________ (the
"Applicable Principal Preference Amount");
(xxv) the sum of the amount set forth in (xxiii) plus the Applicable
Principal Preference Amount in (xxiv) is $____________________ (the
"Insured Payment");
(xxvi) the Trustee is making a claim under and pursuant to the terms of
the Policy for the dollar amount of the Insured Payment set forth in (xxv)
above to be applied to the payment of the Required Distribution for the
Applicable Distribution Date in accordance with the Agreement and for the
dollar amount of the Insured Payment set forth in (xxv) above to be applied
to the payment of any Preference Amount; and
(xxvii) the Trustee directs that payment of the Insured Payment be made
to the following account by bank wire transfer of federal or other
immediately available funds in accordance with the terms of the Policy:
[TRUSTEE'S ACCOUNT].
Any Person Who Knowingly And With Intent to Defraud Any Insurance Company
Or Other Person Files An Application For Insurance Or Statement Of Claim
Containing Any Materially False Information, Or Conceals For The Purpose Of
Misleading, Information Concerning Any Fact material Thereto, Commits A
Fraudulent Insurance Act, Which Is A Crime, And Shall Also Be Subject To A
Civil Penalty Not To Exceed Five Thousand Dollars And The Stated Value Of
The Claim for Each Such Violation.
Any capitalized term used in this Notice and not otherwise defined herein
shall have the meaning assigned thereto in the Policy.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
under the Policy as of the ____ day of ____________, ____.
, as Trustee
By______________________________________
Title____________________________________
SPECIMEN
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS: $92,320,000
POLICY NUMBER:
Block Mortgage Finance
Asset Backed Certificates, Series 1998-1
Class A-6 Certificates
MBIA Insurance Corporation (the "Insurer"), in consideration of the payment
of the premium and subject to the terms of this Certificate Guaranty Insurance
Policy (this "Policy"), hereby unconditionally and irrevocably guarantees to any
Owner that an amount equal to each full and complete Insured Payment will be
received by Bankers Trust Company of California, N.A., or its successors, as
trustee for the Owners (the "Trustee"), on behalf of the Owners from the
Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Insurer's obligations hereunder
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 from
the Insurer, whether or not such funds are properly applied by the Trustee.
Insured Payments shall be made only at the time set forth in this Policy, and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Obligations, unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this 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).
The 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
such Preference Amount, (ii) an opinion of counsel satisfactory to the Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably required by the Insurer, irrevocably assigning to the
Insurer all rights and claims of the Owner relating to or arising under the
Obligations against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that, if such documents are received after
12:00 noon, New York City time, on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Obligations to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Insurer will pay any other amount payable hereunder no later than 12:00
noon, New York City time, on the later of the Distribution Date on which the
related Insured Payment is due or the second Business Day following receipt in
New York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as Fiscal Agent for the Insurer, or any successor fiscal agent appointed
by the 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 claim hereunder, it shall be
deemed not to have been received by the Fiscal Agent for purposes of this
paragraph, and the 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 hereunder, unless otherwise stated herein, 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 Insurer only, and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit, or cause to be deposited, sufficient funds to
make payments due under this Policy.
As used herein, the following terms shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of January
1, 1998 by and among Block Mortgage Finance, Inc., as Depositor, Block Financial
Corporation, as Master Servicer, Companion Mortgage Corporation, as Seller, and
the Trustee, as trustee, without regard to any amendment or supplement thereto
unless such amendment or supplement has been approved in writing by the Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Trustee under the Agreement is located
are authorized or obligated by law or executive order to close.
"Insured Payment": means, with respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to such Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the Trust Fund plus (B) an amount equal to the principal portion of the
Preference Amount with respect to the Related Loan Group.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached hereto, 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 Owner (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Obligations to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Obligations 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.
"Related Loan Group" means the Adjustable Rate Group.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Agreement as of the date of execution
of this Policy, without giving effect to any subsequent amendment to or
modification of the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent of the
Insurer may be made at the address listed below for the Fiscal Agent of the
Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
This Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
This Policy is not cancelable for any reason. The premium on this Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Obligations.
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed and
attested this 28th day of January, 1998.
MBIA INSURANCE CORPORATION
By-------------------------------
President
Attest: By-------------------------------
Assistant Secretary
<PAGE>
EXHIBIT A
TO CERTIFICATE GUARANTY INSURANCE POLICY
NUMBER 25622
NOTICE UNDER CERTIFICATE GUARANTY
INSURANCE POLICY NUMBER 25622
State Street Bank and Trust Company, N.A.,
as Fiscal Agent for MBIA Insurance Corporation
15th Floor
61 Broadway
New York, NY 10006
Attention: Municipal Registrar and Paying Agency
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
The undersigned, a duly authorized officer of ___________________________,
as trustee (the "Trustee"), hereby certifies to State Street Bank and Trust
Company, N.A. (the "Fiscal Agent") and MBIA Insurance Corporation (the
"Insurer"), with reference to Certificate Guaranty Insurance Policy Number:
25622 (the "Policy") issued by the Insurer in respect of the Block Mortgage
Finance Asset Backed Certificates, Series 1998-1, Class A-6 Certificates (the
"Obligations"), that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of January 1, 1998 by and among Block Mortgage Finance,
Inc., as Depositor, Block Financial Corporation, as Master Servicer,
Companion Mortgage Corporation, as Seller, and the Trustee, as trustee for
the Owners;
(ii) the Class A-6 interest accrued at the Pass-Through Rate during the
preceding Accrual Period (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) for the Distribution
Date occurring on ____________________ (the "Applicable Distribution Date")
is $____________________ (the "Class A-6 Interest");
(iii) the interest portion of the Preference Amount related to Class
A-6 for the Applicable Distribution Date is $_________________(the "Class
A-6 Preference Interest");
(iv) the portion of the Carry Forward Amount related to interest with
respect to Class A-6 (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) (the "Class A-6 Carry
Forward Amount") for the Applicable Distribution Date is $______________;
(v) the Subordination Deficit for the Related Loan Group, if any, for
the Applicable Distribution Date is $____________________ (the
"Subordination Deficit");
(vi) the sum of the Class A-6 Interest in (ii), the Class A-6
Preference Interest in (iii), the Class A-6 Carry Forward Amount in
(iv), and the Subordination Deficit in (v) is $____________________
(the "Required Distribution");
(vii) the amount of Total Available Funds for the Applicable
Distribution Date is $______________________(the "Total Available Funds")
(viii) the Required Distribution in (vi) minus Total Available Funds in
(vii) is $________________;
(ix) the principal portion any Preference Amount which is payable under
the Policy and not heretofore paid is $____________________ (the
"Applicable Principal Preference Amount");
(x) the sum of the amount set forth in (vii) plus the Applicable
Principal Preference Amount in (ix) is $____________________ (the "Insured
Payment");
(xi) the Trustee is making a claim under and pursuant to the terms of
the Policy for the dollar amount of the Insured Payment set forth in (x)
above to be applied to the payment of the Required Distribution for the
Applicable Distribution Date in accordance with the Agreement and for the
dollar amount of the Insured Payment set forth in (x) above to be applied
to the payment of any Preference Amount; and
(xii) the Trustee directs that payment of the Insured Payment be made
to the following account by bank wire transfer of federal or other
immediately available funds in accordance with the terms of the Policy:
[TRUSTEE'S ACCOUNT].
Any Person Who Knowingly And With Intent to Defraud Any Insurance Company
Or Other Person Files An Application For Insurance Or Statement Of Claim
Containing Any Materially False Information, Or Conceals For The Purpose Of
Misleading, Information Concerning Any Fact material Thereto, Commits A
Fraudulent Insurance Act, Which Is A Crime, And Shall Also Be Subject To A
Civil Penalty Not To Exceed Five Thousand Dollars And The Stated Value Of
The Claim for Each Such Violation.
Any capitalized term used in this Notice and not otherwise defined herein
shall have the meaning assigned thereto in the Policy.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
under the Policy as of the ____ day of ____________, ____.
, as Trustee
By_______________________________________
Title____________________________________
