================================================================================
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)
June 26, 1998
First Alliance Mortgage Loan Trust 1998-2
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 333-44585-03 13-7148828
- - ----------------------------------------------- ----------------------------- -----------------------------
(State or Other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation) Number) Identification No.)
</TABLE>
c/o Wilmington Trust Company,
as Owner Trustee
1100 North Market Street
Wilmington, Delaware 19890
- - ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (302) 651-1000
--------------
No Change
-------------------------------------------------------------
(Former name or former address, if changed since last report)
================================================================================
<PAGE>
Item 5. Other Events.
Reference is hereby made to the Registration Statement on Form S-3
(Registration File No. 333-44585) filed by First Alliance Mortgage Company
("First Alliance") with the Securities and Exchange Commission (the
"Commission") on January 21, 1998, as amended by Amendment No. 1 to the
Registration Statement on Form S-3 dated February 3, 1998, pursuant to which
First Alliance registered $750,000,000 aggregate principal amount of its
mortgage loan asset-backed certificates and notes, issuable in various series,
for sale in accordance with the provisions of the Securities Act of 1933, as
amended (the "Act"). Reference is also hereby made to the Prospectus dated March
10, 1998, and the related Prospectus Supplement, dated June 10, 1998, which were
previously filed with the Commission pursuant to Rule 424(b)(5), with respect to
the FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 Adjustable Rate Mortgage Loan
Asset Backed Notes, Series 1998-2A (the "Adjustable Rate Notes") and Fixed Rate
Mortgage Loan Asset Backed Notes, Series 1998-2F (the "Fixed Rate Notes" and
together with the Adjustable Rate Notes, the "Notes").
The Notes were sold to Wheat First Securities, Inc., doing business as
First Union Capital Markets, a division of Wheat First Securities, Inc. (the
"Underwriter") pursuant to the terms of an underwriting agreement dated June 10,
1998 (the "Underwriting Agreement") between First Alliance and the Underwriter.
A copy of the Underwriting Agreement is filed herewith as Exhibit 1.1.
The Adjustable Rate Notes were issued pursuant to an Indenture dated as
of June 1, 1998 (the "Adjustable Rate Indenture") between First Alliance
Mortgage Loan Trust 1998-2 (the "Trust") and The Chase Manhattan Bank, as
Indenture Trustee (the "Indenture Trustee"). The Fixed Rate Notes were issued
pursuant to an Indenture dated as of June 1, 1998 (the "Fixed Rate Indenture")
between the Trust and the Indenture Trustee. (The Fixed Rate Indenture and the
Adjustable Rate Indenture, each an "Indenture" and collectively, the
"Indentures"). Copies of the Adjustable Rate Indenture and the Fixed Rate
Indenture are filed herewith as Exhibits 4.1 and 4.2, respectively.
The Adjustable Rate Notes are secured by a portion of the trust estate
pledged under the Adjustable Rate Indenture (the "Adjustable Rate Pool") and by
a limited right to receive certain excess cashflow from the Fixed Rate Pool
(defined below) to fund certain shortfalls. The Fixed Rate Notes are secured by
a portion of the trust estate pledged under the Fixed Rate Indenture (the "Fixed
Rate Pool") and by a limited right to receive certain excess cashflow from the
Adjustable Rate Pool to fund certain shortfalls. The assets of the Trust,
consisting of the Adjustable Rate Pool and the Fixed Rate Pool, primarily
include a pool of fixed and adjustable rate mortgage loans (the "Mortgage
Loans") secured by first and second lien mortgages or deeds of trust on
one-to-four family residential properties.
Beneficial interests in the Trust are represented by certificates
issued pursuant to the Trust Agreement dated as of June 1, 1998 (the "Trust
Agreement") between First Alliance and Wilmington Trust Company, as Owner
Trustee. A copy of the Trust Agreement is filed herewith as Exhibit 4.3.
The Mortgage Loans were sold by First Alliance, as Seller, to the Trust
pursuant to the terms of a Sale and Servicing Agreement dated as of June 1, 1998
(the "Sale and Servicing Agreement") among the Trust, as Issuer, First Alliance,
as Seller and Servicer, and the Indenture Trustee. The Mortgage Loans will be
serviced by First Alliance, as Servicer, pursuant to the terms of the Sale and
Servicing Agreement. A copy of the Sale and Servicing Agreement is filed
herewith as Exhibit 10.1
<PAGE>
As of the Closing Date, the Mortgage Loans possessed the
characteristics described in the Prospectus dated March 10, 1998 and the
Prospectus Supplement dated June 10, 1998, filed pursuant to Rule 424(b)(5) of
the Act on June 23, 1998.
On June 30, 1998, the Trust acquired $17,380,072.68 of Subsequent
Mortgage Loans ($3,418,150.07, of such Subsequent Mortgage Loans, by aggregate
principal balance, were added to the Adjustable Rate Pool and $13,961,922.61 of
such Subsequent Mortgage Loans, by aggregate principal balance, were added to
the Fixed Rate Pool) pursuant to the terms of the Sale and Servicing Agreement
and the Subsequent Transfer Agreement dated as of June 30, 1998 and attached
hereto as Exhibit 10.2, between First Alliance, as Seller and Servicer, and the
Indenture Trustee, on behalf of the Trust. The Subsequent Mortgage Loans possess
the characteristics required by the Prospectus dated March 10, 1998 and the
Prospectus Supplement dated June 10, 1998, filed pursuant to Rule 424(b)(5) of
the Act on June 23, 1998.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable
(b) Not applicable
(c) Exhibits:
1.1 Underwriting Agreement dated June 10, 1998, between First
Alliance Mortgage Company and Wheat First Securities, Inc.,
doing business as First Union Capital Markets, a division of
Wheat First Securities, Inc.
4.1 Indenture, dated as of June 1, 1998, relating to the
Adjustable Rate Mortgage Loans, between First Alliance
Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan
Bank, as Indenture Trustee.
4.2 Indenture, dated as of June 1, 1998, relating to the Fixed
Rate Mortgage Loans, between First Alliance Mortgage Loan
Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as
Indenture Trustee.
4.3 Trust Agreement, dated as of June 1, 1998 between First
Alliance Mortgage Company and Wilmington Trust Company, as
Owner Trustee.
10.1 Sale and Servicing Agreement dated as of June 1, 1998, among
First Alliance Mortgage Company, as Seller and Servicer, First
Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase
Manhattan Bank, as Indenture Trustee.
10.2 Subsequent Transfer Agreement dated June 30, 1998, between
First Alliance Mortgage Company and First Alliance Mortgage
Loan Trust 1998-2.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
By: FIRST ALLIANCE MORTGAGE COMPANY,
as Company
By: /s/ Brian Chisick
-------------------------------------
Name: Brian Chisick
Title: President and Chief Executive Officer
Dated: July 10, 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - ----------- ----------- --------
<S> <C> <C>
1.1 Underwriting Agreement dated June 10, 1998, between First
Alliance Mortgage Company and Wheat First Securities, Inc.,
doing business as First Union Capital Markets, a division of
Wheat First Securities, Inc.
4.1 Indenture, dated as of June 1, 1998, relating to the
Adjustable Rate Mortgage Loans, between First Alliance
Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan
Bank, as Indenture Trustee.
4.2 Indenture, dated as of June 1, 1998, relating to the Fixed
Rate Mortgage Loans, between First Alliance Mortgage Loan
Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as
Indenture Trustee.
4.3 Trust Agreement, dated as of June 1, 1998 between First
Alliance Mortgage Company and Wilmington Trust Company, as
Owner Trustee.
10.1 Sale and Servicing Agreement dated as of June 1, 1998, among
First Alliance Mortgage Company, as Seller and Servicer, First
Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase
Manhattan Bank, as Indenture Trustee.
10.2 Subsequent Transfer Agreement dated June 30, 1998, between First
Alliance Mortgage Company and First Alliance Mortgage Loan Trust
1998-2.
</TABLE>
Exhibit 1.1
FIRST ALLIANCE MORTGAGE COMPANY
AND
WHEAT FIRST SECURITIES, INC.,
doing business as
FIRST UNION CAPITAL MARKETS,
a division of
WHEAT FIRST SECURITIES, INC.
UNDERWRITING AGREEMENT
FOR
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
MORTGAGE LOAN ASSET BACKED NOTES
$30,000,000 ADJUSTABLE RATE
MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2A
$70,000,000 6.52% FIXED RATE
MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2F
June 10, 1998
<PAGE>
June 10, 1998
First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614
Wheat First Securities, Inc., doing business as
First Union Capital Markets, a division of
Wheat First Securities, Inc.
c/o First Union National Bank
One First Union Center
Charlotte, North Carolina 28288-0166
First Alliance Mortgage Company (the "Seller") hereby confirms
its agreement to sell certain adjustable rate mortgage loan asset backed notes
(the "Adjustable Rate Notes") and certain fixed rate mortgage loan asset backed
notes (the "Fixed Rate Notes," and together with the Adjustable Rate Notes, the
"Notes") to Wheat First Securities, Inc., doing business as First Union Capital
Markets, a division of Wheat First Securities, Inc. (the "Underwriter") as
described herein relating to the First Alliance Mortgage Loan Trust 1998-2 (the
"Issuer"). The Notes, together with certain instruments evidencing the residual
interest in the Trust Estate (the "Certificates"), will evidence in the
aggregate the entire beneficial interest in a trust estate (the "Trust Estate")
consisting of two pools (the "Mortgage Pools") of closed-end mortgage loans (the
"Initial Mortgage Loans") and such amounts as may be held by the Indenture
Trustee in the Pre-Funding Account ("Pre-Funding Account"), the Capitalized
Interest Account (the "Capitalized Interest Account") and any other accounts
held by the Indenture Trustee for the Trust. The Initial Mortgage Loans in the
Adjustable Rate Pool shall have, as of the close of business on June 1, 1998
(the "Cut-Off Date"), an aggregate principal balance of $26,582,365.10, and the
Initial Mortgage Loans in the Fixed Rate Pool shall have, as of the close of
business on the Cut-Off Date, an aggregate principal balance of $56,038,610.90.
The Adjustable Rate Notes are to be issued under an indenture dated as of June
1, 1998 (the "Adjustable Rate Indenture") relating to the Issuer's Adjustable
Rate Mortgage Loan Asset Backed Notes, Series 1998-2A between the Issuer and The
Chase Manhattan Bank, as Indenture Trustee (the "Indenture Trustee"). The Fixed
Rate Notes are to be issued under an indenture dated as of June 1, 1998 (the
"Fixed Rate Indenture") relating to the Issuer's Fixed Rate Mortgage Loan Asset
Backed Notes, Series 1998-2F, between the Issuer and the Indenture Trustee. On
the Closing Date, approximately $17,379,024.00 will be deposited in the name of
the Indenture Trustee in the Pre-Funding Account from the sale of each series of
Notes (a "Series"); $3,417,634.90 of such amount will be used to purchase
Mortgage Loans for addition to the Adjustable Rate Pool, and $13,961,389.10 of
such amount will be used to purchase Mortgage Loans for addition to the Fixed
Rate Pool. It is intended that additional Mortgage Loans satisfying the criteria
specified in the Sale and Servicing Agreement (the "Subsequent Mortgage Loans")
will be purchased by the Issuer for inclusion in the Mortgage
<PAGE>
Pools from the Seller from time to time on or before June 30, 1998 from funds on
deposit in the Pre-Funding Account at the time of execution and delivery of each
Subsequent Transfer Agreement (the "Subsequent Transfer Agreement"). Funds in
the Capitalized Interest Account will be applied by the Indenture Trustee to
cover shortfalls in interest during the Funding Period.
On or prior to the date of issuance of the Notes, the Seller
will obtain two financial guaranty insurance policies (the "Policies") issued by
Financial Security Assurance Inc. (the "Insurer") which will unconditionally and
irrevocably guarantee to the Indenture Trustee for the benefit of the holders of
the Notes full and complete payment of all amounts payable on the Notes. All
capitalized terms used but not otherwise defined herein have the respective
meanings set forth in the form of Sale and Servicing Agreement heretofore
delivered to the Underwriter.
1. Securities. The Notes will be issued in two Series, each
consisting of a single class. The Certificates will be issued by the Issuer
pursuant to the Trust Agreement dated as of June 1, 1998 between the Seller and
Wilmington Trust Company, as Owner Trustee (the "Trust Agreement"). The Notes
and the Certificates are hereinafter referred to as the "Securities."
2. Representations and Warranties of the Seller. The Seller
represents and warrants to, and covenants with, the Underwriter that:
A. The Seller has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement (No. 333-44585) on Form
S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of Mortgage Loan Asset Backed Certificates and Notes (issuable in
series), which registration statement, as amended at the date hereof, has become
effective. Such registration statement, as amended to the date of this
Agreement, meets the requirements set forth in Rule 415(a)(1)(vii) under the Act
and complies in all other material respects with such Rule. The Seller proposes
to file with the Commission pursuant to Rule 424(b)(5) under the Act a
supplement dated June 10, 1998 to the prospectus dated March 10, 1998 relating
to the Notes and the method of distribution thereof and has previously advised
the Underwriter of all further information (financial and other) with respect to
the Notes to be set forth therein. Such registration statement, including the
exhibits thereto, as amended at the date hereof, is hereinafter called the
"Registration Statement"; such prospectus dated March 10, 1998, in the form in
which it will be filed with the Commission pursuant to Rule 424(b)(5) under the
Act is hereinafter called the "Basic Prospectus"; such supplement dated June 10,
1998 to the Basic Prospectus, in the form in which it will be filed with the
Commission pursuant to Rule 424(b)(5) of the Act, is hereinafter called the
"Prospectus Supplement"; and the Basic Prospectus and the Prospectus Supplement
together are hereinafter called the "Prospectus." The Seller will file with the
Commission (i) promptly after receipt from the Underwriter of any Computational
Material (as defined herein) a Form 8-K incorporating such Computational
Materials and (ii) within fifteen days of the issuance of the Securities a
report on Form 8-K setting forth specific information concerning the related
Mortgage Loans (the "8-K").
B. As of the date hereof, when the Registration Statement
became effective, when the Prospectus Supplement is first filed pursuant to Rule
424(b)(5) under the Act, and at the Closing Date, (i) the Registration
Statement, as amended as of any such time, and the Prospectus, as amended or
supplemented as of any such time, will comply in all material respects with the
applicable requirements of the Act and the rules thereunder and (ii) the
Registration Statement, as amended as of any such time, did not and will not
contain any untrue statement of a material fact and did not and will not omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as amended or supplemented
as of any such time, did not and will not contain an untrue statement of a
material fact and did not and will not omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that
2
<PAGE>
the Seller makes no representations or warranties as to the information
contained in or omitted from the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto in reliance upon and in conformity with
the information furnished in writing to the Seller by or on behalf of any
Underwriter specifically for use in connection with the preparation of the
Registration Statement and the Prospectus.
C. The Seller is duly organized, validly existing and in good
standing under the laws of the State of California, has full power and authority
(corporate and other) to own its properties and conduct its business as now
conducted by it, and as described in the Prospectus, and is duly qualified to do
business in each jurisdiction in which it owns or leases real property (to the
extent such qualification is required by applicable law) or in which the conduct
of its business requires such qualification except where the failure to be so
qualified does not involve (i) a material risk to, or a material adverse effect
on, the business, properties, financial position, operations or results of
operations of the Seller or (ii) any risk whatsoever as to the enforceability of
any Mortgage Loan.
D. There are no actions, proceedings or investigations
pending, or, to the knowledge of the Seller, threatened, before any court,
governmental agency or body or other tribunal (i) asserting the invalidity of
this Agreement, the Securities, the Insurance Agreement, the Indemnification
Agreement, the Trust Agreement or of the Sale and Servicing Agreement, (ii)
seeking to prevent the issuance of the Securities or the consummation of any of
the transactions contemplated by this Agreement, the Adjustable Rate Indenture,
the Fixed Rate Indenture, the Sale and Servicing Agreement, the Trust Agreement
or any Subsequent Transfer Agreement, (iii) which may, individually or in the
aggregate, materially and adversely affect the performance by the Seller of its
obligations under, or the validity or enforceability of, this Agreement, the
Securities, the Adjustable Rate Indenture, the Fixed Rate Indenture, the Sale
and Servicing Agreement, the Trust Agreement or any Subsequent Transfer
Agreement, or (iv) which may affect adversely the federal income tax attributes
of the Securities as described in the Prospectus.
E. The execution and delivery by the Seller of this Agreement,
the Indemnification Agreement, the Insurance Agreement, the Trust Agreement and
the Sale and Servicing Agreement, the issuance of the Securities and the
transfer and delivery of the Mortgage Loans to the Issuer by the Seller are
within the corporate power of the Seller and have been, or will be, prior to the
Closing Date duly authorized by all necessary corporate action on the part of
the Seller and the execution and delivery of such instruments, the consummation
of the transactions therein contemplated and compliance with the provisions
thereof will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute or any agreement or
instrument to which the Seller or any of its affiliates is a party or by which
it or any of them is bound or to which any of the property of the Seller or any
of its affiliates is subject, the Seller's charter or bylaws, or any order, rule
or regulation of any court, governmental agency or body or other tribunal having
jurisdiction over the Seller, any of its affiliates or any of its or their
properties; and no consent, approval, authorization or order of, or filing with,
any court or governmental agency or body or other tribunal is required for the
consummation of the transactions contemplated by this Agreement or the
Prospectus in connection with the issuance and sale of the Securities by the
Seller except pursuant to the Act. Neither the Seller nor any of its affiliates
is a party to, bound by or in breach or violation of any indenture or other
agreement or instrument, or subject to or in violation of any statute, order,
rule or regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Seller or any of its affiliates, which materially
and adversely affects, or may in the future materially and adversely affect, (i)
the ability of the Seller to perform its obligations under the Sale and
Servicing Agreement, the Trust Agreement, this Agreement, the Insurance
Agreement, the Indemnification Agreement and any Subsequent Transfer Agreement
or (ii) the business, operations, results of operations, financial position,
income, properties or assets of the Seller, taken as a whole.
3
<PAGE>
F. This Agreement and the Indemnification Agreement have been
duly executed and delivered by the Seller, and the Sale and Servicing Agreement,
the Trust Agreement, the Insurance Agreement and any Subsequent Transfer
Agreement will be duly executed and delivered by the Seller, and each
constitutes and/or will constitute, as applicable, the legal, valid and binding
obligation of the Seller enforceable in accordance with their respective terms,
except as enforceability may be limited by (i) bankruptcy, insolvency,
liquidation, receivership, moratorium, reorganization or other similar laws
affecting the enforcement of the rights of creditors and (ii) general principles
of equity, whether enforcement is sought in a proceeding at law or in equity.
G. The Notes will conform in all material respects to the
description thereof to be contained in the Prospectus and will be duly and
validly authorized and, when duly and validly executed, authenticated, issued
and delivered in accordance with the Adjustable Rate Indenture or the Fixed Rate
Indenture, as applicable, and the Sale and Servicing Agreement and sold to the
Underwriter as provided herein, will be validly issued and outstanding and
entitled to the benefits of the Adjustable Rate Indenture or the Fixed Rate
Indenture, as applicable.
H. On the Closing Date, the Initial Mortgage Loans will
conform in all material respects to the description thereof contained in the
Prospectus and the representations and warranties contained in this Agreement
will be true and correct in all material respects. The representations and
warranties set out in the Sale and Servicing Agreement are hereby made to the
Underwriter as though set out herein, and at the dates specified in the Sale and
Servicing Agreement, and in any Subsequent Transfer Agreement, such
representations and warranties were, or will be, true and correct in all
material respects.
I. The transfer of the Initial Mortgage Loans to the Issuer on
the Closing Date will be treated by the Seller for financial accounting and
reporting purposes as a sale of assets and not as a pledge of assets to secure
debt, however, for federal income tax purposes, the Seller will report the
issuance of the Notes as indebtedness.
J. The Seller possesses all material licenses, certificates,
permits or other authorizations issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business now
operated by it and as described in the Prospectus and there are no proceedings,
pending or, to the best knowledge of the Seller, threatened, relating to the
revocation or modification of any such license, certificate, permit or other
authorization which singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the business,
operations, results of operations, financial position, income, property or
assets of the Seller taken as a whole.
K. Any taxes, fees and other governmental charges in
connection with the execution and delivery of this Agreement, the Insurance
Agreement, the Indemnification Agreement, the Adjustable Rate Indenture, the
Fixed Rate Indenture, the Trust Agreement and the Sale and Servicing Agreement
or the execution and issuance of the Securities have been or will be paid on or
prior to the Closing Date.
L. There has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the Seller
or its subsidiaries, taken as a whole, from December 31, 1997 to the date
hereof.
M. This Agreement, the Adjustable Rate Indenture, the Fixed
Rate Indenture and the Sale and Servicing Agreement will conform in all material
respects to the descriptions thereof contained in the Prospectus.
4
<PAGE>
N. The Seller is not aware of (i) any request by the
Commission for any further amendment of the Registration Statement or the
Prospectus or for any additional information, (ii) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that purpose
or (iii) any notification with respect to the suspension of the qualification of
the Notes for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose.
O. Each assignment of Mortgages required to be prepared
pursuant to the Sale and Servicing Agreement is based on forms recently utilized
by the Seller with respect to mortgaged properties located in the appropriate
jurisdiction and used in the regular course of the Seller's business. Based on
the Seller's experience with such matters it is reasonable to believe that upon
execution each such assignment will be in recordable form and will be sufficient
to effect the assignment of the Mortgage to which it relates as provided in the
Sale and Servicing Agreement.
P. The Seller is current in all filings under the Securities
Exchange Act and is eligible to use the Registration Statement.
Any certificate signed by any officer of the Seller and
delivered to the Underwriter in connection with the sale of the Securities
hereunder shall be deemed a representation and warranty as to the matters
covered thereby by the Seller to each person to whom the representations and
warranties in this Section 2 are made.
3. Agreements of the Underwriter.
A. The Underwriter agrees with the Seller that upon the
execution of this Agreement and authorization by the Underwriter of the
release of each Series of Notes, the Underwriter shall offer each Series of
Notes for sale upon the terms and conditions set forth in the Prospectus as
amended or supplemented.
B. The Underwriter may prepare and provide to prospective
investors certain Computational Materials and ABS Term Sheets in connection
with the offering of the Notes, subject to the following conditions:
1. In connection with the use of Computational
Materials, the Underwriter shall comply with all applicable requirements
of the No-Action Letter, dated May 20, 1994, issued by the Division of
Corporation Finance of the Commission to Kidder, Peabody Acceptance
Corporation I, Kidder, Peabody & Co. Incorporated and Kidder Structured
Asset Corporation, as made applicable to other issuers and the
Underwriter by the Division of Corporation Finance of the Commission in
response to the request of the Public Securities Association ("PSA"),
dated May 23, 1994 (collectively, the "Kidder/PSA Letters"), as well as
the PSA Letter referred to below. In connection with the use of ABS Term
Sheets, the Underwriter shall comply with all applicable requirements of
the No-Action Letter, dated February 17, 1995, issued by the Division of
Corporation Finance to the Commission to PSA (the "PSA Letter" and,
together with the Kidder/PSA Letters, the "No-Action Letters").
2. The term "Computational Materials" as used herein
shall have the meaning given to such term in the No-Action Letters, but
shall include only those Computational Materials that have been prepared
or delivered to prospective investors by or at the direction of the
Underwriter. The terms "ABS Term Sheets," "Collateral Term Sheets" and
"Structural Term Sheets" as used herein shall have the meanings given to
such terms in the PSA Letter, but shall
5
<PAGE>
include only those ABS Term Sheets, Collateral Term Sheets or Structural
Term Sheets that have been prepared or delivered to prospective
investors by or at the direction of the Underwriter.
3. All Computational Materials and ABS Term Sheets
provided to prospective investors that are required to be filed pursuant
to the No-Action Letters shall bear a legend on each page in a form
previously agreed upon by the Seller and the Underwriter.
4. Any Computational Materials and ABS Term Sheets are
subject to review by and approval of the Seller prior to their
distribution to any prospective investors and a copy of such
Computational Materials and ABS Term Sheets as are delivered to
prospective investors shall, in addition to the foregoing delivery
requirements, be delivered to the Seller simultaneously with delivery to
prospective investors.
5. The Underwriter shall provide to the Seller, for
filing on Form 8-K as provided in Section 9 hereof, five copies (in such
format as required by the Seller) of all Computational Materials and ABS
Term Sheets that are required to be filed with the Commission pursuant
to the No-Action Letters. Each delivery of Computational Materials or
ABS Term Sheets to the Seller pursuant to this paragraph shall be
effected by delivering four copies of such material to counsel for the
Seller on behalf of the Seller and one copy of such materials to the
Seller. The Underwriter may provide copies of the foregoing in a
consolidated or aggregate form that includes all information required to
be filed. All Computational Materials and ABS Term Sheets described in
this Section must be provided to the Seller not later than 10:00 a.m.,
New York time, on the Business Day before the date on which filing
thereof is required pursuant to the terms of this Agreement. The
Underwriter agrees that it will not provide to any investor or
prospective investor in the Notes any Computational Materials or ABS
Term Sheets on or after the day on which Computational Materials and ABS
Term Sheets are required to be provided to the Seller pursuant to this
Section (other than copies of Computational Materials or ABS Term Sheets
previously submitted to the Seller in accordance with this Section for
filing pursuant to Section 9 hereof), unless such Computational
Materials or ABS Term Sheets are preceded or accompanied by the delivery
of a Prospectus to such investor or prospective investor.
6. All information included in the Computational
Materials and ABS Term Sheets shall be generated based on substantially
the same methodology and assumptions that are used to generate the
information in the Prospectus Supplement as set forth therein; provided,
however, that the Computational Materials and ABS Term Sheets may
include information based on alternative methodologies or assumptions
specified therein. If any Computational Materials or ABS Term Sheets
that are required to be filed were based on assumptions with respect to
the Mortgage Loans that are incorrect, that differ from the final
information about the Mortgage Pools in any material respect or on
structuring terms that were revised in any material respect prior to the
printing of the Prospectus, to the extent the Prospectus Supplement does
not specifically correct such inaccuracies, the Underwriter shall
prepare revised Computational Materials or ABS Term Sheets, as the case
may be, based on the final information about the Mortgage Pools and
structuring assumptions, circulate such revised Computational Materials
or ABS Term Sheets, as the case may be, to all recipients of the
preliminary versions thereof that indicated orally to an Underwriter
that they would purchase all or any portion of the Notes and include
such revised Computational Materials or ABS Term Sheets (marked "as
revised") in the materials delivered to the Seller pursuant to 3.B.5.
7. The Seller shall not be obligated to file any
Computational Materials or ABS Term Sheets that (i) in the reasonable
determination of the Seller and the
6
<PAGE>
Underwriter and their respective counsel are not required to be filed
pursuant to the No-Action Letters or (ii) have been determined to
contain any material error or omission, provided that, at the request of
the Underwriter, the Seller will file Computational Materials or ABS
Term Sheets that contain a material error or omission if clearly marked
"superseded by materials dated _____________" and accompanied by
corrected Computational Materials or ABS Term Sheets that are marked
"material previously dated __________________, as corrected." In the
event that at any time when a prospectus relating to the Notes is
required to be delivered under the Securities Act, any Computational
Materials or ABS Term Sheets are determined, in the reasonable judgment
of the Seller or the Underwriter to contain a material error or
omission, the Underwriter shall prepare a corrected version of such
Computational Materials or ABS Term Sheets, shall circulate such
corrected version of such Computational Materials or ABS Term Sheets to
all recipients of the prior version thereof that either indicated orally
to such Underwriter that they would purchase all or any portion of the
Notes, or actually purchased all or any portion thereof, and shall
deliver copies of such Computational Materials or ABS Term Sheets
(marked "as corrected") to the Seller for filing with the Commission is
a subsequent Form 8-K submission (subject to the Seller's obtaining an
accountant's comfort letter in respect of such corrected Computational
Materials or ABS Term Sheets, which shall be at the expense of the
Underwriter).
C. The Underwriter represents and warrants and agrees with the
Seller that, as of the date hereof and as of the Closing Date, that: (i) the
Computational Materials and ABS Term Sheets furnished to the Seller pursuant to
Section 3.B.5 constitute (either in original, aggregated or consolidated form)
all of the materials furnished to prospective investors by the Underwriter prior
to the time of delivery thereof to the Seller that are required to be filed with
the Commission with respect to the Notes in accordance with the No-Action
Letters, and such Computational Materials and ABS Term Sheets comply with the
requirements of the No-Action Letters; (ii) on the date any such Computational
Materials and ABS Term Sheets with respect to such Notes (or any written or
electronic materials furnished to prospective investors on which the
Computational Materials and ABS Term Sheets are based) were last furnished to
each prospective investor and on the date of delivery thereof to the Seller
pursuant to Section 3.B.5 and on the related Closing Date, such Computational
Materials and ABS Terms Sheets (or materials) were accurate in all material
respects when read in conjunction with the Prospectus (taking into account the
assumptions explicitly set forth in the Computational Materials), except to the
extent of any errors therein that are caused by errors in information about the
Mortgage Pools provided to the Underwriter by the Seller; (iii) the Underwriter
has not and will not represent to potential investors that any Computational
Materials or ABS Term Sheets were prepared or disseminated on behalf of the
Seller; and (iv) all Computational Materials and ABS Term Sheets (or underlying
materials distributed to prospective investors on which the Computational
Materials and ABS Term Sheets were based) contained and will contain the legend
in the form previously agreed upon by the Seller and the Underwriter as required
by Section 3.B.3.
Notwithstanding the foregoing, the Underwriter makes no
representation or warranty as to whether any Computational Materials or ABS Term
Sheets (or any written or electronic materials furnished to prospective
investors on which the Computational Materials or ABS Term Sheets are based)
included or will include any inaccurate statement resulting directly from any
error contained in the information about the Mortgage Pools provided to the
Underwriter by the Seller.
D. Each Underwriter that delivers any Computational Materials
and ABS Term Sheets to the Seller shall deliver to the Seller a certificate,
dated as of the date hereof, to the effect that the representations and
warranties of the Underwriter contained in this Section 3 are true and correct
as of such date. If the Underwriter does not provide any Computational Materials
or ABS Term Sheets to the Seller pursuant to Section 3.B.5, the Underwriter
shall be deemed to have represented, as of the Closing Date, that it did not
provide any prospective investors with any information in written or electronic
form in connection
7
<PAGE>
with the offering of the Notes that is required to be filed with the Commission
in accordance with the No-Action Letters.
4. Purchase, Sale and Delivery of the Notes. The Seller hereby
agrees, subject to the terms and conditions hereof, to sell each Series of Notes
to the Underwriter, who, upon the basis of the representations and warranties
herein contained, but subject to the conditions hereinafter stated, hereby
agrees to purchase the entire aggregate principal amount of the Adjustable Rate
Notes in the amount of $30,000,000 and the entire aggregate principal amount of
the Fixed Rate Notes in the amount of $70,000,000. At the time of issuance of
the Notes, the Initial Mortgage Loans will be sold by the Seller to the Issuer
pursuant to the Sale and Servicing Agreement. The Subsequent Mortgage Loans will
be purchased by the Issuer for inclusion in the Mortgage Pools, from time to
time on or before June 30, 1998. The Seller will be obligated, under the Sale
and Servicing Agreement, to service the Mortgage Loans either directly or
through sub-servicers.
The Notes to be purchased by the Underwriter will be delivered
by the Seller to the Underwriter (which delivery shall be made through the
facilities of The Depository Trust Company ("DTC")) against payment of the
purchase price therefor, equal to 99.75% of the aggregate principal amount of
each Series of Notes. Accrued interest is payable on the Fixed Rate Notes, but
no accrued interest will be payable on the Adjustable Rate Notes, each of which
shall be dated their date of delivery. The Underwriter's fee shall be 25 basis
points of each Series of Notes.
Settlement shall take place at the offices of Arter & Hadden
LLP, 1801 K Street, N.W., Washington, D.C. 20006, at 10:00 a.m. (E.S.T.), on
June 26, 1998, or at such other time thereafter as the Underwriter and the
Seller determine (such time being herein referred to as the "Closing Date"). The
Notes will be prepared in definitive form and in such authorized denominations
as the Underwriter may request, registered in the name of Cede & Co., as nominee
of DTC.
The Seller agrees to have the Notes available for inspection
and review by the Underwriter in New York City not later than 1:00 p.m. (E.S.T.)
on the business day prior to the Closing Date.
5. Covenants of the Seller. The Seller covenants and agrees
with the Underwriter that:
A. The Seller will promptly advise the Underwriter and its
counsel (i) when any amendment to the Registration Statement shall have become
effective, (ii) of any request by the Commission for any amendment to the
Registration Statement or the Prospectus or for any additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or threatening of
any proceeding for that purpose and (iv) of the receipt by the Seller of any
notification with respect to the suspension of the qualification of the Notes
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Seller will not file any amendment to the Registration
Statement or supplement to the Prospectus after the date hereof and prior to the
Closing Date for the Securities unless the Seller has furnished the Underwriter
and its counsel copies of such amendment or supplement for their review prior to
filing and will not file any such proposed amendment or supplement to which the
Underwriter reasonably objects, unless such filing is required by law. The
Seller will use its best efforts to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if issued, to
obtain as soon as possible the withdrawal thereof.
B. If, at any time during the period in which the Prospectus
is required by law to be delivered, any event occurs as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it
8
<PAGE>
shall be necessary to amend or supplement the Prospectus to comply with the Act
or the rules under the Act, the Seller will promptly prepare and file with the
Commission, subject to Paragraph A of this Section 5, an amendment or supplement
that will correct such statement or omission or an amendment that will effect
such compliance and, if such amendment or supplement is required to be contained
in a post-effective amendment to the Registration Statement, will use its best
efforts to cause such amendment of the Registration Statement to be made
effective as soon as possible.
C. The Seller will furnish to the Underwriter without charge,
executed copies of the Registration Statement (including exhibits thereto) and,
so long as delivery of a Prospectus by the Underwriter or a dealer may be
required by the Act, as many copies of the Prospectus, as amended or
supplemented, and any amendments and supplements thereto as the Underwriter may
reasonably request. The Seller will pay the expenses of printing (or otherwise
reproducing) all offering documents relating to the offering of the Notes.
D. As soon as practicable, but not later than sixteen months
after the date hereof, the Seller will cause the Trust to make generally
available to Owners of the Notes an earnings statement of the Trust covering a
period of at least 12 months beginning after the effective date of the
Registration Statement which will satisfy the provisions of Section 11(a) of the
Act and, at the option of the Seller, will satisfy the requirements of Rule 158
under the Act.
E. During a period of 20 calendar days from the date as of
which this Agreement is executed, neither the Seller nor any affiliate of the
Seller will, without the Underwriter's prior written consent (which consent
shall not be unreasonably withheld), enter into any agreement to offer or sell
mortgage loan asset backed securities backed by mortgage loans, except pursuant
to this Agreement other than the First Alliance Mortgage Loan Trust 1998-2,
$30,000,000 Adjustable Rate Mortgage Loan Notes, Series 1998-2A and First
Alliance Mortgage Loan Trust 1998-2, $70,000,000 Fixed Rate Mortgage Loan Notes,
Series 1998-2F.
F. So long as any of the Notes are outstanding, the Seller
will cause to be delivered to the Underwriter (i) all documents required to be
distributed to Owners of the Notes and (ii) from time to time, any other
information concerning the Trust filed with any government or regulatory
authority that is otherwise publicly available.
G. The Seller, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, will pay all expenses
in connection with the transactions contemplated herein, including, but not
limited to, the expenses of printing (or otherwise reproducing) all documents
relating to the offering, the reasonable fees and disbursements of its counsel
and expenses of the Underwriter incurred in connection with (i) the issuance and
delivery of the Notes, (ii) preparation of all documents specified in this
Agreement, (iii) any fees and expenses of the Owner Trustee, the Indenture
Trustee, the Insurer and any other credit support provider (including legal
fees), accounting fees and disbursements, and (iv) any fees charged by
investment rating agencies for rating the Notes.
H. The Seller agrees that, so long as any of the Notes shall
be outstanding, it will deliver or cause to be delivered to the Underwriter (i)
the annual statement as to compliance delivered to the Indenture Trustee
pursuant to the Sale and Servicing Agreement, (ii) the annual statement of a
firm of independent public accountants furnished to the Indenture Trustee
pursuant to the Sale and Servicing Agreement as soon as such statement is
furnished to the Seller and (iii) any information required to be delivered by
the Seller or the Servicer to prepare the report by the Indenture Trustee
pursuant to Section 3.8 of the form of Sale and Servicing Agreement heretofore
delivered to the Underwriter.
9
<PAGE>
I. The Seller will enter into the Sale and Servicing
Agreement, the Trust Agreement, the Insurance Agreement, and all related
agreements on or prior to the Closing Date.
J. The Seller will endeavor to qualify the Notes for sale to
the extent necessary under any state securities or Blue Sky laws in any
jurisdictions as may be reasonably requested by the Underwriter, if any, and
will pay all expenses (including fees and disbursements of counsel) in
connection with such qualification and in connection with the determination of
the eligibility of the Notes for investment under the laws of such jurisdictions
as the Underwriter may reasonably designate, if any.
6. Conditions of the Underwriter's Obligation. The obligation
of the Underwriter to purchase and pay for the Notes as provided herein shall be
subject to the accuracy as of the date hereof and the Closing Date (as if made
at the Closing Date) of the representations and warranties of the Seller
contained herein (including those representations and warranties set forth in
the Sale and Servicing Agreement and incorporated herein), to the accuracy of
the statements of the Seller made in any certificate or other document delivered
pursuant to the provisions hereof, to the performance by the Seller of its
obligations hereunder, and to the following additional conditions:
A. The Registration Statement shall have become effective no
later than the date hereof, and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened, and the Prospectus shall have
been filed pursuant to Rule 424(b).
B. The Underwriter shall have received the Sale and Servicing
Agreement and the Notes in form and substance satisfactory to the Underwriter,
duly executed by all signatories required pursuant to the respective terms
thereof.
C.1. The Underwriter shall have received the favorable opinion
of the Vice President and General Counsel to the Seller, with respect
to the following items, dated the Closing Date, to the effect that:
(a) The Seller has been duly organized and is validly
existing as a corporation in good standing under the laws of
the State of California, and is qualified to do business in
each state necessary to enable it to perform its obligations
as Servicer under the Sale and Servicing Agreement. The Seller
has the requisite power and authority to execute and deliver,
engage in the transactions contemplated by, and perform and
observe the conditions of, this Agreement, the Sale and
Servicing Agreement, the Trust Agreement, any Subsequent
Transfer Agreement, the Insurance Agreement and the
Indemnification Agreement.
(b) This Agreement, the Securities, the Sale and
Servicing Agreement, the Trust Agreement, the Insurance
Agreement and the Indemnification Agreement have been duly and
validly authorized, executed and delivered by the Seller, all
requisite corporate action having been taken with respect
thereto, and each (other than the Securities) constitutes the
valid, legal and binding agreement of the Seller enforceable
against the Seller in accordance with its respective terms.
(c) Neither the transfer of the Initial Mortgage
Loans to the Issuer, the issuance or sale of the Securities
nor the execution, delivery or performance by the Seller of
the Sale and Servicing Agreement, the Trust Agreement, this
Agreement, any Subsequent Transfer Agreement, the Insurance
Agreement or the Indemnification Agreement (A) conflicts or
will
10
<PAGE>
conflict with or results or will result in a breach of, or
constitutes or will constitute a default under, (i) any term
or provision of the articles of incorporation or bylaws of the
Seller; (ii) any term or provision of any material agreement,
contract, instrument or indenture, to which the Seller is a
party or is bound; or (iii) any order, judgment, writ,
injunction or decree of any court or governmental agency or
body or other tribunal having jurisdiction over the Seller; or
(B) results in, or will result in the creation or imposition
of any lien, charge or encumbrance upon the Trust Estate or
upon the Securities, except as otherwise contemplated by the
Sale and Servicing Agreement.
(d) The endorsement and delivery of each Mortgage
Note, and the preparation, delivery and recording of an
Assignment in recordable form, with respect to each Mortgage
(in the absence of the delivery of the opinions described in
Section 2.5(b)(ii) of the Sale and Servicing Agreement), as
and in the manner contemplated by the Sale and Servicing
Agreement, is sufficient fully to transfer to the Trustee for
the benefit of the Owners all right, title and interest of the
Seller in the Mortgage Note and Mortgage, as noteholder and
mortgagee or assignee thereof, and will be sufficient to
permit the Trustee to avail itself of all protection available
under applicable law against the claims of any present or
future creditors of the Seller and to prevent any other sale,
transfer, assignment, pledge or other encumbrance of the
Mortgage Loans by the Seller from being enforceable.
(e) No consent, approval, authorization or order of,
registration or filing with, or notice to, courts,
governmental agency or body or other tribunal is required
under the laws of the State of California, for the execution,
delivery and performance of the Sale and Servicing Agreement,
the Trust Agreement, the Insurance Agreement, this Agreement,
the Indemnification Agreement or the offer, issuance, sale or
delivery of the Securities or the consummation of any other
transaction contemplated thereby by the Seller, except such
which have been obtained.
(f) There are no actions, proceedings or
investigations pending or, to such counsel's knowledge,
threatened against the Seller before any court, governmental
agency or body or other tribunal (i) asserting the invalidity
of the Sale and Servicing Agreement, the Trust Agreement, the
Insurance Agreement, this Agreement, the Indemnification
Agreement or the Securities, (ii) seeking to prevent the
issuance of the Securities or the consummation of any of the
transactions contemplated by the Sale and Servicing Agreement,
the Trust Agreement, the Indemnification Agreement, the
Insurance Agreement or this Agreement or (iii) which would
materially and adversely affect the performance by the Seller
of obligations under, or the validity or enforceability of,
the Sale and Servicing Agreement, the Trust Agreement, the
Securities, the Indemnification Agreement, the Insurance
Agreement or this Agreement.
(g) To the best of such counsel's knowledge, the
Registration Statement, the Prospectus Supplement and the
Prospectus do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading with respect to the statements set forth in the
Prospectus under the caption "Certain Legal Aspects of
Mortgage Loans and Related Matters".
2. The Underwriter shall have received the favorable opinion
of Arter & Hadden LLP, special counsel to the Seller, dated the Closing
Date, to the effect that:
11
<PAGE>
(a) Each Series of Notes, assuming due execution by
the Owner Trustee and due authentication by the Indenture
Trustee, and delivery and payment therefor pursuant to this
Agreement is validly issued and outstanding, and the Notes are
entitled to the benefits of the Adjustable Rate Indenture or
the Fixed Rate Indenture, as applicable.
(b) No consent, approval, authorization or order of,
registration or filing with, or notice to, any governmental
authority or court is required under federal laws or the laws
of the State of New York, for the execution, delivery and
performance by the Seller of the Sale and Servicing Agreement,
the Trust Agreement, this Agreement, any Subsequent Transfer
Agreement, the Indemnification Agreement, the Insurance
Agreement or the offer, issue, sale or delivery of the Notes
or the consummation of any other transaction contemplated
thereby by the Seller, except such which have been obtained.
(c) Neither the transfer of the Initial Mortgage
Loans to the Issuer, the issuance or sale of the Notes, nor
the execution, delivery or performance by the Seller of the
Sale and Servicing Agreement, the Trust Agreement, the
Insurance Agreement, any Subsequent Transfer Agreement, the
Indemnification Agreement or this Agreement will (a) conflict
with or result in a breach of, or constitute a default under
any law, rule or regulation of the State of New York or the
federal government, or (b) to such counsel's knowledge,
without independent investigation, results in, or will result
in, the creation or imposition of any lien, charge or
encumbrance upon the Trust Estate or upon the Notes, except as
otherwise contemplated by the Adjustable Rate Indenture or the
Fixed Rate Indenture, as applicable, or the Sale and Servicing
Agreement.
(d) Each Subsequent Transfer Agreement at the time of
its execution and delivery will be sufficient to convey all of
the Seller's right, title and interest in the Subsequent
Mortgage Loans to the Issuer and following the consummation of
the transaction contemplated by each Subsequent Transfer
Agreement, the transfer of the Subsequent Mortgage Loans by
the Seller to the Issuer will be a sale thereof.
(e) The Registration Statement, the Prospectus and
the Prospectus Supplement (other than the financial and
statistical data included therein, as to which such counsel
need express no opinion), as of the date on which the
Registration Statement was declared effective and as of the
date hereof, comply as to form in all material respects with
the requirements of the Act and the rules and regulations
thereunder, and such counsel does not know of any amendment to
the Registration Statement required to be filed, or of any
contracts, indentures or other documents of a character
required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement, the Prospectus or the Prospectus Supplement which
has not been filed or described as required.
(f) The registration of the Issuer under the
Investment Company Act of 1940 is not presently required.
(g) The statements in the Prospectus set forth under
the captions "DESCRIPTION OF THE SECURITIES" and "THE POOLING
AND SERVICING AGREEMENT" and the statements in the Prospectus
Supplement set forth under the captions "DESCRIPTION OF THE
NOTES" and "ADMINISTRATION," to the extent such statements
purport to summarize certain provisions of the Notes or of the
Sale and Servicing Agreement, are fair and accurate in all
material respects.
12
<PAGE>
(h) Except as to any financial or statistical data
contained in the Registration Statement, the statements set
forth in the Prospectus under the caption "DESCRIPTION OF
CREDIT ENHANCEMENT," and in the Prospectus Supplement under
the caption "THE NOTE INSURER," and any Computational
Materials as to which no opinion or belief need be expressed,
to the best of such counsel's knowledge, the Registration
Statement does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading.
(i) Upon receipt by the Indenture Trustee on behalf
of the Owners of the Notes of the related Mortgage Notes,
endorsed as described in the Sale and Servicing Agreement, and
the receipt by the Seller of the purchase price for the Notes
and for so long as the Indenture Trustee maintains actual
physical possession of such Mortgage Notes, (i) the Issuer
shall be vested with good and indefeasible title to, and shall
be the sole owner of, and shall obtain all right, title and
interest of the Seller in, each Mortgage Loan, (ii) in the
event that the sale of the Mortgage Loans were to be
recharacterized as a financing secured by the Mortgage Loans,
the Indenture Trustee, on behalf of the Issuer, has a first
perfected security interest in the Mortgage Loans and (iii) in
the jurisdictions listed in such opinion, the recordation of
the assignments of the Mortgages is not required for the
Issuer to obtain such rights, as against creditors of, and
purported transferees of, the Seller.
(j) To the best of the knowledge of such counsel, the
Commission has not issued any stop order suspending the
effectiveness of the Registration Statement or any order
directed to any prospectus relating to the Securities
(including the Prospectus), and has not initiated or
threatened any proceeding for that purpose.
3. The Underwriter shall have received the favorable opinion
of Arter & Hadden LLP, special tax and bankruptcy counsel to the
Seller, dated the Closing Date, to the effect that:
(a) The statements under the captions "SUMMARY OF
PROSPECTUS -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus
and under the captions "SUMMARY -- FEDERAL INCOME TAX ASPECTS"
and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus Supplement as they relate to federal tax matters
are true and correct in all material respects.
(b) For federal income tax purposes, the Notes will
be treated as newly originated debt obligations and not as
representing an ownership interest in the Trust Estate or an
equity interest in the Issuer or the Seller. In addition, for
federal income tax purposes, the Issuer will not be (i)
classified as an association taxable as a corporation, (ii) a
taxable mortgage pool as defined in Section 7701(i) of the
Internal Revenue Code of 1986, as amended, or (iii) a
"publicly traded partnership" as defined in Treasury
Regulation Section 1.7704-1.
(c) The Issuer will not be subject to tax upon its
income or assets by the taxing authority of New York State or
New York City.
(d) The Issuer will not be subject to the California
state income tax.
(e) A court would hold that the conveyance by the
Seller of all right, title and interest in the Mortgage Loans
to the Issuer (except for the Seller's right, title and
interest
13
<PAGE>
in the principal and interest due on such Mortgage Loans on or
prior to the Cut-Off Date), constitutes a sale of the Mortgage
Loans and not a borrowing by the Seller secured by the pledge
of the Mortgage Loans. A court would find that, following such
conveyance, the Mortgage Loans and proceeds thereof (net of
payments of principal and interest due on such Mortgage Loans
on or prior to the Cut-Off Date) are not property of the
estate of the Seller within the meaning of Section 541 of the
Bankruptcy Code, and, further that the Issuer's rights with
respect to the Mortgage Loans and the proceeds thereof would
not subject it to the automatic stay provisions of Section 362
of the Bankruptcy Code. Since the conveyance of the Mortgage
Loans (net of payments of scheduled principal due and interest
accrued on or prior to the Cut-Off Date) constitutes a sale of
said Mortgage Loans then the payments thereunder (net of
payments of scheduled principal due on and interest accrued on
or prior to the Cut-Off Date) are not property of the estate
of the Seller and the distributions of such payments by the
Indenture Trustee to the Owners of the Notes pursuant to the
Adjustable Rate Indenture and the Fixed Rate Indenture are not
preferential payments made by, for, or on behalf of the Seller
under the provisions of Section 547 of the Bankruptcy Code.
(f) If a court characterized the transfer of the
Mortgage Loans to the Issuer as a pledge of collateral rather
than an absolute sale or assignment, with respect to the
Mortgage Loans and other property included in the Trust Estate
on the date hereof, to the extent governed by the laws of the
State of New York, a valid security interest has been created
in favor of the Indenture Trustee, on behalf of the Owners of
the Notes, which security interest will be perfected and will
constitute a first perfected security interest, with respect
to the Seller's right, title and interest in and to the
Mortgage Notes, upon endorsement and delivery thereof to the
Indenture Trustee, on behalf of the Owners of the Notes. With
respect to the security interest of the Indenture Trustee, on
behalf of the Owners of the Notes, in the Mortgage Notes, New
York law would govern.
4. The Underwriter shall have received the favorable opinion
of Dewey Ballantine LLP, special counsel to the Underwriter, dated the
Closing Date, to the effect that:
(a) The Notes, assuming due execution by the Owner
Trustee and due authentication by the Indenture Trustee, and
delivery and payment therefor pursuant to this Agreement, are
validly issued and outstanding and are entitled to the
benefits of the Adjustable Rate Indenture or the Fixed Rate
Indenture, as applicable.
(b) No fact has come to such counsel's attention
which causes them to believe that the Prospectus (other than
the financial statement and other financial and statistical
data contained therein, as to which such counsel need express
no opinion), as of the date thereof, contained any untrue
statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) Such other matters as the Underwriter may
reasonably request.
In rendering their opinions, the counsels described in this
Paragraph C may rely, as to matters of fact, on certificates of responsible
officers of the Seller, the Owner Trustee, the Indenture Trustee and public
officials. Such opinions may also assume the due authorization, execution and
delivery of the instruments and documents referred to therein by the parties
thereto other than the Seller.
14
<PAGE>
D. The Underwriter shall have received a letter from Deloitte
& Touche, dated on or before the Closing Date, in form and substance
satisfactory to the Underwriter and counsel for the Underwriter, to the effect
that they have performed certain specified procedures requested by the
Underwriter with respect to the information set forth in the Prospectus and
certain matters relating to the Seller.
E. Each Series of Notes shall have been rated in the highest
rating category by Moody's Investors Service, Inc., and by Standard & Poor's
Ratings Service, a division of The McGraw-Hill Companies, and such ratings shall
not have been rescinded. The Underwriter and counsel for the Underwriter shall
have received copies of any opinions of counsel supplied to the rating
organizations relating to any matters with respect to the Notes. Any such
opinions shall be dated the Closing Date and addressed to the Underwriter or
accompanied by reliance letters to the Underwriter or shall state that the
Underwriter may rely upon them.
F. The Underwriter shall have received from the Seller a
certificate, signed by the president, a senior vice president or a vice
president of the Seller, dated the Closing Date, to the effect that the signer
of such certificate has carefully examined the Registration Statement, the Sale
and Servicing Agreement, the Trust Agreement and this Agreement and that, to the
best of his or her knowledge based upon reasonable investigation:
1. the representations and warranties of the Seller in this
Agreement and in the Indemnification Agreement, as of the Closing Date,
in the Sale and Servicing Agreement, the Trust Agreement, the Insurance
Agreement and in all related agreements, as of the date specified in
such agreements, are true and correct, and the Seller has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date;
2. there are no actions, suits or proceedings pending, or to
the best of such officer's knowledge, threatened against or affecting
the Seller which if adversely determined, individually or in the
aggregate, would be reasonably likely to adversely affect the Seller's
obligations under the Sale and Servicing Agreement, the Trust
Agreement, the Insurance Agreement, this Agreement or under the
Indemnification Agreement in any material way; and no merger,
liquidation, dissolution or bankruptcy of the Seller is pending or
contemplated;
3. the information contained in the Registration Statement and
Prospectus relating to the Seller, the Mortgage Loans or the servicing
procedures of it or its affiliates or the subservicer is true and
accurate in all material respects and nothing has come to his or her
attention that would lead such officer to believe that the Registration
Statement and Prospectus includes any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein not misleading;
4. the information set forth in the Schedules of Mortgage
Loans required to be furnished pursuant to the Sale and Servicing
Agreement is true and correct in all material respects;
5. there has been no amendment or other document filed
affecting the articles of incorporation or bylaws of the Seller since
August 1, 1996, and no such amendment has been authorized. No event has
occurred since June 19, 1998, which has affected the good standing of
the Seller under the laws of the State of California;
6. there has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Seller and its subsidiaries, taken as a whole, from
March 31, 1998;
15
<PAGE>
7. on or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or
potential downgrading or (B) any review or possible changes in rating,
the direction of which has not been indicated, in the rating, if any,
accorded the Seller or in any rating accorded any securities of the
Seller, if any, by any "nationally recognized statistical rating
organization," as such term is defined for purposes of the Act; and
8. each person who, as an officer or representative of the
Seller, signed or signs the Registration Statement, the Sale and
Servicing Agreement, the Trust Agreement, this Agreement, the
Indemnification Agreement, the Insurance Agreement, or any other
document delivered pursuant hereto, on the date of such execution, or
on the Closing Date, as the case may be, in connection with the
transactions described in the Sale and Servicing Agreement, the Trust
Agreement, the Indemnification Agreement, the Insurance Agreement and
this Agreement was, at the respective times of such signing and
delivery, and is now, duly elected or appointed, qualified and acting
as such officer or representative, and the signatures of such persons
appearing on such documents are their genuine signatures.
The Seller shall attach to such certificate a true and correct
copy of its certificate or articles of incorporation, as appropriate, and bylaws
which are in full force and effect on the date of such certificate and a
certified true copy of the resolutions of its Board of Directors with respect to
the transactions contemplated herein.
G. The Underwriter shall have received an opinion of Richards,
Layton & Finger, counsel to the Owner Trustee, dated the Closing Date, in form
and substance satisfactory to the Underwriter and counsel for the Underwriter,
to the effect that:
1. The Owner Trustee is a Delaware banking corporation duly
incorporated and validly existing under the laws of the State of
Delaware.
2. The Owner Trustee has the full power and authority to
accept the office of owner trustee under the Trust Agreement and to
enter into and perform its obligations under the Trust Agreement and
the transactions contemplated thereby.
3. The execution and delivery of the Trust Agreement by the
Owner Trustee and the performance by the Owner Trustee of its
obligations under the Trust Agreement have been duly authorized by all
necessary action of the Owner Trustee, and the Trust Agreement has been
duly executed and delivered by the Owner Trustee.
4. The Trust Agreement constitutes the valid and binding
obligation of the Owner Trustee enforceable against the Owner Trustee
in accordance with its terms, except as the enforceability thereof may
be (a) limited by bankruptcy, insolvency, reorganization, moratorium,
liquidation or other similar laws affecting the rights of creditors
generally, and (b) subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity
or at law).
5. The execution and delivery by the Owner Trustee of the
Trust Agreement and the consummation of the transactions contemplated
thereby do not require any consent, approval or authorization of, or
any registration or filing with, any applicable governmental authority
of the State of Delaware which has not been obtained or done.
16
<PAGE>
6. Neither the consummation by the Owner Trustee of the
transactions contemplated in the Trust Agreement, nor the fulfillment
of the terms thereof by the Owner Trustee will conflict with, result in
a breach or violation of, or constitute a default under the Articles of
Association, Bylaws or other organizational documents of the Owner
Trustee.
H. The Underwriter shall have received an opinion of Richards,
Layton & Finger, special Delaware counsel for the Issuer dated the Closing Date,
in form and substance satisfactory to the Underwriter and counsel for the
Underwriter, to the effect that:
1. The Trust Agreement is the legal, valid and binding
agreement of the Owner Trustee and the Seller, enforceable against the
Owner Trustee and the Seller in accordance with its terms subject to
(i) applicable bankruptcy, insolvency, moratorium, receivership,
reorganization, fraudulent conveyance and similar laws relating to and
affecting the rights and remedies of creditors generally, (ii)
principles of equity (regardless of whether considered and applied in a
proceeding in equity or at law), and (iii) the effect of applicable
public policy on the enforceability of provisions relating to
indemnification or contribution.
2. The Certificate of Trust has been duly filed with the
Secretary of State of the State of Delaware. The Issuer has been duly
formed and is validly existing as a business trust under the Delaware
Business Trust Act.
3. The Issuer has the power and authority under the Trust
Agreement and the Delaware Business Trust Act to execute, deliver and
perform its obligations under the Trust Agreement, the Adjustable Rate
Indenture, the Fixed Rate Indenture, the Sale and Servicing Agreement,
the Notes and the Certificates and to issue the Securities.
4. The Issuer has duly authorized and executed the Trust
Agreement, the Adjustable Rate Indenture, the Fixed Rate Indenture, the
Sale and Servicing Agreement, the Notes and the Certificates.
5. The Issuer has the power under the Trust Agreement and the
Delaware Business Trust Act to pledge the Trust Estate to the Indenture
Trustee as security for the Notes.
6. The Certificates have been executed, authorized and
delivered by the Owner Trustee upon the order of the Seller in
accordance with the Trust Agreement.
7. To the extent that Article 9 of the Uniform Commercial Code
as in effect in the State of Delaware (the "Delaware UCC") is
applicable (without regard to conflicts of laws principles), and
assuming that the security interest created in the Collateral by the
Adjustable Rate Indenture and the Fixed Rate Indenture has been duly
created and has attached, upon the filing of a UCC-1 financing
statement with the Secretary of State of the State of Delaware, the
Indenture Trustee will have a perfected security interest in such
Collateral and the proceeds thereof; and such security interest will be
prior to any other security interest granted by the Issuer that is
perfected solely by the filing of financing statements under the
Delaware UCC, excluding purchase money security interests under Section
9-312 of the Delaware UCC and temporarily perfected security interests
in proceeds under Section 9-306 of the Delaware UCC.
8. No re-filing or other action is necessary under the
Delaware UCC in the State of Delaware in order to maintain the
perfection of the security interest referenced above except for the
filing of continuation statements at five-year intervals.
17
<PAGE>
9. Under Section 3805(b) of the Delaware Business Trust Act,
no creditor of any holder of the Certificate shall have any right to
obtain possession of, or otherwise exercise legal or equitable remedies
with respect to, the property of the Issuer except in accordance with
the terms of the Trust Agreement subject to (i) applicable bankruptcy,
insolvency, moratorium, receivership, reorganization, fraudulent
conveyance and similar laws relating to and affecting the rights and
remedies of creditors generally, (ii) principles of equity (regardless
of whether considered and applied in a proceeding in equity or at law),
and (iii) the effect of applicable public policy on the enforceability
of provisions relating to indemnification or contribution.
10. Under Section 3805(c) of the Delaware Business Trust Act,
and assuming that the Sale and Servicing Agreement conveys good title
to the Mortgage Loans to the Issuer as a true sale and not as a
security arrangement, the Issuer, rather than the holders of the
Certificates is the owner of the Mortgage Loans subject to (i)
applicable bankruptcy, insolvency, moratorium, receivership,
reorganization, fraudulent conveyance and similar laws relating to and
affecting the rights and remedies of creditors generally, (ii)
principles of equity (regardless of whether considered or applied in a
proceeding in equity or at law), and (iii) the effect of applicable
public policy on the enforceability of provisions relating to
indemnification or contribution.
11. The execution and delivery by the Owner Trustee of the
Trust Agreement and, on behalf of the Issuer, of the Adjustable Rate
Indenture, the Fixed Rate Indenture and the Sale and Servicing
Agreement do not require any consent, approval or authorization of, or
any registration or filing with, any governmental authority of the
State of Delaware, except for the filing of the Certificate of Trust
with the Secretary of State.
12. Neither the consummation by the Owner Trustee of the
transactions contemplated by the Trust Agreement or, on behalf of the
Issuer, the transactions contemplated by the Adjustable Rate Indenture,
the Fixed Rate Indenture and the Sale and Servicing Agreement nor the
fulfillment of the terms thereof by the Owner Trustee will conflict
with or result in a breach or violation of any law of the State of
Delaware.
Such opinion may contain such assumptions, qualifications and
limitations as are customary in opinions of this type and are reasonably
acceptable to counsel to the Underwriter. In rendering such opinion, such
counsel may state that they express no opinion as to the laws of any
jurisdiction other than the federal law of the United States of America and the
laws of the State of Delaware.
I. The Underwriter shall have received the favorable opinion
of counsel to the Indenture Trustee, dated the Closing Date, addressed to the
Underwriter and in form and scope satisfactory to counsel to the Underwriter, to
the effect that:
1. The Indenture Trustee is a banking corporation duly
incorporated and validly existing under the laws of the State of New
York.
2. The Indenture Trustee has the full corporate trust power to
execute, deliver and perform its obligations under the Adjustable Rate
Indenture and the Fixed Rate Indenture.
3. The execution and delivery by the Indenture Trustee of the
Adjustable Rate Indenture and the Fixed Rate Indenture and the
performance by the Indenture Trustee of its obligations under the
Adjustable Rate Indenture and the Fixed Rate Indenture have been duly
authorized by all necessary corporate action of the Indenture Trustee.
18
<PAGE>
4. The Adjustable Rate Indenture and the Fixed Rate Indenture
are valid and legally binding obligations of the Indenture Trustee
enforceable against the Indenture Trustee.
5. The execution and delivery by the Indenture Trustee of the
Adjustable Rate Indenture and the Fixed Rate Indenture does not (a)
violate the Organization Certificate of the Indenture Trustee or the
Bylaws of the Indenture Trustee, (b) to such counsel's knowledge,
violate any judgment, decree or order of any New York or United States
federal court or other New York or United States federal governmental
authority by which the Indenture Trustee is bound or (c) assuming the
non-existence of any judgment, decree or order of any court or other
governmental authority that would be violated by such execution and
delivery, violate any New York or United States federal statute, rule
or regulation or require any consent, approval or authorization of any
New York or United States federal court or other New York or United
States federal governmental authority.
6. Each Series of Notes has been duly authenticated and
delivered by the Indenture Trustee.
7. If the Indenture Trustee were acting as Servicer under the
Sale and Servicing Agreement as of the date of such opinion, the
Indenture Trustee would have full corporate trust power to perform the
obligations of the Servicer under the Sale and Servicing Agreement; and
8. To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending or threatened against or
affecting the Indenture Trustee before or by any court, arbitrator,
administrative agency or other governmental authority which, if decided
adversely to the Indenture Trustee, would materially and adversely
affect the ability of the Indenture Trustee to carry out the
transactions contemplated in the Adjustable Rate Indenture and the
Fixed Rate Indenture.
In rendering such opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Seller, the
Indenture Trustee and public officials. Such opinion may also assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Indenture Trustee.
J. The Underwriter shall have received from the Owner Trustee
a certificate, signed by the President, a senior vice president or an assistant
vice president of the Owner Trustee, dated the Closing Date, to the effect that
each person who, as an officer or representative of the Owner Trustee, signed or
signs the Securities, the Sale and Servicing Agreement, the Trust Agreement, the
Adjustable Rate Indenture, the Fixed Rate Indenture or any other document
delivered pursuant hereto, on the date hereof or on the Closing Date, in
connection with the transactions described in the Sale and Servicing Agreement
was, at the respective times of such signing and delivery, and is now, duly
elected or appointed, qualified and acting as such officer or representative,
and the signatures of such persons appearing on such documents are their genuine
signatures.
K. The Policies relating to the Notes shall have been duly
executed and issued at or prior to the Closing Date and shall conform in all
material respects to the description thereof in the Prospectus.
L. The Underwriter shall have received a favorable opinion of
the General Counsel to the Insurer, dated the Closing Date and in form and
substance satisfactory to counsel for the Underwriter, to the effect that:
19
<PAGE>
1. The Insurer is a stock insurance corporation, duly
incorporated and validly existing under the laws of the State of New
York. The Insurer is validly licensed and authorized to issue the
Policies and perform its obligations under the Policies in accordance
with the terms thereof, under the laws of the State of New York.
2. The execution and delivery by the Insurer of the Policies,
the Insurance Agreement and the Indemnification Agreement are within
the corporate power of the Insurer and have been authorized by all
necessary corporate action on the part of the Insurer; the Policies
have been duly executed and are the valid and binding obligations of
the Insurer enforceable in accordance with their 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.
3. The Insurer is authorized to deliver the Insurance
Agreement and the Indemnification Agreement, and the Insurance
Agreement and the Indemnification Agreement have been duly executed and
are the valid and binding obligations of the Insurer enforceable in
accordance with their terms except that the enforcement of the
Insurance Agreement and the 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 by public policy
considerations relating to indemnification for securities law
violations.
4. No consent, approval, authorization or order of any state
or federal court or governmental agency or body is required on the part
of the Insurer, the lack of which would adversely affect the validity
or enforceability of the Policies; to the extent required by applicable
legal requirements that would adversely affect validity or
enforceability of the Policies, the form of the Policies have been
filed with, and approved by, all governmental authorities having
jurisdiction over the Insurer in connection with such Policies.
5. To the extent the Policies constitute a security within the
meaning of Section 2(1) of the Act, it is a security that is exempt
from the registration requirements of the Act.
6. The information set forth under the caption "THE NOTE
INSURER" in the Prospectus Supplement, insofar as such statements
constitute a description of the Policies, accurately summarizes the
Policies.
In rendering this opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Seller, the
Insurer and public officials. Such opinion may assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Insurer.
M. On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or potential
downgrading or (B) any review or possible changes in rating, the direction of
which has not been indicated, in the rating, if any, accorded the Seller or in
any rating accorded any securities of the Seller, if any, by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of the Act.
N. On or prior to the Closing Date there shall not have
occurred any downgrading, nor shall any notice have been given of (A) any
intended or potential downgrading or (B) any review or possible change in rating
the direction of which has not been indicated, in the rating accorded the
Insurer's claims
20
<PAGE>
paying ability by any "nationally recognized statistical rating organization,"
as such term is defined for purposes of the Act.
O. There has not occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations, since December 31, 1997, of (A) the
Seller, its subsidiaries and affiliates or since March 31, 1998, of (B) the
Insurer, that is in the Underwriter's judgment material and adverse and that
makes it in the Underwriter's judgment impracticable to market the Notes on the
terms and in the manner contemplated in the Prospectus.
P. The Underwriter shall have received from the Insurer a
certificate, signed by the President, a senior vice president or a vice
president of the Insurer, dated the Closing Date, to the effect that the signer
of such certificate has carefully examined the Policies, the Insurance
Agreement, the Indemnification Agreement and the related documents and that, to
the best of his or her knowledge based on reasonable investigation:
1. each person who as an officer or representative of the
Insurer, signed or signs the Policies, the Insurance Agreement, the
Indemnification Agreement or any other document delivered pursuant
hereto, on the date thereof, or on the Closing Date, in connection with
the transactions described in this Agreement was, at the respective
times of such signing and delivery, and is now a duly authorized
representative of the Insurer and is authorized to execute and deliver
this certificate.
2. The financial data presented in the table set forth under
the heading "THE NOTE INSURER" in the Prospectus Supplement presents
fairly the capitalization of the Insurer and its wholly owned
subsidiaries as of March 31, 1998, and to the best of the Insurer's
knowledge since such date, no material and adverse change has occurred
in the financial position of the Insurer other than as set forth in the
Prospectus Supplement.
3. The audited financial statements dated as of December 31,
1997 and the unaudited financial statements dated as of March 31, 1998
incorporated by reference into the Prospectus Supplement are true and
accurate.
4. The information which relates to the Insurer or the
Policies under the caption titled "THE NOTE INSURER" in the Prospectus
Supplement is true and correct in all material respects.
5. There are no actions, suits, proceedings or investigations
pending or, to the best of the Insurer's knowledge, threatened against
it at law or in equity or before or by any court, governmental agency,
board or commission or any arbitrator which, if decided adversely,
would materially and adversely affect its condition (financial or
otherwise) or operations or which would materially and adversely affect
its ability to perform its obligations under the Policies or the
Insurance Agreement.
6. The execution and delivery of the Insurance Agreement and
the Policies and the compliance with the terms and provisions thereof
will not conflict with, result in a breach of, or constitute a default
under any of the terms, provisions or conditions of the Restated
Charter or By-Laws of the Insurer or of any agreement, indenture or
instrument to which the Insurer is a party.
7. The issuance of the Policies and the execution, delivery
and performance of the Insurance Agreement have been duly authorized by
all necessary corporate proceedings. No further approvals or filings of
any kind, including, without limitation, any further approvals or
further filing
21
<PAGE>
with any governmental agency or other governmental authority, or any
approval of the Insurer's board of directors or stockholders, are
necessary for the Policies and the Insurance Agreement to constitute
the legal, valid and binding obligations of the Insurer.
The officer of the Insurer certifying to items 2 and 3 shall
be an officer in charge of a principal financial function.
The Insurer shall attach to such certificate a true and
correct copy of its certificate or articles of incorporation, as appropriate,
and its bylaws, all of which are in full force and effect on the date of such
certificate.
Q. The Underwriter shall have received from Dewey Ballantine
LLP, special counsel to the Underwriter, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Notes, the Prospectus
and such other related matters as the Underwriter shall reasonably require.
R. The Underwriter and counsel for the Underwriter shall have
received copies of any opinions of counsel to the Seller or the Insurer supplied
to the Indenture Trustee relating to matters with respect to the Securities or
the Policies. Any such opinions shall be dated the Closing Date and addressed to
the Underwriter or accompanied by reliance letters to the Underwriter or shall
state that the Underwriter may rely thereon.
S. The Underwriter shall have received such further
information, certificates and documents as the Underwriter may reasonably have
requested not fewer than three (3) full business days prior to the Closing Date.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all respects when and as provided in this Agreement, if
the Seller is in breach of any covenants or agreements contained herein or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and counsel to the Underwriter, this Agreement
and all obligations of the Underwriter hereunder, may be canceled on, or at any
time prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Seller in writing, or by telephone or telegraph confirmed
in writing.
7. Expenses. If the sale of the Notes provided for herein is
not consummated by reason of a default by the Seller in its obligations
hereunder, then the Seller will reimburse the Underwriter, upon demand, for all
reasonable out-of-pocket expenses (including, but not limited to, the reasonable
fees and expenses of Dewey Ballantine LLP) that shall have been incurred by the
Underwriter in connection with its investigation with regard to the Seller and
the Notes and the proposed purchase and sale of the Notes.
8. Indemnification and Contribution. A. Regardless of whether
any Notes are sold, the Seller will indemnify and hold harmless the Underwriter,
each of its respective officers and directors and each person who controls the
Underwriter within the meaning of the Act or the Securities Exchange Act of 1934
(the "1934 Act"), against any and all losses, claims, damages, or liabilities
(including the cost of any investigation, legal and other expenses incurred in
connection with any amounts paid in settlement of any action, suit, proceeding
or claim asserted), joint or several, to which they may become subject, under
the Act, the 1934 Act or other federal or state law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained (i) in the Registration
Statement, or any amendment thereof or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein, not misleading or (ii) in the Basic
22
<PAGE>
Prospectus or the Prospectus Supplement or any amendment thereto or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and will
reimburse each such indemnified party for any legal or other expenses reasonably
incurred by it in connection with investigating or defending against such loss,
claim, damage, liability or action; provided, however, that the Seller shall not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Seller by or on behalf of
the Underwriter specifically for use in connection with the preparation thereof.
B. Regardless of whether any Notes are sold, the Underwriter
agrees to indemnify and hold harmless the Seller, each of its officers and
directors and each person, if any, who controls the Seller within the meaning of
the Act or the 1934 Act against any losses, claims, damages or liabilities to
which they or any of them become subject under the Act, the 1934 Act or other
federal or state law or regulation, at common law or otherwise, to the same
extent as the foregoing indemnity, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in (i)
the Registration Statement, or any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact necessary to make the statements therein not misleading or in
(ii) the Basic Prospectus or the Prospectus Supplement or any amendment thereto
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
therein in reliance upon and in conformity with written information furnished to
the Seller by or on behalf of the Underwriter specifically for use in the
preparation thereof and so acknowledged in writing, and will reimburse the
Seller for any legal or other expenses reasonably incurred by the Seller in
connection with investigating or defending against such loss, claim, damage,
liability or action.
C. In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Paragraphs A and B above such person
(hereinafter called the indemnified party) shall promptly notify the person
against whom such indemnity may be sought (hereinafter called the indemnifying
party) in writing thereof; but the omission to notify the indemnifying party
shall not relieve such indemnifying party from any liability which it may have
to any indemnified party otherwise than under such Paragraph. The indemnifying
party, upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding any indemnified party shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel, or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
for all such indemnified parties, and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by the
Underwriter in the case of parties indemnified pursuant to Paragraph A and by
the Seller in the case of parties indemnified pursuant to Paragraph B. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there is a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or
23
<PAGE>
judgment. Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated above, the indemnifying
party agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into more
than 30 days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
D. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages or
liabilities referred to herein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Seller and the Underwriter from the sale of the Notes
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
relative benefits referred to in clause (i) above but also the relative fault of
the Seller and of the Underwriter in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations.
The relative benefits received by the Seller and the
Underwriter shall be deemed to be in such proportion so that the Underwriter is
responsible for that portion determined by multiplying the total amount of such
losses, claims, damages and liabilities, including legal and other expenses, by
a fraction, the numerator of which is (x) the excess of the Aggregate Resale
Price of the Notes purchased by the Underwriter over the aggregate purchase
price of the Notes specified in Section 4 of this Agreement and the denominator
of which is (y) the Aggregate Resale Price of the Notes purchased by the
Underwriter and the Seller is responsible for the balance, provided, however,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of the
immediately preceding sentence, the "Aggregate Resale Price" of the Notes at the
time of any determination shall be the weighted average of the purchase prices
(in each case expressed as a percentage of the aggregate principal amount of the
Notes so purchased), determined on the basis of such principal amounts, paid to
the Underwriter by all subsequent purchasers that purchased the Notes on or
prior to such date of determination. The relative fault of the Seller and the
Underwriter 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 the Seller
or by the related Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
E. The Seller and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Paragraph D. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in Paragraph D shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, the Underwriter shall not be required to contribute any amount in
excess of the amount by which the Aggregate Resale Price exceeds the amount of
any damages that the Underwriter have otherwise been required to pay by reason
of any untrue or alleged untrue statement or omission or alleged omission.
24
<PAGE>
F. Reserved.
G. The Underwriter severally agrees, assuming all information
provided to it by the Seller is accurate and complete in all material respects,
to indemnify and hold harmless the Seller, each of the Seller's officers and
directors and each person who controls the Seller within the meaning of Section
15 of the Securities Act against any and all losses, claims, damages or
liabilities, joint or several, to which they may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement of a material fact contained in the Computational Materials
provided by the Underwriter and agrees to reimburse each such indemnified party
for any legal or other expenses reasonably incurred by him, her or it in
connection with investigating or defending or preparing to defend any such loss,
claim, damage, liability or action as such expenses are incurred. The
obligations of the Underwriter under this Section 8(G) shall be in addition to
any liability which the Underwriter may otherwise have.
H. The Seller and the Underwriter each expressly waive, and
agree not to assert, any defense to their respective indemnification and
contribution obligations under this Section 8 which they might otherwise assert
based upon any claim that such obligations are unenforceable under federal or
state securities laws or by reasons of public policy.
I. The obligations of the Seller under this Section 8 shall be
in addition to any liability which the Seller may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
the Underwriter within the meaning of the Act or the 1934 Act; and the
obligations of the Underwriter under this Section 8 shall be in addition to any
liability that such Underwriter may otherwise have and shall extend, upon the
same terms and conditions, to each director of the Seller and to each person, if
any, who controls the Seller within the meaning of the Act or the 1934 Act;
provided, however, that in no event shall the Seller or the Underwriter be
liable for double indemnification.
9. Information Supplied by the Underwriter. The statements set
forth in the last paragraph on the front cover page of the Prospectus regarding
market-making and under the heading "Underwriting" in the Supplement (to the
extent such statements relate to the Underwriter), together with the
Computational Materials, constitute the only information furnished by the
Underwriter to the Seller for the purposes of Sections 2(B) and 8(A) hereof. The
Underwriter confirms that such statements (to such extent) are correct.
The Seller will cause any Computational Materials with respect
to the Notes that are delivered to the Seller as provided in Section 3.B.5 to be
filed with the Commission on a Current Report on Form 8-K at or before the time
of filing of the Prospectus pursuant to Rule 424(b) under the Securities Act; to
cause any ABS Term Sheets with respect to the Notes that are delivered to the
Seller as provided in Section 3.B.5 to be filed with the Commission on one or
more Current Reports on Form 8-K (i) at or before the time of filing of the
Prospectus pursuant to Rule 424(b) of the Rules and Regulations in the case of
Structural Term Sheets, and (ii) within two Business Days of first use in the
case of Collateral Term Sheets. Prior to any such filing of Computational
Materials or ABS Term Sheets (other than any Collateral Term Sheets that are not
based on Mortgage Pool information provided to the Underwriter by the Seller) by
the Seller, however, the Underwriter must comply with their obligations pursuant
to Section 3.B and the Seller must receive a letter from independent, certified
public accountants, satisfactory in form and substance to the Seller and its
counsel, to the effect that such accountants have performed certain specified
procedures, all of which have been agreed to by the Seller, as a result of which
they determined that all information that is included in the Computational
Materials and ABS Term Sheets (if any) provided by the Underwriter to the Seller
for filing on Form 8-K, as provided in Section 3.B and this Section 9, is
accurate except as to such
25
<PAGE>
matters that are not deemed by the Seller to be material. The Seller shall file
any corrected Computational Materials or ABS Term Sheets described in Section
3.B.7 as soon as practicable following receipt thereof.
10. Notices. All communications hereunder shall be in writing
and, if sent to the Underwriter, shall be mailed or delivered or telecopied and
confirmed in writing to the Underwriter at Wheat First Securities, Inc., doing
business as First Union Capital Markets, a division of Wheat First Securities,
Inc., c/o First Union National Bank, One First Union Center, Charlotte, North
Carolina 28288-0166, Attention: Wallace Saunders; and, if sent to the Seller,
shall be mailed, delivered or telegraphed and confirmed in writing to the Seller
at the address set forth above, Attention: Director of Secondary Marketing.
11. Survival. All representations, warranties, covenants and
agreements of the Seller contained herein or in agreements or certificates
delivered pursuant hereto, the agreements of the Underwriter and the Seller
contained in Section 8 hereof, and the representations, warranties and
agreements of the Underwriter contained in Section 3 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriter or any controlling persons, or any subsequent
purchaser or the Seller or any of its officers, directors or any controlling
persons, and shall survive delivery of and payment for the Notes. The provisions
of Sections 5, 7 and 8 hereof shall survive the termination or cancellation of
this Agreement.
12. Termination. The Underwriter shall have the right to
terminate this Agreement by giving notice as hereinafter specified at any time
at or prior to the Closing Date if (a) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (b) trading of any securities
of the Seller shall have been suspended on any exchange or in any
over-the-counter market, (c) a general moratorium on commercial banking
activities shall have been declared by either federal or New York State
authorities, (d) there shall have occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis which,
in the Underwriter's reasonable judgment, is material and adverse, and, in the
case of any of the events specified in clauses (a) through (d), such event
singly or together with any other such event makes it in the Underwriter's
reasonable judgment impractical to market the Notes. Any such termination shall
be without liability of any other party except that the provisions of Paragraph
G of Section 5 (except with respect to expenses of the Underwriter) and Sections
7 and 8 hereof shall at all times be effective. If the Underwriter elects to
terminate this Agreement as provided in this Section 12, the Seller shall be
notified promptly by the Underwriter by telephone, telegram or facsimile
transmission, in any case, confirmed by letter.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns (which successors and assigns do not include any person purchasing a
Note from the Underwriter), and the officers and directors and controlling
persons referred to in Section 8 hereof and their respective successors and
assigns, and no other persons will have any right or obligations hereunder.
14. Applicable Law; Venue. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York. Any
action or proceeding brought to enforce or arising out of any provision of this
Agreement shall be brought only in a state or federal court located in the
Borough of Manhattan, New York City, New York, and the parties hereto expressly
consent to the jurisdiction of such courts and agree to waive any defense or
claim of forum non conveniens they may have with respect to any such action or
proceeding brought.
26
<PAGE>
15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall together constitute but one and the same
instrument.
16. Amendments and Waivers. This Agreement may be amended,
modified, altered or terminated, and any of its provisions waived, only in a
writing signed on behalf of the parties hereto.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto hereby execute this Underwriting
Agreement, as of the day and year first above written.
FIRST ALLIANCE MORTGAGE COMPANY
By: /s/ Brian Chisick
----------------------------------
Name: Brian Chisick
Title: President/Chief Executive Officer
WHEAT FIRST SECURITIES, INC.,
doing business as First Union Capital Markets,
a division of WHEAT FIRST SECURITIES, INC.
By: /s/ Shanker Lall Merchant
-------------------------
Name: Shankar Lall Merchant
Title: Managing Director
{UNDERWRITING AGREEMENT SIGNATURE PAGE}
Exhibit 4.1
INDENTURE
between
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2,
as Issuer
and
THE CHASE MANHATTAN BANK,
as Indenture Trustee
Dated as of June 1, 1998
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE........................................................................2
SECTION 1.1 Definitions............................................................................2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act......................................7
SECTION 1.3 Rules of Construction..................................................................8
ARTICLE II
THE NOTES.........................................................................................................8
SECTION 2.1 Form...................................................................................8
SECTION 2.2 Execution, Authentication, Delivery and Dating.........................................9
SECTION 2.3 Registration; Registration of Transfer and Exchange....................................9
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes............................................10
SECTION 2.5 Persons Deemed Owners.................................................................11
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.................................11
SECTION 2.7 Cancellation..........................................................................12
SECTION 2.8 Authentication of Notes...............................................................12
SECTION 2.9 Release of Collateral.................................................................12
SECTION 2.10 Book-Entry Notes......................................................................13
SECTION 2.11 Notices to Clearing Agency............................................................13
SECTION 2.12 Definitive Notes......................................................................14
SECTION 2.13 Tax Treatment.........................................................................14
ARTICLE III
COVENANTS........................................................................................................14
SECTION 3.1 Payment of Principal and Interest.....................................................14
SECTION 3.2 Maintenance of Office or Agency.......................................................14
SECTION 3.3 Money for Payments To Be Held in Trust................................................15
SECTION 3.4 Existence.............................................................................16
SECTION 3.5 Protection of Collateral..............................................................17
SECTION 3.6 Annual Opinions as to Collateral......................................................17
SECTION 3.7 Performance of Obligations; Servicing of Adjustable Rate Mortgage Loans...............17
SECTION 3.8 Negative Covenants....................................................................19
SECTION 3.9 Annual Statement as to Compliance.....................................................20
SECTION 3.10 Covenants of the Issuer...............................................................20
SECTION 3.11 Investment Company Act................................................................20
SECTION 3.12 Restricted Payments...................................................................20
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes...........................................20
SECTION 3.14 Notice of Events of Default...........................................................20
SECTION 3.15 Further Instruments and Acts..........................................................21
SECTION 3.16 No Other Business.....................................................................21
SECTION 3.17 No Borrowing..........................................................................21
SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. ..................................21
SECTION 3.19 Capital Expenditures..................................................................21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE IV
SATISFACTION AND DISCHARGE.......................................................................................21
SECTION 4.1 Satisfaction and Discharge of Indenture...............................................21
SECTION 4.2 Application of Trust Money............................................................22
SECTION 4.3 Repayment of Moneys Held by Paying Agent..............................................22
ARTICLE V
REMEDIES.........................................................................................................22
SECTION 5.1 Events of Default.....................................................................22
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment....................................23
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.............24
SECTION 5.4 Remedies; Priorities..................................................................26
SECTION 5.5 Optional Preservation of the Collateral...............................................28
SECTION 5.6 Limitation of Suits...................................................................28
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest......................28
SECTION 5.8 Restoration of Rights and Remedies....................................................29
SECTION 5.9 Rights and Remedies Cumulative........................................................29
SECTION 5.10 Delay or Omission Not a Waiver........................................................29
SECTION 5.11 Control by Note Insurer or Owners.....................................................29
SECTION 5.12 Waiver of Past Defaults...............................................................30
SECTION 5.13 Undertaking for Costs.................................................................30
SECTION 5.14 Waiver of Stay or Extension Laws......................................................30
SECTION 5.15 Action on Notes.......................................................................30
SECTION 5.16 Performance and Enforcement of Certain Obligations....................................30
ARTICLE VI
THE INDENTURE TRUSTEE............................................................................................31
SECTION 6.1 Duties of Indenture Trustee...........................................................31
SECTION 6.2 Rights of Indenture Trustee...........................................................32
SECTION 6.3 Individual Rights of Indenture Trustee................................................33
SECTION 6.4 Indenture Trustee's Disclaimer........................................................33
SECTION 6.5 Notice of Defaults....................................................................33
SECTION 6.6 Reports by Indenture Trustee to Owners................................................33
SECTION 6.7 Compensation and Indemnity............................................................33
SECTION 6.8 Replacement of Indenture Trustee......................................................34
SECTION 6.9 Successor Indenture Trustee by Merger.................................................34
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.....................35
SECTION 6.11 Eligibility; Disqualification.........................................................36
SECTION 6.12 Preferential Collection of Claims Against Issuer......................................36
SECTION 6.13 Tax Administration of the Issuer......................................................36
SECTION 6.14 Representations and Warranties........................................................36
SECTION 6.15 Directions to Indenture Trustee.......................................................37
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VII
OWNERS' LISTS AND REPORTS........................................................................................37
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners.....................37
SECTION 7.2 Preservation of Information; Communications to Owners.................................37
SECTION 7.3 Reports by Issuer.....................................................................38
SECTION 7.4 Reports by Indenture Trustee..........................................................38
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES.............................................................................38
SECTION 8.1 Collection of Money...................................................................38
SECTION 8.2 Accounts; Distributions...............................................................39
SECTION 8.3 General Provisions Regarding Accounts.................................................40
SECTION 8.4 Monthly Statements....................................................................40
SECTION 8.5 Release of Collateral.................................................................40
SECTION 8.6 Opinion of Counsel....................................................................41
ARTICLE IX
SUPPLEMENTAL INDENTURES..........................................................................................41
SECTION 9.1 Supplemental Indentures Without Consent of Owners.....................................41
SECTION 9.2 Supplemental Indentures With Consent of Owners........................................42
SECTION 9.3 Execution of Supplemental Indentures..................................................43
SECTION 9.4 Effect of Supplemental Indenture......................................................43
SECTION 9.5 Conformity with Trust Indenture Act...................................................44
SECTION 9.6 Reference in Notes to Supplemental Indentures.........................................44
SECTION 9.7 Amendments to Trust Agreement.........................................................44
SECTION 9.8 Notice of Supplemental Indentures.....................................................44
ARTICLE X
REDEMPTION OF NOTES..............................................................................................44
SECTION 10.1 Redemption. ..........................................................................44
SECTION 10.2 Form of Redemption Notice.............................................................45
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture
Trustee, Owner Trustee and Note Insurer...............................................45
SECTION 10.4 Notice of Final Payment...............................................................45
ARTICLE XI
MISCELLANEOUS....................................................................................................46
SECTION 11.1 Compliance Certificates and Opinions, etc.............................................46
SECTION 11.2 Form of Documents Delivered to Indenture Trustee......................................46
SECTION 11.3 Acts of Owners........................................................................47
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and
Note Insurer..........................................................................47
SECTION 11.5 Notices to Owners; Waiver.............................................................48
SECTION 11.6 Conflict with Trust Indenture Act.....................................................48
SECTION 11.7 Effect of Headings and Table of Contents..............................................48
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11.8 Successors and Assigns................................................................48
SECTION 11.9 Separability..........................................................................48
SECTION 11.10 Benefits of Indenture.................................................................48
SECTION 11.11 Legal Holidays........................................................................49
SECTION 11.12 Governing Law.........................................................................49
SECTION 11.13 Counterparts..........................................................................49
SECTION 11.14 Recording of Indenture................................................................49
SECTION 11.15 Trust Obligation......................................................................49
SECTION 11.16 No Petition...........................................................................49
SECTION 11.17 Inspection............................................................................49
SECTION 11.18 Grant of Owner Rights to Note Insurer.................................................50
SECTION 11.19 Third Party Beneficiary...............................................................50
SECTION 11.20 Suspension and Termination of Note Insurer's Rights...................................50
SECTION 11.21 Certain Matters Regarding the Note Insurer............................................50
EXHIBITS
SCHEDULE A - Schedule of Adjustable Rate Mortgage Loans
EXHIBIT A - Form of Note
</TABLE>
iv
<PAGE>
INDENTURE (this "Indenture" or this "Agreement") dated as of June 1,
1998, between FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business
trust (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as trustee and not in its individual capacity (the "Indenture
Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Owners of the First Alliance Mortgage Loan
Trust 1998-2 Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A
and the Note Insurer.
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants to the
Indenture Trustee on the Closing Date, as Indenture Trustee for the benefit of
the Owners of the Notes and the Note Insurer (and for the benefit of the owners
of the Fixed Rate Notes and the Note Insurer to the limited extent provided in
the Sale and Servicing Agreement), all of the Issuer's right, title and interest
whether now existing or hereafter acquired in and to: (i) the Trust Estate; (ii)
all right, title and interest of the Issuer in the Sale and Servicing Agreement
relating to the Adjustable Rate Mortgage Loans (including the Issuer's right to
cause the Seller to repurchase Adjustable Rate Mortgage Loans from the Issuer
under certain circumstances described therein); (iii) with respect to the
Adjustable Rate Mortgage Loans, all present and future claims, demands, causes
of action and choses in action in respect of any or all of the foregoing and all
payments on or under and all proceeds of every kind and nature whatsoever in
respect of any or all of the foregoing, including all proceeds of the conversion
thereof, voluntary or involuntary, into cash or other liquid property, all cash
proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel
paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights
to payment of any and every kind and other forms of obligations and receivables,
instruments and other property which at any time constitute all or part of or
are included in the proceeds of any of the foregoing; (iv) all funds on deposit
from time to time in the Accounts relating to the Adjustable Rate Mortgage Loans
or the Notes (including the Adjustable Rate Note Account) and (v) all other
property of the Trust relating to the Adjustable Rate Mortgage Loans from time
to time (collectively, the "Collateral").
The foregoing Grant is made in trust to secure (i) the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and the Fixed Rate Notes to the limited extent provided in the Sale and
Servicing Agreement, equally and ratably without prejudice, priority or
distinction, (ii) the payment of all other amounts payable under this Indenture,
(iii) compliance with the provisions of this Indenture, all as provided in this
Indenture and (iv) the payment of any amounts due to the Note Insurer in
accordance with the Sale and Servicing Agreement.
The Indenture Trustee, as Indenture Trustee on behalf of the Owners of
the Notes and the Note Insurer, acknowledges such Grant, accepts the trusts
hereunder and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of the Owners of the Notes and
the Note Insurer may be adequately and effectively protected. The Indenture
Trustee agrees that it will hold the Adjustable Rate Note Insurance Policy in
trust and that it will hold any proceeds of any claim made upon the Adjustable
Rate Note Insurance Policy solely for the use and benefit of the Owners of the
Notes in accordance with the terms hereof and the terms of the Adjustable Rate
Note Insurance Policy. The Indenture Trustee agrees and acknowledges that the
Files will be held by the Custodian, as agent of the Indenture Trustee, in
trust, for the use and benefit of the Issuer, the Note Insurer and all present
and future Owners of the Notes, in New York, New York. The Indenture Trustee
further agrees and acknowledges that each other item of Collateral that is
physically delivered to the Indenture Trustee will be held by the Indenture
Trustee in New York, New York.
<PAGE>
The Indenture Trustee further acknowledges that in the event the
conveyance of the Adjustable Rate Mortgage Loans by the Seller to the Issuer
pursuant to the Trust Agreement is determined to constitute a financing, the
Indenture Trustee holds the Adjustable Rate Mortgage Loans as the designee of
the Issuer, subject, however, to a prior lien in favor of the Owners of the
Notes and the Note Insurer.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions. Except as otherwise specified herein or as the
context may otherwise require, the following terms have the respective meanings
set forth below for all purposes of this Indenture.
"Act": The meaning specified in Section 11.3(a) hereof.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer": With respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter).
"Book-Entry Notes": A beneficial interest in the Notes, the ownership
and transfer of which shall be made through book entries by a Clearing Agency as
described in Section 2.10.
"Book-Entry Owner": With respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Business Day": Any day other than a Saturday, Sunday or a day on which
commercial banking institutions in the States of New York or California or in
the city in which the Corporate Trust Office is located or the city in which the
principal office of the Note Insurer is located are authorized or obligated by
law or executive order to be closed.
"Certificate of Trust": The certificate of trust of the Issuer
substantially in the form of Exhibit A to the Trust Agreement.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant": A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
2
<PAGE>
"Closing Date": June 26, 1998.
"Code": The Internal Revenue Code of 1986, as amended from time to
time, and the Treasury Regulations promulgated thereunder.
"Collateral": The meaning specified in the Granting Clause of this
Indenture.
"Corporate Trust Office": The principal office of the Indenture Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Agreement is located
at 450 West 33rd Street, New York, New York 10001, Attention: First Alliance
Mortgage Loan Trust 1998-2 - Adjustable Rate Notes, or at such other address as
the Indenture Trustee may designate from time to time by notice to the Owners
and the Issuer, or the principal corporate trust office of any successor
Indenture Trustee at the address designated by such successor Indenture Trustee
by notice to the Owners, the Note Insurer and the Issuer.
"Default": Any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes": The meaning specified in Section 2.12.
"Event of Default": The meaning specified in Section 5.1 hereof.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Final Payment Date": September 20, 2029.
"Fixed Rate Indenture": The meaning specified in Section 3.8(iv)
hereof.
"Grant": To mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Indenture Trustee": The Chase Manhattan Bank, a New York banking
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee under this Indenture.
"Independent": When used with respect to any specified Person, that the
Person (a) is in fact independent of the Issuer, any other obligor on the Notes,
the Seller and any Affiliate of any of the foregoing Persons, (b) does not have
any direct financial interest or any material indirect financial interest in the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons and (c) is not connected with the Issuer, any such other
obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
3
<PAGE>
"Independent Certificate": A certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Issuer": First Alliance Mortgage Loan Trust 1998-2 until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
"Issuer Order" and "Issuer Request": A written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
"Moody's": Moody's Investor Service, Inc., and any successor thereto.
"Note": The Issuer's Adjustable Rate Mortgage Loan Asset Backed Notes,
Series 1998-2A, substantially in the Form of Exhibit A hereto.
"Note Register" and "Note Registrar": The respective meanings specified
in Section 2.3.
"Officer's Certificate": A certificate signed by any Authorized Officer
of the Issuer, under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1, and delivered to the
Indenture Trustee.
"Opinion of Counsel": One or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and
the Note Insurer, and which opinion or opinions shall be addressed to the
Indenture Trustee, as Indenture Trustee, and the Note Insurer and shall comply
with any applicable requirements of Section 11.1 and shall be in form and
substance satisfactory to the Indenture Trustee and the Note Insurer.
"Outstanding": With respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the
Indenture Trustee or any Paying Agent in trust for the Owners
of such Notes (provided, however, that if such Notes are to be
redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision for such notice has
been made, satisfactory to the Indenture Trustee);
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture
unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a bona fide
purchaser; provided, that in determining whether the Owners of
the requisite Outstanding Amount of the Notes have given any
request, demand,
4
<PAGE>
authorization, direction, notice, consent, or waiver hereunder
or under any Operative Document, Notes owned by the Issuer,
any other obligor upon the Notes, the Seller or any Affiliate
of any of the foregoing Persons shall be disregarded and
deemed not to be Outstanding, except that, in determining
whether the Indenture Trustee shall be protected in relying
upon any such request, demand, authorization, direction,
notice, consent, or waiver, only Notes that the Indenture
Trustee knows to be so owned shall be so disregarded. Notes so
owned that have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of
the Indenture Trustee the pledgee's right so to act with
respect to such Notes and that the pledgee is not the Issuer,
any other obligor upon the Notes, the Seller or any Affiliate
of any of the foregoing Persons;
(iv) Notes alleged to have been destroyed, lost or stolen for which
replacement Notes have been issued as provided for in Section
2.4 thereof; and
(v) Notes as to which the Indenture Trustee has made the final
distribution thereon, whether or not such Notes are ever
returned to the Indenture Trustee.
"Outstanding Amount": The aggregate principal amount of all Notes that
are Outstanding at the date of determination.
"Owner": The Person in whose name a Note is registered on the Note
Register; provided that the exercise of any rights of such Owner under this
Indenture shall at all times be subject to Section 11.18 hereto.
"Owner Trustee": Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, or any successor
Owner Trustee under the Trust Agreement.
"Paying Agent": The Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make payments to and distributions from the
Adjustable Rate Note Account, including payment of principal of or interest on
the Notes on behalf of the Issuer.
"Payment Date": The 20th day of any month or if such day is not a
Business Day, the next succeeding Business Day, commencing in July 1998.
"Predecessor Note": With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 2.4 in lieu of a mutilated, lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Rating Agency": Either or both of (i) Standard & Poor's or (ii)
Moody's. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Note Insurer, notice of which
designation shall be given to the Issuer, the Indenture Trustee, the Owner
Trustee and the Servicer.
"Rating Agency Condition": With respect to any action to which a Rating
Agency Condition applies, that each Rating Agency shall have been given 10 days
(or such shorter period as is acceptable to each Rating
5
<PAGE>
Agency) prior notice thereof and that each of the Rating Agencies shall have
notified the Seller, the Servicer, the Note Insurer and the Issuer in writing
that such action will not result in a reduction or withdrawal of the then
current rating of the Notes.
"Record Date": With respect to any Payment Date, the last day of the
calendar month immediately preceding the calendar month in which such Payment
Date occurs, whether or not such day is a Business Day.
"Redemption Date": The first Payment Date on which the outstanding
aggregate Loan Balance of the Adjustable Rate Mortgage Loans has declined to
$3,000,000 or less.
"Redemption Price": In the case of a redemption of the Notes pursuant
to Section 10.1, an amount equal to the sum of (i) the unpaid principal amount
of the Notes redeemed plus accrued and unpaid interest thereon (and any
Available Funds Cap Carry-Forward Amounts) at the Adjustable Rate Note Rate to
but excluding the Redemption Date, (ii) any unpaid Indenture Trustee Fees, Owner
Trustee Fees and Premium Amounts relating to the Adjustable Rate Mortgage Loans,
(iii) all other amounts owed to the Note Insurer pursuant to the Insurance
Agreement and (iv) any unreimbursed Delinquency Advances and Servicing Advances
relating to the Adjustable Rate Mortgage Loans.
"Registered Owner": The Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
"Responsible Officer": With respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement": The Sale and Servicing Agreement dated
as of June 1, 1998, among the Issuer, the Seller, the Servicer and the Indenture
Trustee, as Indenture Trustee.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": First Alliance Mortgage Company, in its capacity as seller
under the Sale and Servicing Agreement, and its successor in interest.
"Servicer": First Alliance Mortgage Company, in its capacity as
servicer under the Sale and Servicing Agreement, and any Successor Servicer
thereunder.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., and any successor thereto.
"State": Any one of the 50 States of the United States of America or
the District of Columbia.
"Successor Servicer": The meaning specified in Section 3.7(e).
6
<PAGE>
"Trust Estate": The assets relating to the Adjustable Rate Mortgage
Loans and subject to this Agreement, the Sale and Servicing Agreement and the
Trust Agreement and assigned to the Trust, which assets consist of (a) the
Initial Adjustable Rate Mortgage Loans listed in Schedule I to the Sale and
Servicing Agreement and any Subsequent Adjustable Rate Mortgage Loans listed in
Schedule I to any Subsequent Transfer Agreement, including the related Files
that the Seller causes to be delivered to the Indenture Trustee, all payments of
principal received, collected or otherwise recovered after the Cut-Off Date (or
Subsequent Cut-Off Date) for each Adjustable Rate Mortgage Loan (other than any
principal payments due thereon on or prior to the Cut-Off Date or Subsequent
Cut-Off Date), all payments of interest accruing on each Adjustable Rate
Mortgage Loan after the Cut-Off Date (or Subsequent Cut-Off Date) therefor
(other than any interest payments due thereon on or prior to the Cut-Off Date or
Subsequent Cut-Off Date) and all other proceeds received in respect of such
Adjustable Rate Mortgage Loans, (b) the Adjustable Rate Note Insurance Policy,
(c) any Insurance Policies relating to the Adjustable Rate Mortgage Loans, (d)
all cash, instruments or other property held or required to be deposited in the
Principal and Interest Account relating to the Adjustable Rate Mortgage Loans,
the Adjustable Rate Note Account, and the Available Funds Cap Carry-Forward
Amount Account, including all investments made with funds in such accounts (but
not including any income on funds deposited in, or investments made with funds
deposited in, the Principal and Interest Account relating to the Adjustable Rate
Mortgage Loans, which income shall belong to and be for the account of the
Servicer, and not including any income on funds deposited in, or investments
made with funds deposited in, the Adjustable Rate Note Account or Available
Funds Cap Carry-Forward Amount Account, which income shall belong to and be for
the account of the Issuer), (e) the Issuer's rights under the Sale and Servicing
Agreement, and (f) all proceeds of the conversion, voluntary or involuntary, of
any of the foregoing into cash or other liquid assets, including, without
limitation, all insurance proceeds and condemnation awards.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as
amended, as in force on the date hereof, unless otherwise specifically provided.
"UCC": Unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, for all purposes of this Indenture capitalized terms used but
not otherwise defined herein have the respective meanings set forth in the Sale
and Servicing Agreement or, if not defined therein, in the Trust Agreement.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security Owner" means an Owner.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
7
<PAGE>
"obligor" on the Indenture securities means the Issuer and any other
obligor on the Indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or
statute as from time to time amended, modified or supplemented
(as provided in such agreements) and includes (in the case of
agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
THE NOTES
SECTION 2.1 Form. The Notes shall be designated as the "First Alliance
Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A" and, together
with the Indenture Trustee's certificate of authentication, shall be in
substantially the form set forth in Exhibit A hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. Any portion of the text of any Note may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
The Notes may be marked as temporary, and any Note being so marked may
be cancelled and destroyed for substitution by a replacement Note, subject to
the provisions of Section 2.2.
8
<PAGE>
SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Owner Trustee shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.8,
the Indenture Trustee shall authenticate and deliver Notes for original issue in
an aggregate principal amount of $30,000,000. The aggregate principal amount of
Notes Outstanding at any time may not exceed such amount.
The Notes that are authenticated and delivered by the Indenture Trustee
to or upon the order of the Issuer on the Closing Date shall be dated June 26,
1998. All other Notes that are authenticated after the Closing Date for any
other purpose under this Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $25,000 and integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar with the consent of the Note Insurer, the Issuer will give the
Indenture Trustee prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note
Register, and the Indenture Trustee shall have the right to inspect the Note
Register at all reasonable times and to obtain copies thereof, and the Indenture
Trustee and the Note Insurer shall have the right to rely upon a certificate
executed on behalf of the Note Registrar by an Authorized Officer thereof as to
the names and addresses of the Owners of the Notes and the principal amounts and
number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Owner shall
obtain from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes in any authorized denominations, of a like
aggregate principal amount.
At the option of any Owner, Notes owned by such Owner may be exchanged
for other Notes in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
9
<PAGE>
and the Indenture Trustee shall authenticate and the Owner shall obtain from the
Indenture Trustee, the Notes which the Owner making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by the
Owner thereof or such Owner's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
Any Noteholder using the assets of (i) an employee benefit plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) that is subject to the provisions of Title I of ERISA,
(ii) a plan described in Section 4975(e)(1) of the Internal Revenue Code of
1986, as amended, or (iii) any entity whose underlying assets include plan
assets by reason of a plan's investment in the entity to purchase the Notes, or
to whom the Notes are transferred, will be deemed to have represented that the
acquisition and continued holding of the Notes will be covered by a U.S.
Department of Labor Class Exemption.
No service charge shall be made to an Owner for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.4 or Section 9.6 not involving any transfer.
The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer, the Note Insurer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, and provided that the requirements of Section 8-405 of the
UCC are met, the Issuer shall execute, and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom
10
<PAGE>
such replacement Note was delivered or any assignee of such Person, except a
bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer, the Note Insurer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Owner of such Note, other than the Note
Insurer, of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other reasonable expenses (including
the fees and expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.5 Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Note Insurer, the
Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture
Trustee may treat the Person in whose name any Note is registered (as of the day
of determination) as the owner of such Note for the purpose of receiving
payments of principal of and interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Issuer, the Note Insurer, the Indenture Trustee or any agent of the Issuer or
the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.
(a) The Notes shall accrue interest at the Adjustable Rate Note Rate as
set forth in the Sale and Servicing Agreement, and such interest shall be
payable on each Payment Date as specified therein, subject to Section 3.1
hereof. Any installment of interest or principal, if any, payable on any Note
that is punctually paid or duly provided for by the Issuer on the applicable
Payment Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered on the Record Date by check mailed first-class
postage prepaid to such Person's address as it appears on the Note Register on
such Record Date, except that, unless Definitive Notes have been issued pursuant
to Section 2.12, with respect to Notes registered on the Record Date in the name
of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payment will be made by wire transfer in immediately available funds to
the account designated by such nominee and except for the final installment of
principal payable with respect to such Note on a Payment Date or on the
applicable Final Payment Date (and except for the Redemption Price for any Note
called for redemption pursuant to Section 10.1), which shall be payable as
provided below. The funds represented by any such checks returned undelivered
shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the Sale and Servicing Agreement and the form of the
Notes set forth in Exhibit A. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the earlier of (i) the Final Payment Date, (ii) the Redemption Date or (iii)
the date on which an Event of Default shall have occurred and be continuing, if
either the Owners or the Note Insurer has declared the Notes to be immediately
due and payable in the manner provided in Section 5.2. All
11
<PAGE>
principal payments on the Notes shall be made pro rata to the Owners. The
Indenture Trustee shall notify the Person in whose name a Note is registered at
the close of business on the Record Date preceding the Payment Date on which the
Issuer expects that the final installment of principal of and interest on such
Note will be paid. Such notice shall be mailed or transmitted by facsimile prior
to such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. A copy of such form of notice shall be sent to the Note Insurer by
the Indenture Trustee. Notices in connection with redemptions of Notes shall be
mailed to Owners as provided in Section 10.2.
SECTION 2.7 Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes may be held or disposed of by the Indenture
Trustee in accordance with its standard retention or disposal policy as in
effect at the time, unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided, that such Issuer Order is timely and
the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.8 Authentication of Notes. The Notes may be authenticated by
the Indenture Trustee upon Issuer Request.
SECTION 2.9 Release of Collateral.
(a) Subject to subsections (b) and (c) hereof, Section 11.1 hereof and
the terms of the Operative Documents, the Indenture Trustee shall release
property from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion
of Counsel in lieu of such Independent Certificates to the effect that the TIA
does not require any such Independent Certificates.
(b) The Servicer, on behalf of the Issuer, shall be entitled to obtain
a release from the lien of this Indenture for any Adjustable Rate Mortgage Loan
and the related Property at any time (i) after a payment by the Seller or the
Issuer of the Loan Purchase Price of the Adjustable Rate Mortgage Loan, (ii)
after a Qualified Replacement Mortgage is substituted for such Adjustable Rate
Mortgage Loan and payment of the Substitution Amount if any, (iii) after
liquidation of the Adjustable Rate Mortgage Loan in accordance with Section 4.13
of the Sale and Servicing Agreement and the deposit of all Liquidation Proceeds
thereon in the Principal and Interest Account, or (iv) upon the termination of
an Adjustable Rate Mortgage Loan (due to, among other causes, a prepayment in
full of the Adjustable Rate Mortgage Loan and sale or other disposition of the
related Property), if the Issuer delivers to the Indenture Trustee and the Note
Insurer an Issuer Request (A) identifying the Adjustable Rate Mortgage Loan and
the related Property to be released, (B) requesting the release thereof, (C)
setting forth the amount deposited in the Principal and Interest Account with
respect thereto, and (D) certifying that the amount deposited in the Principal
and Interest Account (x) equals the Loan Purchase Price of the Adjustable Rate
Mortgage Loan, in the event an Adjustable Rate Mortgage Loan and the related
Property are being released from the lien of this Indenture pursuant to item (i)
above, (y) equals the Substitution Amount related to the Qualified Replacement
Mortgage and the Adjustable Rate Mortgage Loan being released from the lien of
this Indenture pursuant to item (ii) above, or (z) equals the
12
<PAGE>
entire amount of recoveries received with respect to such Adjustable Rate
Mortgage Loan and the related Property in the event of a release from the lien
of this Indenture pursuant to items (iii) or (iv) above.
(c) The Indenture Trustee shall, if requested in writing by the
Servicer, temporarily release or cause the Custodian to temporarily release to
the Servicer the File pursuant to the provisions of Section 4.14 of the Sale and
Servicing Agreement upon compliance by the Servicer of the provisions thereof
provided that the Indenture Trustee's File shall have been stamped to signify
the Issuer's pledge to the Indenture Trustee under this Indenture.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by,
or on behalf of, the Issuer. The Book-Entry Notes shall be registered initially
on the Note Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Owner of any Note will receive a definitive Note
representing such Book-Entry Owner's interest in such Note, except as provided
in Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to such Book-Entry Owners pursuant to
Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar, the Note Insurer and the Indenture Trustee
shall be entitled to deal with the Clearing Agency for all
purposes of this Indenture (including the payment of principal
of and interest on the Notes and the giving of instructions or
directions hereunder) as the sole Owner of the Notes, and
shall have no obligation to the Book-Entry Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Book-Entry Owners shall be exercised only
through the Clearing Agency and shall be limited to those
established by law and agreements between such Book-Entry
Owners and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued
pursuant to Section 2.12, the initial Clearing Agency will
make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of
and interest on the Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Owners of Notes
evidencing a specified percentage of the Outstanding Amount of
the Notes, the Clearing Agency shall be deemed to represent
such percentage only to the extent that it has received
instructions to such effect from Book-Entry Owners and/or
Clearing Agency Participants owning or representing,
respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to
the Indenture Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Owners is required under this Indenture, unless and until
Definitive Notes shall have been issued to such Book-Entry Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Owners of the Notes to the
Clearing Agency, and shall have no obligation to such Book-Entry Owners.
13
<PAGE>
SECTION 2.12 Definitive Notes. If (i) the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Notes and the Issuer is unable to locate a qualified successor, (ii)
the Issuer at its option advises the Indenture Trustee in writing that it elects
to terminate the book-entry system through the Clearing Agency or (iii) after
the occurrence of an Event of Default, Owners of the Book-Entry Notes
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of such Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Book-Entry Owners, then the Clearing Agency shall
notify all Book-Entry Owners and the Indenture Trustee of the occurrence of such
event and of the availability of Definitive Notes to Book-Entry Owners
requesting the same. Upon surrender to the Indenture Trustee of the typewritten
Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Notes in accordance with the instructions of
the Clearing Agency. None of the Issuer, the Note Registrar, the Note Insurer or
the Indenture Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee
shall recognize the Owners of the Definitive Notes as Owners.
SECTION 2.13 Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Collateral. The Issuer, by entering
into this Indenture, and each Owner, by its acceptance of a Note (and each
Book-Entry Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and
punctually pay (or will cause to be duly and punctually paid) the principal of
and interest, if any, on the Notes in accordance with the terms of the Notes and
this Indenture. Without limiting the foregoing, subject to and in accordance
with Section 8.2(c), on each Payment Date the Issuer will cause to be
distributed all amounts on deposit in the Adjustable Rate Note Account deposited
or retained therein pursuant to the Sale and Servicing Agreement for the benefit
of the Owners of the Notes, to the Owners and the Note Insurer. Amounts properly
withheld under the Code by any Person from a payment to any Owner of interest
and/or principal shall be considered as having been paid by the Issuer to such
Owner for all purposes of this Indenture.
The Notes shall be non-recourse obligations of the Issuer and shall be
limited in right of payment to amounts available from the Collateral and any
amounts received by the Indenture Trustee under the Adjustable Rate Note
Insurance Policy in respect of the Notes, as provided in this Indenture and the
Sale and Servicing Agreement. The Issuer shall not otherwise be liable for
payments on the Notes. If any other provision of this Indenture shall be deemed
to conflict with the provisions of this Section 3.1, the provisions of this
Section 3.1 shall control.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
14
<PAGE>
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Issuer will give
prompt written notice to the Indenture Trustee and the Note Insurer of the
location, and of any change in the location, of any such office or agency. If at
any time the Issuer shall fail to maintain any such office or agency or shall
fail to furnish the Indenture Trustee with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Issuer hereby appoints the Indenture Trustee as its agent to receive all such
surrenders, notices and demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Section 8.2 (a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Principal and
Interest Account or retained in the Adjustable Rate Note Account pursuant to
Section 8.2(c) shall be made on behalf of the Issuer by the Indenture Trustee or
by the Paying Agent, and no amounts so withdrawn from the Principal and Interest
Account or retained in the Adjustable Rate Note Account for payments of Notes
shall be paid over to the Issuer except as provided in this Section 3.3.
On or before the second Business Day preceding each Payment Date and
Redemption Date, the Indenture Trustee shall cause to be deposited in the
Adjustable Rate Note Account an aggregate sum sufficient to pay the amounts due
on such Payment Date under the Notes, such sum to be held in trust for the
benefit of the Persons entitled thereto.
Subject to the prior consent of the Note Insurer, any Paying Agent
shall be appointed by Issuer Order with written notice thereof to the Indenture
Trustee and the Note Insurer. Any Paying Agent appointed by the Issuer shall be
a Person who would be eligible to be Indenture Trustee hereunder as provided in
Section 6.11. The Issuer shall not appoint any Paying Agent (other than the
Indenture Trustee) which is not, at the time of such appointment, a Designated
Depository Institution.
The Issuer will cause each Paying Agent to execute and deliver to the
Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section 3.3, that such Paying
Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the 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 Owners as herein provided;
(ii) give the Indenture Trustee, the Rating Agencies and the Note
Insurer notice of any default by the Issuer (or any other
obligor upon the Notes) of which it has actual knowledge in
the making of any payment required to be made with respect to
the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to
the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment
of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its
appointment;
15
<PAGE>
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect
to any applicable reporting requirements in connection
therewith; provided, however, that with respect to withholding
and reporting requirements applicable to original issue
discount (if any) on the Notes, the Issuer shall have first
provided the calculations pertaining thereto to the Indenture
Trustee; and
(vi) not commence a bankruptcy proceeding against the Issuer in
connection with this Indenture.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture 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 Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer on Issuer Request;
and the Owner of such Note shall thereafter, as an unsecured general creditor,
look only to the Issuer for payment thereof (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Indenture Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ,
at the expense and direction of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice of
such repayment to Owners whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Owner).
SECTION 3.4 Existence.
(a) Subject to subsection (b) of this Section 3.4, the Issuer will keep
in full effect its existence, rights and franchises as a business trust under
the laws of the State of Delaware (unless it becomes, or any successor Issuer
hereunder is or becomes, organized under the laws of any other State or of the
United States of America, in which case the Issuer will keep in full effect its
existence, rights and franchises under the laws of such other jurisdiction) and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
16
<PAGE>
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
SECTION 3.5 Protection of Collateral. The Issuer will from time to time
and upon the direction of the Note Insurer execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of all or
any portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights of
the Indenture Trustee, the Owners and the Note Insurer in such
Collateral against the claims of all persons and parties.
SECTION 3.6 Annual Opinions as to Collateral. On or before March 15 in
each calendar year, beginning in 1999, the Issuer shall furnish to the Indenture
Trustee and the Note Insurer an Opinion of Counsel either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect to the
execution and filing of any financing statements and continuation statements as
is necessary to maintain the lien and security interest created by this
Indenture and reciting the details of such action or stating that in the opinion
of such counsel no such action is necessary to maintain such lien and security
interest. Such Opinion of Counsel shall also describe the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and the execution and filing of any financing
statements and continuation statements that will, in the opinion of such
counsel, be required to maintain the lien and security interest of this
Indenture until March 15 of the following calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Adjustable Rate
Mortgage Loans.
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) Subject to the prior consent of the Note Insurer, the Issuer may
contract with or otherwise obtain the assistance of other Persons to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee and the Note Insurer in
an
17
<PAGE>
Officer's Certificate of the Issuer shall be deemed to be action taken by the
Issuer. Initially, the Issuer has contracted with the Servicer pursuant to the
Sale and Servicing Agreement to assist the Issuer in performing its duties under
this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Operative Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Operative
Document or any provision thereof without the consent of the Indenture Trustee,
the Note Insurer, and the Owners of at least a majority of the Outstanding
Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Servicing Termination under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies
thereof, and shall specify in such notice the action, if any, the Issuer is
taking with respect of such default. If such Event of Servicing Termination
shall arise from the failure of the Servicer to perform any of its duties or
obligations under the Sale and Servicing Agreement with respect to the
Adjustable Rate Mortgage Loans, the Issuer shall take all reasonable steps
available to it to remedy such failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 4.20 of
the Sale and Servicing Agreement, the Issuer, upon the prior written consent of
or upon the direction of the Note Insurer, shall appoint a successor servicer
(the "Successor Servicer") in accordance with the provisions of Section 4.21 of
the Sale and Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Sale and Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee and the Note Insurer. As soon as a Successor Servicer is
appointed pursuant to Section 4.21 of the Sale and Servicing Agreement, the
Issuer shall notify the Indenture Trustee and the Rating Agencies of such
appointment, specifying in such notice the name and address of such Successor
Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee and the Note Insurer, or, if a
Note Insurer Default has occurred and is continuing, the Owners of at least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Sale and Servicing Agreement) or the Operative
Documents, or waive timely performance or observance by the Servicer or the
Seller under the Sale and Servicing Agreement; and (ii) that any such amendment
shall not (A) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, distributions that are required to be made for the benefit
of the Owners or (B) reduce the aforesaid percentage of the Notes that is
required to consent to any such amendment, without the consent of the Owners of
all the outstanding Notes. If any such amendment, modification, supplement or
waiver shall be
18
<PAGE>
so consented to by the Indenture Trustee and the Note Insurer, the Issuer
agrees, promptly following a request by the Indenture Trustee or the Note
Insurer to do so, to execute and deliver, in its own name and at its own
expense, such agreements, instruments, consents and other documents as the
Indenture Trustee or the Note Insurer may deem necessary or appropriate in the
circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture, or the Sale
and Servicing Agreement, sell, transfer, exchange or otherwise
dispose of any of the properties or assets of the Issuer,
including those included in the Collateral, unless directed to
do so by the Indenture Trustee or the Note Insurer;
(ii) claim any credit on, or make any deduction from the principal
or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code)
or assert any claim against any present or former Owner by
reason of the payment of the taxes levied or assessed upon any
part of the Collateral;
(iii) engage in any business or activity other than as permitted by
the Trust Agreement or other than in connection with, or
relating to, the issuance of Notes pursuant to this Indenture,
or amend the Trust Agreement as in effect on the Closing Date
other than in accordance with Section 11.1 thereof,
(iv) issue debt obligations under any indenture other than the
Indenture dated as of June 1, 1998 (the "Fixed Rate
Indenture"), between the Issuer and the Indenture Trustee
relating to First Alliance Mortgage Loan Trust 1998-2, Fixed
Rate Mortgage Loan Asset Backed Notes, Series 1998-2F, as
contemplated by the Sale and Servicing Agreement;
(v) incur or assume any indebtedness or guaranty any indebtedness
of any Person, except for such indebtedness as may be incurred
by the Issuer in connection with the issuance of the Notes
pursuant to this Indenture or the Fixed Rate Indenture;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
(vii) (A) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged,
or permit any Person to be released from any covenants or
obligations with respect to the Notes under this Indenture
except as may be expressly permitted hereby, (B) permit any
lien, charge, excise, claim, security interest, mortgage or
other encumbrance (other than the lien of this Indenture) to
be created on or extend to or otherwise arise upon or burden
the Collateral or any part thereof or any interest therein or
the proceeds thereof (other than tax liens, mechanics' liens
and other liens that arise by operation of law, in each case
on any of the Properties and arising solely as a result of an
action or omission of the related Mortgagor) or (C) permit the
lien of this Indenture not to constitute a valid first
priority (other than with respect to any such tax, mechanics'
or other lien) security interest in the Collateral;
(viii) take any other action or fail to take any action which may
cause the Issuer to be taxable as (a) an association pursuant
to Section 7701 of the Code and the corresponding regulations
or (b) as a taxable mortgage pool pursuant to Section 7701(i)
of the Code and the corresponding regulations.
19
<PAGE>
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee and the Note Insurer, within 120 days after the end of
each fiscal year of the Issuer (commencing with the 1999 fiscal year), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year and
of its performance under this Indenture has been made under
such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and
covenants under the Indenture throughout such year, or, if
there has been a default in its compliance with any such
condition or covenant, specifying each such default known to
such Authorized Officer and the nature and status thereof.
SECTION 3.10 Covenants of the Issuer. All covenants of the Issuer in
the Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the statements,
representations, warranties or obligations of the Issuer hereunder, as to all of
which the parties hereto agree to look solely to the property of the Issuer.
SECTION 3.11 Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.11
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
SECTION 3.12 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Indenture Trustee, the Owner Trustee, the Note Insurer, the
Owners and the Certificateholders as contemplated by, and to the extent funds
are available for such purpose under, the Sale and Servicing Agreement or the
Trust Agreement. The Issuer will not, directly or indirectly, make or cause to
be made payments to or distributions from the Principal and Interest Account
except in accordance with this Indenture and the Operative Documents.
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer
shall treat the Notes as indebtedness for all federal, state and local income
and franchise tax purposes.
SECTION 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Note Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder and each default on the part of the
Servicer or the Seller of its obligations under the Sale and Servicing
Agreement.
20
<PAGE>
SECTION 3.15 Further Instruments and Acts. Upon request of the
Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
SECTION 3.16 No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Mortgage Loans and the issuance of the Notes pursuant to this Indenture, the
Certificates issued pursuant to the Trust Agreement and the notes issued
pursuant to the Fixed Rate Indenture in the manner contemplated by this
Indenture and the Operative Documents and all activities incidental thereto.
SECTION 3.17 No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes, the notes issued pursuant to the Fixed Rate
Indenture and amounts due to the Note Insurer under this Indenture, the Fixed
Rate Indenture and the Insurance Agreement.
SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by this Indenture, the Fixed Rate Indenture or the Operative
Documents, the Issuer shall not make any loan or advance or credit to, or
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.19 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes (except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Owners to receive payments of
principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8 and
3.10 hereof, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.7 and
the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights
of Owners as beneficiaries hereof with respect to the property so deposited with
the Indenture Trustee payable to all or any of them), and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when all of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.4 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.3) have been delivered to the Indenture Trustee for
cancellation; or
21
<PAGE>
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
a. have become due and payable,
b. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited
or caused to be irrevocably deposited with the Indenture Trustee cash or direct
obligations of or obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Indenture Trustee for cancellation
when due to the Final Payment Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1), as the case may be;
(B) the later of (a) eighteen months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full, in respect of
the Adjustable Rate Mortgage Loans, of all unpaid Indenture Trustee Fees and
Premium Amounts and all sums owing to the Note Insurer under the Insurance
Agreement and (c) the date on which the Issuer has paid or caused to be paid all
other sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture
Trustee) an Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.1 and, subject to Section
11.2, each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture with respect to the Notes have
been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.3 and 4.3 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Owners of the Notes for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest; but such
moneys need not be segregated from other funds except to the extent required
herein or in the Sale and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.3 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
22
<PAGE>
(a) default in the payment of any Current Interest on any Note when the
same becomes due and payable (it being understood that any Available Funds Cap
Carry-Forward Amount does not constitute interest due and payable); or
(b) default in the payment of the Principal Payment Amount of any Note
when the same becomes due and payable; or
(c) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section 5.1 specifically dealt with), or any representation or warranty of
the Issuer made in this Indenture, the Insurance Agreement, the Sale and
Servicing Agreement or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such default
shall continue or not be cured, or the circumstance or condition in respect of
which such misrepresentation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 30 days after there shall have
been given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Owners of a majority
of the Outstanding Amount of the Notes, a written notice specifying such default
or incorrect representation or warranty and requiring it to be remedied and
stating that such notice is a notice of Default hereunder; or
(d) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Issuer's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(e) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Issuer to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Collateral, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due, or the taking of any action by the
Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee and the Note Insurer,
within five days after the occurrence thereof, written notice in the form of an
Officer's Certificate of any event which with the giving of notice and the lapse
of time would become an Event of Default under clause (c) above, its status and
what action the Issuer is taking or proposes to take with respect thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, the Indenture Trustee (x)
shall, at the direction or upon the prior written consent of the Note Insurer
or, (y) may, if a Note Insurer Default has occurred and is continuing, at the
direction of the Owners of Notes representing not less than a majority of the
Outstanding Amount of the Notes declare all the Notes to be immediately due and
payable, by a notice in writing to the Issuer (and to the Indenture Trustee if
given by Owners), and upon any such declaration the unpaid principal amount of
such Notes, together with accrued and unpaid interest thereon through the date
of acceleration, shall become immediately due and payable.
23
<PAGE>
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Note Insurer or, if a Note Insurer
Default exists, the Owners of Notes representing a majority of the Adjustable
Rate Note Principal Balances of all Notes, by written notice to the Issuer and
the Indenture Trustee, may waive the related Event of Default and rescind and
annul such declaration and its consequences if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
(i) all payments of principal of and interest on all
Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred;
and
(ii) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee
and its agents and counsel; and
(iii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely
by such acceleration, have been cured or waived as
provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer will, upon demand of the Indenture Trustee
and at the direction of the Note Insurer, pay to the Indenture Trustee, for the
benefit of the Owners of the Notes and the Note Insurer, the whole amount then
due and payable on such Notes for principal and interest, with interest upon the
overdue principal and, to the extent payment at such rate of interest shall be
legally enforceable, upon overdue installments of interest at the rate borne by
the Notes and in addition thereto such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee and
the Note Insurer and their respective agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, shall at the direction of the Note Insurer, and if a Note Insurer Default
has occurred and is continuing, the Indenture Trustee may, in its discretion,
and shall at the direction of the Owners of the Notes representing a majority of
the Outstanding Amount of the Notes, institute a Proceeding for the collection
of the sums so due and unpaid, and may prosecute such Proceeding to judgment or
final decree, and may enforce the same against the Issuer or other obligor upon
such Notes and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged
or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall, at the direction of the Note Insurer, and if a Note Insurer
Default has occurred and is continuing, the Indenture Trustee may,
24
<PAGE>
in its discretion, and shall at the direction of the Owners of the Notes
representing a majority of the Outstanding Amount of the Notes, as more
particularly provided in Section 5.4, proceed to protect and enforce its rights
and the rights of the Note Insurer and the Owners, by such appropriate
Proceedings as the Indenture Trustee shall deem most effective to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy or legal or equitable right vested
in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, upon the direction of the Note Insurer, by intervention
in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in
respect of the Notes and to file such other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to
the Indenture Trustee, each predecessor Indenture
Trustee and the Note Insurer, and their respective
agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each
predecessor Indenture Trustee (except as a result of
negligence or bad faith), the Note Insurer and of the
Owners allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Owners of Notes in any
election of a trustee, a standby trustee or Person
performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to
distribute all amounts received with respect to the
claims of the Owners, the Note Insurer and the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee, the Note
Insurer or the Owners of Notes allowed in any
judicial proceedings relative to the Issuer, its
creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Owners and the Note
Insurer to make payments to the Indenture Trustee and, in the event that the
Indenture Trustee shall consent to the making of payments directly to such
Owners and the Note Insurer, to pay to the Indenture Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Indenture Trustee,
each predecessor Indenture Trustee and their respective agents,
25
<PAGE>
attorneys and counsel, and all other expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture Trustee
except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Owner or the Note Insurer any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Owner thereof
or the Note Insurer or to authorize the Indenture Trustee to vote in respect of
the claim of any Owner in any such proceeding except, as aforesaid, to vote for
the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Owners of the Notes and the Note Insurer.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Owners, and it shall not be necessary to make any
Owner a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee shall, at the direction of the Note Insurer, and if a Note
Insurer Default has occurred and is continuing, the Indenture Trustee may and at
the direction of the Owners of the Notes representing a majority of the
Outstanding Amount of the Notes shall, upon receipt of satisfactory indemnity
and assurances, do one or more of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts
then payable on the Notes or under this Indenture
with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes
moneys adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture
with respect to the Collateral;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect
and enforce the rights and remedies of the Indenture
Trustee, the Note Insurer or the Owners; and
(iv) sell the Collateral or any portion thereof or rights
or interest therein in a commercially reasonable
manner, at one or more public or private sales called
and conducted in any manner permitted by law;
26
<PAGE>
provided, however, that, if a Note Insurer Default has
occurred and is continuing, the Indenture Trustee may not sell
or otherwise liquidate the Collateral following an Event of
Default, unless (A) the Owners of 100% of the Outstanding
Amount of the Notes consent thereto, (B) the proceeds of such
sale or liquidation distributable to the Owners are sufficient
to discharge in full all amounts then due and unpaid upon such
Notes for principal and interest or (C) the Indenture Trustee
determines that the Collateral will not continue to provide
sufficient funds for the payment of principal of and interest
on the Notes as they would have become due if the Notes had
not been declared due and payable, and the Indenture Trustee
obtains the consent of Owners of 66-2/3% of the Outstanding
Amount of the Notes. In determining such sufficiency or
insufficiency with respect to clauses (B) and (C), the
Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting
firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Collateral
for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for the Indenture Trustee Fee relating
to the Adjustable Rate Mortgage Loans then due and any costs or expenses
incurred by it in connection with the enforcement of the remedies provided for
in this Article V and to the Owner Trustee for the Owner Trustee Fee relating to
the Adjustable Rate Mortgage Loans then due;
SECOND: to the Note Insurer for the Premium Amount relating to the
Adjustable Rate Mortgage Loans then due and unpaid;
THIRD: to the Servicer for the Servicing Fee relating to the Adjustable
Rate Mortgage Loans then due and unpaid;
FOURTH: to Owners for amounts due and unpaid on the Notes for Current
Interest, pro rata, according to the amounts due and payable on the Notes for
interest;
FIFTH: to Owners of the Notes for amounts due and unpaid on the Notes
for principal, pro rata;
SIXTH: to the Note Insurer for any amounts then due and payable under
the Insurance Agreement; and
SEVENTH: to Owners of the Notes for any Available Funds Cap
Carry-Forward Amount then unpaid; and
EIGHTH: to the Trust Paying Agent, for any amounts to be distributed,
pro rata, to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Owners pursuant to this Section. At least 15 days
before such record date, the Indenture Trustee shall mail to each Owner, the
Note Insurer and the Issuer a notice that states the record date, the payment
date and the amount to be paid.
27
<PAGE>
SECTION 5.5 Optional Preservation of the Collateral. If the Notes have
been declared to be due and payable under Section 5.2 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee shall, if directed by the Note Insurer (or if a
Note Insurer Default has occured and is continuing, the Indenture Trustee may,
but need not) elect to maintain possession of the Collateral. It is the desire
of the parties hereto and the Owners that there be at all times sufficient funds
for the payment of principal of and interest on the Notes, and the Indenture
Trustee shall take such desire into account when determining whether or not to
maintain possession of the Collateral. In determining whether to maintain
possession of the Collateral, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Collateral for such purpose.
SECTION 5.6 Limitation of Suits. No Owner of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder for so long as a Note Insurer Default has not occurred or is
not continuing and if a Note Insurer Default has occurred and is continuing,
unless:
(a) such Owner has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Owners of a majority of the Outstanding Amount of the Notes
have made written request to the Indenture Trustee to institute such Proceeding
in respect of such Event of Default in its own name as Indenture Trustee
hereunder;
(c) such Owner or Owners have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceedings; and
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Owners of a majority
of the Outstanding Amount of the Notes.
It is understood and intended that no one or more Owners of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Owners of Notes or to obtain or to seek to obtain priority or preference
over any other Owners or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Owner of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
Final Payment Date (or, in the case of redemption, on or after the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Owner.
28
<PAGE>
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
Trustee, the Note Insurer or any Owner has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee, the Note Insurer or to such Owner, then and in every such
case the Issuer, the Indenture Trustee, the Note Insurer and the Owners shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee and the Owners shall continue as though no
such Proceeding had been instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Note Insurer or to 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. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee, the Note Insurer or any Owner of any Note to exercise any
right or remedy accruing upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this Article
V or by law to the Indenture Trustee, the Note Insurer or to the Owners may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Note Insurer or by the Owners, as the case may be,
subject, in each case, however, to the right of the Note Insurer to control any
such right and remedy, except as provided in Section 11.20.
SECTION 5.11 Control by Note Insurer or Owners. The Note Insurer, or if
a Note Insurer Default exists, the Owners of a majority of the Outstanding
Amount of the Notes shall have the right to direct the time, method and place of
conducting any Proceeding for any remedy available to the Indenture Trustee with
respect to the Notes or exercising any trust or power conferred on the Indenture
Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) if a Note Insurer Default exists, subject to the express terms of
Section 5.4, any direction to the Indenture Trustee to sell or liquidate the
Collateral shall be by Owners of Notes representing not less than 100% of the
Outstanding Amount of the Notes;
(c) if the conditions set forth in Section 5.5 have been satisfied and
the Indenture Trustee elects to retain the Collateral pursuant to such Section,
then any direction to the Indenture Trustee by Owners of Notes representing less
than 100% of the Outstanding Amount of the Notes to sell or liquidate the
Collateral shall be of no force and effect; and
(d) if a Note Insurer Default exists, the Indenture Trustee may take
any other action deemed proper by the Indenture Trustee that is not inconsistent
with such direction.
Notwithstanding the rights of the Note Insurer and the Owners set forth
in this Section, subject to Section 6.1, the Indenture Trustee need not take any
action that it determines might involve it in liability, unless it receives
assurances of sufficient indemnity or, if a Note Insurer Default exists, might
materially adversely affect the rights of any Owners not consenting to such
action.
29
<PAGE>
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the Note
Insurer, or if a Note Insurer Default exists, the Owners of Notes representing
not less than a majority of the Outstanding Amount of the Notes may waive any
past Default or Event of Default and its consequences except a Default (a) in
the payment of principal of or interest on any of the Notes or (b) during the
existence of a Note Insurer Default, in respect of a covenant or provision
hereof that cannot be modified or amended without the consent of the Owner of
each Note. In the case of any such waiver, the Issuer, the Indenture Trustee,
the Note Insurer and the Owners of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Owner of any Note by such Owner's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee or the Note Insurer, (b) any suit instituted by any Owner, or
group of Owners, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Owner for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture (or, in
the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Owners shall be impaired by the recovery of any
judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee or the Note
Insurer to do so, the Issuer shall take all such lawful action as the Indenture
Trustee or the Note Insurer may request to compel
30
<PAGE>
or secure the performance and observance by the Seller and the Servicer, as
applicable, of each of their obligations to the Issuer under or in connection
with the Sale and Servicing Agreement and to exercise any and all rights,
remedies, powers and privileges lawfully available to the Issuer under or in
connection with the Sale and Servicing Agreement to the extent and in the manner
directed by the Indenture Trustee or the Note Insurer, including the
transmission of notices of default on the part of the Seller or the Servicer
thereunder and the institution of legal or administrative actions or proceedings
to compel or secure performance by the Seller or the Servicer of each of their
obligations under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may (with the consent of the Note Insurer), and at the
direction of the Note Insurer (or if a Note Insurer Default exists, at the
written direction (which direction shall be in writing or by telephone,
confirmed in writing promptly thereafter) of the Owners of 66-2/3% of the
Outstanding Amount of the Notes) shall, exercise all rights, remedies, powers,
privileges and claims of the Issuer against the Seller or the Servicer under or
in connection with the Sale and Servicing Agreement, including the right or
power to take any action to compel or secure performance or observance by the
Seller or the Servicer, as the case may be, of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction, approval,
extension, or waiver under the Sale and Servicing Agreement and any right of the
Issuer to take such action shall be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee.
(a) If an Event of Default of which a Responsible Officer of the
Indenture Trustee shall have actual knowledge has occurred and is continuing,
the Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set
forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against
the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the
truth of the statements and the correctness of the
opinions expressed therein, upon certificates (or
similar documents) or opinions furnished to the
Indenture Trustee and conforming to the requirements
of this Indenture; however, the Indenture Trustee
shall examine the certificates (or similar documents)
and opinions to determine whether or not they conform
to the requirements of this Indenture; provided that
the Indenture Trustee shall not be responsible for
the accuracy or content of any certificate (or
similar document) or opinion furnished to it pursuant
to the terms of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
31
<PAGE>
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Indenture Trustee shall not be personally liable
for any error of judgment made in good faith by a
Responsible Officer unless it is proved that the
Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be personally liable
with respect to any action it takes or omits to take
in good faith in accordance with a direction received
by it pursuant to Section 5.11 or for exercising or
omitting to exercise any trust or power conferred
upon the Indenture Trustee under this Indenture.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer and except to the extent of income or other gain on investments which are
deposits in or certificates of deposit of the Indenture Trustee in its
commercial capacity.
(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and further provided that nothing in
this Section 6.1(g) shall be construed to limit the exercise by the Indenture
Trustee of any right or remedy permitted under this Indenture or otherwise in
the event of the Issuer's failure to pay the Indenture Trustee's fees and
expenses pursuant to Section 6.7. In determining that such repayment or
indemnity is not reasonably assured to it, the Indenture Trustee must consider
not only the likelihood of repayment or indemnity by or on behalf of the Issuer
but also the likelihood of repayment or indemnity from amounts payable to it
from the Collateral pursuant to Section 6.7.
(h) Every provision of this Indenture relating to the conduct of,
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Indenture
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel, which shall not be at
the expense of the Indenture Trustee. The
32
<PAGE>
Indenture Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of any such
agent or attorney or custodian appointed by the Indenture Trustee with due care.
(d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any willful misconduct or gross negligence on the part of the
Custodian.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in this Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to the Rating Agencies, the Note Insurer and each
Owner notice of the Default within 90 days after it occurs. Except in the case
of a Default in payment of principal of or interest on any Note (including
payments pursuant to the mandatory redemption provisions of such Note), the
Indenture Trustee may withhold the notice to each Owner if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of Owners.
SECTION 6.6 Reports by Indenture Trustee to Owners. The Indenture
Trustee shall deliver to each Owner such information as may be required to
enable such Owner to prepare its federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Indenture Trustee shall
receive compensation for fees and reimbursement for expenses pursuant to
Sections 3.5(b)(i)(A) and 3.5(b)(iv) of the Sale and Servicing Agreement. The
Indenture Trustee and any director, officer, employee or agent of the Indenture
Trustee shall be indemnified by the Issuer and held harmless against any loss,
liability, or "unanticipated out-of-pocket" expense incurred or paid to third
parties (which expenses shall not include salaries paid to employees, or
allocable overhead, of the Indenture Trustee) in connection with the acceptance
or administration of its trusts hereunder or the Notes, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder. All such amounts described in the
preceding sentence shall be payable as provided in Section 3.5(b)(iv) of the
Sale and Servicing Agreement, subject to Section 6.1(g) of this Indenture. The
provisions of this Section 6.7 shall survive the termination of this Indenture.
33
<PAGE>
SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section. The Note Insurer (or during the
continuation of a Note Insurer Default, the Indenture Trustee may resign at any
time by so notifying the Issuer, the Rating Agencies and the Note Insurer. The
Owners of a majority of the Outstanding Amount of the Notes) may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. The Note Insurer (or the Issuer upon the prior
written consent of the Note Insurer) may remove the Indenture Trustee if:
(a) the Indenture Trustee fails to comply with Section 6.11;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed, or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Note
Insurer may, or if the Note Insurer fails to do so, the Issuer, shall promptly
appoint a successor Indenture Trustee acceptable to the Note Insurer. A
successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee, the Note Insurer and to the
Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to the Owners.
The retiring Indenture Trustee shall promptly transfer all property held by it
as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Owners of a majority of the Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee acceptable to the Note Insurer.
If the Indenture Trustee fails to comply with Section 6.11, the Note
Insurer (or during the continuation of a Note Insurer Default, any Owner) may
petition any court of competent jurisdiction for the removal of the Indenture
Trustee and the appointment of a successor Indenture Trustee acceptable to the
Note Insurer.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.7 shall continue for the
benefit of the retiring Indenture Trustee.
Notwithstanding anything to the contrary herein, no resignation or
removal of the Indenture Trustee shall be effective until a replacement
Indenture Trustee acceptable to the Note Insurer has accepted his appointment as
replacement Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act
34
<PAGE>
shall be the successor Indenture Trustee; provided, that such corporation or
banking association shall be otherwise qualified and eligible under Section
6.11. The Indenture Trustee shall provide the Note Insurer and the Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force provided in the Notes or in this Indenture.
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Indenture
Trustee shall have the power, with the prior written consent of the Note
Insurer, and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Owners, such title to the
Collateral, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Indenture
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 6.11 and no notice to Owners of the appointment of any
co-trustee or separate trustee shall be required under Section 6.8 hereof;
provided that the Indenture Trustee shall deliver notice of any such co-trustee
or separate trustee to the Servicer and the Note Insurer.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be
conferred or imposed upon and exercised or performed
by the Indenture 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 Indenture Trustee joining
in such act), except to the extent that under any law
of any jurisdiction in which any particular act or
acts are to be performed the Indenture 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
Collateral 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 Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee
hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or
co-trustee.
35
<PAGE>
(c) Any notice, request or other writing given to the Indenture 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 Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture 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 Indenture 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 Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall
at all times be acceptable to the Note Insurer and authorized to exercise
corporate trust powers. The Indenture Trustee shall also satisfy the
requirements of TIA Section 310(a) and have a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition and it or its parent shall have a long-term debt rating of Baa3 or
better by Moody's and BBB or better by Standard & Poor's. The Indenture Trustee
shall comply with TIA Section 310(b), including the optional provision permitted
by the second sentence of TIA Section 310(b)(9); provided, however, that there
shall be excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities of the Issuer are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met. If
at any time the Indenture Trustee shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect specified in Section 6.8 hereof.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
SECTION 6.13 Tax Administration of the Issuer. The Servicer shall
prepare and file (or cause to be prepared and filed), on behalf of the Owner
Trustee, all tax returns and information reports, tax elections and such annual
or other reports of the Issuer as are necessary for preparation of tax returns
and information reports as provided in Section 5.5 of the Trust Agreement,
including without limitation Form 1099.
SECTION 6.14 Representations and Warranties. The Indenture Trustee
hereby represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a banking corporation in good standing under the laws of New York
with power and authority to own its properties and to conduct its business as
such properties are currently owned and such business is presently conducted;
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly authorized
by the Indenture Trustee by all necessary corporate action;
36
<PAGE>
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the articles of
organization or bylaws of the Indenture Trustee or any agreement or other
instrument to which the Indenture Trustee is a party or by which it is bound;
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court, regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Indenture Trustee or its properties: (A) asserting the
invalidity of this Indenture, (B) seeking to prevent the consummation of any of
the transactions contemplated by this Indenture or (C) seeking any determination
or ruling that might materially and adversely affect the performance by the
Indenture Trustee of its obligations under, or the validity or enforceability
of, this Indenture; and
(v) This Indenture when executed by the Indenture Trustee,
will constitute the legal, valid and binding obligation of the Indenture
Trustee, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and general equitable
principles.
SECTION 6.15 Directions to Indenture Trustee. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Adjustable Rate Mortgage Loans and hold
the assets of the Owner Trust Estate in trust for the Owners of the Notes and
the Note Insurer;
(b) to authenticate and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
ARTICLE VII
OWNERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of
Owners. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after each Record Date, a list, in such form
as the Indenture Trustee may reasonably require, of the names and addresses of
the Owners as of such Record Date, (b) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
10 days prior to the time such list is furnished; provided, however, that so
long as the Indenture Trustee is the Note Registrar, no such list shall be
required to be furnished.
SECTION 7.2 Preservation of Information; Communications to Owners.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Owners contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.1
and the names and addresses of Owners received by the Indenture Trustee in its
capacity as Note Registrar. The Indenture Trustee may destroy any list furnished
to it as provided in such Section 7.1 upon receipt of a new list so furnished.
37
<PAGE>
(b) Owners may communicate pursuant to TIA Section 312(b) with other
Owners with respect to their rights under this Indenture or under the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.3 Reports by Issuer. The Issuer shall:
(a) file with the Indenture Trustee and the Note Insurer, within 15
days after the Issuer is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Issuer may be required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(b) file with the Indenture Trustee and the Note Insurer and the
Commission in accordance with the rules and regulations prescribed from time to
time by the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and regulations;
and
(c) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Owners described in TIA Section 313(c)) such summaries
of any information, documents and reports required to be filed by the Issuer
pursuant to clauses (i) and (ii) of this Section 7.3(a) and by rules and
regulations prescribed from time to time by the Commission.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each January 1, beginning with January 1, 1999, the
Indenture Trustee shall mail to the Note Insurer and to each Owner as required
by TIA Section 313(c) a brief report dated as of such date that complies with
TIA Section 313(a). The Indenture Trustee also shall comply with TIA Section
313(b).
A copy of each report at the time of its mailing to Owners shall be
filed by the Indenture Trustee with the Commission and each securities exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any securities exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money.
(a) General. Except as otherwise expressly provided herein, the
Indenture Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Collateral, the Indenture Trustee may (with the consent of the Note Insurer),
and upon written request of the Note Insurer shall, take such action as may be
appropriate to enforce such payment or performance, including the institution
and prosecution of appropriate Proceedings. Any such action shall be without
prejudice to
38
<PAGE>
any right to claim a Default or Event of Default under this Indenture and any
right to proceed thereafter as provided in Article V.
(b) Claims Under Adjustable Rate Note Insurance Policy. The Notes will
be insured by the Adjustable Rate Note Insurance Policy pursuant to the terms
set forth therein, notwithstanding any provisions to the contrary contained in
this Indenture or the Sale and Servicing Agreement. All amounts received under
the Adjustable Rate Note Insurance Policy shall be used solely for the payment
to Owners of Insured Payments; provided, however that the Adjustable Rate Note
Insurance Policy does not insure the payment of the Available Funds Cap
Carry-Forward Amount.
SECTION 8.2 Accounts; Distributions.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee for the
benefit of the Owners and the Note Insurer, the Accounts as provided in the Sale
and Servicing Agreement. The Indenture Trustee shall deposit amounts into the
Accounts in accordance with the terms hereof and the Sale and Servicing
Agreement.
(b) On or before the Remittance Date prior to each Payment Date, the
Servicer shall withdraw from the Principal and Interest Account the amounts
specified in Section 3.3(a) of the Sale and Servicing Agreement and will deposit
such amount into the Adjustable Rate Note Account. No later than the Business
Day prior to each Payment Date, to the extent funds are available in the
Adjustable Rate Note Account, the Indenture Trustee shall either retain funds in
the Adjustable Rate Note Account or make the withdrawals from the Adjustable
Rate Note Account and deposits into the other Accounts for distribution on such
Payment Date as required pursuant to Section 3.3(b) of the Sale and Servicing
Agreement.
(c) On each Payment Date and the Redemption Date, to the extent funds
are available in the Adjustable Rate Note Account, the Indenture Trustee shall
make the following distributions from the amounts on deposit in the Adjustable
Rate Note Account in the following order of priority (except as otherwise
provided in Section 5.4(b)):
(i) to the Owners of the Notes, the Current Interest for
such Payment Date; provided, that if there are not
sufficient funds in the Adjustable Rate Note Account
to pay the entire amount of accrued and unpaid
interest then due on the Notes, the amount in the
Adjustable Rate Note Account shall be applied to the
payment of such interest on the Notes pro rata on the
basis of the total such interest due on the Notes;
and
(ii) to the Owners of the Notes, the Adjustable Rate
Principal Payment Amount for such Payment Date.
(d) The Indenture Trustee shall make claims in respect of the
Adjustable Rate Mortgage Loans under the Adjustable Rate Note Insurance Policy
pursuant to Section 3.3 of the Sale and Servicing Agreement and in accordance
with the Adjustable Rate Note Insurance Policy. The Indenture Trustee shall
deposit any Insured Payment received from the Note Insurer in respect of the
Adjustable Rate Notes in the Policy Payments Account. All amounts received under
the Adjustable Rate Note Insurance Policy shall be used solely for the payment
to Owners of principal and interest on the Notes.
39
<PAGE>
SECTION 8.3 General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Accounts shall be invested
in Eligible Investments and reinvested by the Indenture Trustee at the direction
of the Seller in accordance with the provisions of Section 3.6 of the Sale and
Servicing Agreement. The Issuer will not direct the Indenture Trustee to make
any investment of any funds or to sell any investment held in any of the
Accounts unless the security interest Granted and perfected in such Account will
continue to be perfected in such investment or the proceeds of such sale, in
either case without any further action by any Person, and, in connection with
any direction to the Indenture Trustee to make any such investment or sale.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Seller shall have failed to give investment directions
for any funds on deposit in the Accounts to the Indenture Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Indenture
Trustee) on any Business Day or (ii) a Default or Event of Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.2 or (iii) if such
Notes shall been declared due and payable following an Event of Default, amounts
collected or receivable from the Collateral are being applied in accordance with
Section 5.5 as if there had not been such a declaration, then the Indenture
Trustee shall, to the fullest extent practicable, invest and reinvest funds in
the Accounts in one or more Eligible Investments.
SECTION 8.4 Monthly Statements. On each Payment Date (to the extent it
receives the supporting documentation from the Servicer on a timely basis), the
Indenture Trustee shall deliver the report required by Section 3.8 of the Sale
and Servicing Agreement with respect to such Payment Date to the Seller, the
Servicer, the Rating Agencies, and the Note Insurer.
SECTION 8.5 Release of Collateral.
(a) Subject to the payment of its fees and expenses pursuant to Section
6.7, the Indenture Trustee may, and when required by the provisions of this
Indenture and the Sale and Servicing Agreement shall, execute instruments to
release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Note Insurer, the Indenture Trustee and the
Owner Trustee in respect of the Notes have been paid, release any remaining
portion of the Collateral that secured the Notes from the lien of this Indenture
and release to the Issuer or any other Person entitled thereto any funds then on
deposit in the Accounts.
40
<PAGE>
(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to Subsection (b) above only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA) Independent Certificates in accordance with TIA Sections
314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.6 Opinion of Counsel. The Indenture Trustee and the Note
Insurer shall receive at least seven Business Days notice when requested by the
Issuer to take any action pursuant to Section 8.5(a), accompanied by copies of
any instruments involved, and the Indenture Trustee shall also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with
and such action will not materially and adversely impair the security for the
Notes or the rights of the Owners in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Collateral. Counsel rendering
any such opinion may rely, without independent investigation, on the accuracy
and validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Owners.
(a) Without the consent of the Owners of any Notes but with prior
notice to the Rating Agencies and with the prior written consent of the Note
Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or
better to assure, convey and confirm unto the
Indenture Trustee any property subject or required to
be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to
the Issuer, and the assumption by any such successor
of the covenants of the Issuer herein and in the
Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Owners of the Notes, or to surrender
any right or power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture
that may be inconsistent with any other provision
herein or in any supplemental indenture or to make
any other provisions with respect to
41
<PAGE>
matters or questions arising under this Indenture or
in any supplemental indenture; provided, that such
action shall not adversely affect the interests of
the Owners of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with
respect to the Notes and to add to or change any of
the provisions of this Indenture as shall be
necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to
effect the qualification of the Indenture under the
TIA or under any similar federal statute hereafter
enacted and to add to the Indenture such other
provisions as may be expressly required by the TIA;
or
(viii) to modify or alter the provisions of the definition
of the term "Outstanding".
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, with the prior written
consent of the Note Insurer, when authorized by an Issuer Order, may, upon
satisfaction of the Rating Agency Condition but without the consent of any of
the Owners, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Owners of the Notes under this Indenture; provided, however, that
such action shall not, as evidenced by (i) an Opinion of Counsel or (ii)
satisfaction of the Rating Agency Condition, adversely affect in any material
respect the interests of any Owner.
SECTION 9.2 Supplemental Indentures with Consent of Owners. The Issuer
and the Indenture Trustee, when authorized by an Issuer Order, also may, with
the prior consent of the Note Insurer and with the consent of the Owners of not
less than a majority of the Outstanding Amount of the Notes, by Act of such
Owners delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Owners of the
Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Owner of each Note affected thereby
and the Note Insurer if affected thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof or, the Adjustable
Rate Note Rate, change the provisions of this Indenture relating to the
application of collections on, or the proceeds of the sale of, the Collateral to
payment of principal of or interest on the Notes, or change any place of payment
where, or the coin or currency in which, any Note or the interest thereon is
payable, or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds available
therefor, as provided in Article V, to the payment of any such amount due on the
Notes on or after the respective due dates thereof (or, in the case of
redemption, on or after the Redemption Date);
42
<PAGE>
(b) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Owners of which is required for any such supplemental indenture,
or the consent of the Owners of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(c) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Collateral pursuant to Section 5.4;
(d) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Operative Documents cannot be modified or waived without
the consent of the Owner of each Note affected thereby;
(e) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment of interest or principal due
on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to affect the rights of the Owners
of Notes to the benefit of any provisions for the mandatory redemption of the
Notes contained herein; or
(f) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Owner of any
Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Owners of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
In connection with requesting the consent of the Owners pursuant to
this Section, the Indenture Trustee shall mail to the Owners of the Notes to
which such amendment or supplemental indenture relates a notice setting forth in
general terms the substance of such supplemental indenture. It shall not be
necessary for any Act of Owners under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be deemed to be modified and amended in accordance therewith with respect to the
Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Issuer and the Owners of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental
43
<PAGE>
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Notes.
SECTION 9.7 Amendments to Trust Agreement. Subject to Section 11.1 of
the Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to
any proposed amendment to the Trust Agreement or an amendment to or waiver of
any provision of any other document relating to the Trust Agreement, such
consent to be given without the necessity of obtaining the consent of the Owners
of any Notes upon satisfaction of the requirements under Section 11.1 of the
Trust Agreement.
Nothing in this Section shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
SECTION 9.8 Notice of Supplemental Indentures. The Indenture Trustee
shall, upon execution thereof, provide notice of the form and substance of any
Supplemental Indenture to each party hereto, the Note Insurer, the Rating
Agencies and each Owner.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption. The Servicer has the option to purchase all of
the Collateral at the Redemption Price on the Redemption Date or any Payment
Date thereafter pursuant to Section 5.2 of the Sale and Servicing Agreement. If
the Servicer declines to exercise such option to purchase the Collateral, the
Note Insurer may do so as provided in Section 5.2(c) of the Sale and Servicing
Agreement. Upon such purchase by either the Servicer or the Note Insurer, the
Issuer shall use the proceeds it receives to redeem the Notes, in whole and not
in part, and terminate this Indenture.
Any such redemption by the Servicer or the Note Insurer, as applicable,
shall be accomplished by the Servicer or the Note Insurer, as applicable,
depositing or causing to be deposited into the Principal and Interest Account by
10:00 A.M. New York City time on the Remittance Date prior to the Redemption
Date (or such later Payment Date on which the Collateral is purchased) the
amount of the Redemption Price. On the Payment Date after the date that the
Redemption Price is deposited into the Principal and Interest
44
<PAGE>
Account, the Redemption Price shall be transferred to the Adjustable Rate Note
Account for distribution to the Owners on the Redemption Date; and any amounts
received with respect to the Adjustable Rate Mortgage Loans and REO Properties
subsequent to such transfer shall belong to the Servicer or the Note Insurer, as
applicable.
The Servicer or the Issuer shall furnish the Indenture Trustee, the
Rating Agencies and the Note Insurer notice of any such redemption in accordance
with Section 10.2 no later than 15 days prior to the Redemption Date.
SECTION 10.2 Form of Redemption Notice.
(a) Notice of redemption under Section 10.1 shall be given by the
Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed
or transmitted not later than 10 days prior to the applicable Redemption Date to
each Owner of Notes, as of the close of business on the Record Date preceding
the applicable Redemption Date, at such Owner's address or facsimile number
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as
provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give notice of redemption, or any defect therein, to any Owner of any Note shall
not impair or affect the validity of the redemption of any other Note
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of
Indenture Trustee, Owner Trustee and Note Insurer. The Notes or portions thereof
to be redeemed shall, following notice of redemption as required by Section 10.2
(in the case of redemption pursuant to Section 10.1), on the Redemption Date
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on the
Redemption Price for any period after the date to which accrued interest is
calculated for purposes of calculating the Redemption Price. The Issuer may not
redeem the Notes unless, (i) all outstanding obligations under the Notes have
been paid in full and (ii) the Indenture Trustee and the Owner Trustee have been
paid all amounts in respect of the Notes to which they are entitled hereunder
and the Note Insurer has been paid all Premium Amounts and Reimbursement Amounts
to which it is entitled in respect of the Notes as of the applicable Redemption
Date.
SECTION 10.4 Notice of Final Payment. The Indenture Trustee shall
provide notice to the Note Insurer, the Seller, the Servicer, the Rating
Agencies and each Owner of the final payment under the Notes, whether by
redemption, acceleration or payment of the Notes in accordance with their terms.
45
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc.
Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and (ii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; and
(3) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Seller or the Issuer, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Seller or the Issuer, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
46
<PAGE>
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by Owners
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Owners in person or by agents duly appointed in
writing; and except as herein otherwise expressly provided such action shall
become effective when such instrument or instruments are delivered in writing to
the Indenture Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the 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 Indenture and (subject to Section 6.1) conclusive in favor of
the Indenture Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Notes shall bind the Owner of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies and Note Insurer. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Owners or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Owners is to be made
upon, given or furnished to or filed with:
(a) the Indenture Trustee by any Owner or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Indenture Trustee at its Corporate Trust Office, or
(b) in the case of the Issuer, Rating Agencies or Note Insurer as
provided in Section 6.16 of the Sale and Servicing Agreement.
47
<PAGE>
SECTION 11.5 Notices to Owners; Waiver. Where this Indenture provides
for notice to Owners of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Owner affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Owners is given by mail, neither the failure to mail
such notice nor any defect in any notice so mailed to any particular Owner shall
affect the sufficiency of such notice with respect to other Owners, and any
notice that is mailed in the manner herein provided shall conclusively be
presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Owners shall be filed with the Indenture Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Owners when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.7 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.8 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
SECTION 11.9 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.10 Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Owners, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Collateral, any benefit or any legal or equitable right, remedy or claim
under this Indenture, except that the Note Insurer is an express third party
beneficiary to this Indenture as provided in Section 11.19.
48
<PAGE>
SECTION 11.11 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.12 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.14 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Owners or any other Person secured
hereunder or for the enforcement of any right or remedy granted to the Indenture
Trustee under this Indenture.
SECTION 11.15 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any Owner of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
SECTION 11.16 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Owner, by accepting a Note, hereby covenant and agree that
they will not at any time institute against the Issuer, or join in any
institution against the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Notes, this Indenture or any of the Operative
Documents.
SECTION 11.17 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or the Note
Insurer, during the Issuer's normal business hours, to examine all the books of
account, records, reports and other papers of the Issuer, to make copies and
extracts
49
<PAGE>
therefrom, to cause such books to be audited by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The
Indenture Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
SECTION 11.18 Grant of Owner Rights to Note Insurer. In consideration
for the guarantee of the Notes by the Note Insurer pursuant to the Adjustable
Rate Note Insurance Policy, the Owners hereby grant to the Note Insurer the
right to act as the Owner of 100% of the outstanding Notes for the purpose of
exercising the rights of the Owners of the Notes hereunder, including the voting
rights of such Owners, but excluding those rights requiring the consent of all
such Owners under Section 9.2 and any rights of such Owners to distributions
under Section 8.2 hereof; provided that the preceding grant of rights to the
Note Insurer by the Owners shall be subject to Section 11.20 hereof. The rights
of the Note Insurer to direct certain actions and consent to certain actions of
the Owners hereunder will terminate at such time as the Adjustable Rate Note
Principal Balance has been reduced to zero and the Note Insurer has been
reimbursed for all Insured Payments and any other amounts respecting the Notes
owed under the Adjustable Rate Note Insurance Policy and the Insurance Agreement
and the Note Insurer has no further obligation under the Adjustable Rate Note
Insurance Policy.
SECTION 11.19 Third Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce any rights reserved to it hereunder as if it were actually a party
hereto.
SECTION 11.20 Suspension and Termination of Note Insurer's Rights.
(a) During the continuation of a Note Insurer Default, rights granted
or reserved to the Note Insurer hereunder shall vest instead in the Owners;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Reimbursement Amount, and the Note Insurer shall retain
those rights under Section 9.2 hereof to consent to any supplement to this
Indenture.
(b) At such time as either (i) the Adjustable Rate Note Principal
Balance has been reduced to zero or (ii) the Adjustable Rate Note Insurance
Policy has been terminated following a Note Insurer Default, and in either case
of (i) or (ii) the Note Insurer has been reimbursed for all Insured Payments and
any other amounts respecting the Notes owed under the Adjustable Rate Note
Insurance Policy and the Insurance Agreement (and the Note Insurer no longer has
any obligation under the Adjustable Rate Note Insurance Policy, except for
breach thereof by the Note Insurer), then the rights and benefits granted or
reserved to the Note Insurer hereunder (including the rights to direct certain
actions and receive certain notices) shall terminate and the Owners shall be
entitled to the exercise of such rights and to receive such benefits of the Note
Insurer following such termination to the extent that such rights and benefits
are applicable to the Owners.
SECTION 11.21 Certain Matters Regarding the Note Insurer. The
provisions of Article VII of the Sale and Servicing Agreement, the extent
applicable to this Indenture, are hereby incorporated by reference herein and
each Owner by acceptance of its Notes agrees to the provisions contained in
Article VII of the Sale and Servicing Agreement.
50
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By: /s/ Debra Eberly
------------------------------
Name: Debra Eberly
Title: Administrative Account Manager
THE CHASE MANHATTAN BANK,
as Indenture Trustee
By: /s/ Diane E. Wallace
--------------------
Name Diane E. Wallace
Title: Trust Officer
51
<PAGE>
STATE OF Delaware )
) ss
COUNTY OF New Castle )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Debra Eberly, known to me to
be the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said WILMINGTON TRUST
COMPANY, not in its individual capacity, but solely as Owner Trustee on behalf
of FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust, and
that such person executed the same as the act of said business trust for the
purpose and consideration therein expressed, and in the capacities therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of June, 1998.
/s/ Kathleen A. Pedelini
------------------------
Notary Public
in and for the State of Delaware
(Seal)
My commission expires: October 31, 1998
<PAGE>
STATE OF New York )
) ss
COUNTY OF New York )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Diane Wallace, known to me to
be the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of THE CHASE MANHATTAN BANK, a
New York banking corporation and that such person executed the same as the act
of said corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of June, 1998.
/s/ Margaret M. Price
---------------------
Notary Public
in and for the State of New York
(Seal)
My commission expires: April 22, 1999
<PAGE>
SCHEDULE A
Available Upon Request to the Indenture Trustee
<PAGE>
EXHIBIT A
Form of Note
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS
NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE
HEREOF.
<TABLE>
<S> <C>
Date of Indenture: As of June 1, 1998 Original Note Principal Balance: $________
First Payment Date: July 20, 1998 CUSIP No. __________
Denomination: $______________________ Note No: ___________
</TABLE>
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
ADJUSTABLE RATE MORTGAGE LOAN ASSET-BACKED NOTES, SERIES 1998-2A
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of _____________ ($___________) payable on
each Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $____________ and the denominator of which is
$________________ by (ii) the aggregate amount, if any, payable under this Note
pursuant to the Indenture dated as of June 1, 1998 (the "Indenture"), between
the Issuer and The Chase Manhattan Bank, a New York banking corporation as
Indenture Trustee (the "Indenture Trustee") relating to the Issuer's Adjustable
Rate Mortgage Loan, Asset Backed Notes, Series 1998-2A; provided, however, that
the entire unpaid principal amount of this Note shall be due and payable on the
earlier of (i) the Payment Date occurring in __________ (the "Final Payment
Date"), (ii) the Redemption Date, if any, pursuant to Article X of the Indenture
or (iii) the date on which an Event
<PAGE>
of Default shall have occurred and be continuing, if the Note Insurer or in the
event of a Note Insurer Default, the Indenture Trustee or the Owners of Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in the manner provided
in Section 5.2 of the Indenture. Capitalized terms used but not defined herein
are defined in Article I of the Indenture.
Pursuant to the terms of the Indenture, payments will be made on the
20th day of each month or, if such day is not a Business Day, on the Business
Day immediately following such 20th day (the "Payment Date"), commencing on the
first Payment Date specified above, to the Person in whose name this Note is
registered at the close of business on the applicable Record Date, in an amount
equal to the product of (a) the Percentage Interest evidenced by this Note and
(b) the sum of the Current Interest, Adjustable Rate Principal Payment Amount
and any Insured Payment with respect to such Payment Date, all as more
specifically set forth in the Indenture and the Sale and Servicing Agreement.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
[Signatures follow]
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date: ____________________
FIRST ALLIANCE MORTGAGE LOAN
TRUST 1998-2
By: WILMINGTON TRUST COMPANY
not in its individual capacity
but solely as Owner Trustee
under the Trust Agreement
By: _______________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: ____________________
THE CHASE MANHATTAN BANK,
as Indenture Trustee
By: ______________________________
Authorized Signatory
<PAGE>
[Reverse of Note]
This Note is one of a Series of a duly authorized issue of Notes of the
Issuer, designated as its Adjustable Rate Mortgage Loan Asset-Backed Notes,
Series 1998-2A (herein called the "Notes"), issued under the Indenture, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the Owners of the Notes. To the extent that any provision
of this Note contradicts or is inconsistent with the provisions of the
Indenture, the provisions of the Indenture shall control and supersede such
contradictory or inconsistent provision herein. The Notes are subject to all
terms of the Indenture.
The Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Payment Date and the
Redemption Date, if any, pursuant to Article X of the Indenture. Notwithstanding
the foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee, upon the prior written direction of
Financial Security Assurance Inc. (the "Note Insurer") or, upon the occurrence
of a Note Insurer Default, the Owners of the Notes representing not less than a
majority of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
Owners entitled thereto on the basis of their Adjustable Rate Note Principal
Balance.
The Note Insurer has issued an Adjustable Rate Note Insurance Policy in
the name of the Indenture Trustee for the benefit of the Owners. Unless a Note
Insurer Default shall be continuing, subject to Section 11.18 of the Indenture,
the Note Insurer shall be deemed to be the Owner of 100% of the Adjustable Rate
Note Principal Balance of the Outstanding Notes for the purpose of exercising
the rights, including voting rights, of the Owners under the Indenture. In
addition, on each Payment Date, after the Owners have been paid all amounts to
which they are entitled, the Note Insurer will be entitled to be reimbursed for
any unreimbursed Insured Payments and any other amounts owed under the
Adjustable Rate Note Insurance Policy.
Payments of interest on this Note are due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Owner of the Note (or one or more Predecessor Notes) on the
Note Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payments will be
made by wire transfer in
<PAGE>
immediately available funds to the account designated by such nominee. Such
checks shall be mailed to the Person entitled thereto at the address of such
Person as it appears on the Note Register as of the applicable Record Date
without requiring that this Note be submitted for notation of payment. Any
reduction in the principal amount of this Note (or any one or more Predecessor
Notes) effected by any payments made on any Payment Date shall be binding upon
all future Owners of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Note on a
Payment Date, then the Indenture Trustee, in the name of and on behalf of the
Issuer, will notify the Person who was the Owner hereof as of the Record Date
preceding such Payment Date by notice mailed or transmitted by facsimile prior
to such Payment Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the Indenture Trustee's
principal Corporate Trust Office or at the office of the Indenture Trustee's
agent appointed for such purposes located in The City of New York.
As provided in the Indenture, the Notes may be redeemed in whole, but
not in part, at the option of the Servicer, on any Payment Date on and after the
Redemption Date pursuant to Article X of the Indenture and Section 5.2 of the
Sale and Servicing Agreement. If the Servicer declines to exercise such option,
the Note Insurer may do so as provided in Article X of the Indenture and Section
5.2 of the Sale and Servicing Agreement.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by the Owner hereof or such Owner's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one more new Notes of authorized denominations and in the
same aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be charged for any registration of transfer
or exchange of this Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any such registration of transfer or exchange.
Each Owner, by acceptance of a Note or, in the case of a Book-Entry
Owner, a beneficial interest in a Note, covenants and agrees that no recourse
may be taken, directly or indirectly, with respect to the obligations of the
Issuer, the Seller, the Servicer, the Owner Trustee or the Indenture Trustee on
the Notes or under the Indenture or any certificate or other writing delivered
in connection therewith, against (i) the Indenture Trustee or the Owner Trustee
in its individual capacity, (ii) any owner of a beneficial interest in the
Issuer or (iii) any partner, owner, beneficiary,
<PAGE>
agent, officer, director or employee of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such person may have expressly agreed and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
Each Owner or Book-Entry Owner, by acceptance of a Note or, in the case
of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Owner or Book-Entry Owner will
not at any time institute against the Seller, the Servicer, or the Issuer, or
join in any institution against the Seller, the Servicer, or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or similar law in connection
with any obligations relating to the Notes, the Indenture or any of the
Operative Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Owner, by acceptance of a Note (and each
Book-Entry Owner by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Owners of the Notes under the Indenture at any time
by the Issuer with the consent of the Note Insurer and the Owner of Notes
representing a majority of the Outstanding Amount of Notes. The Indenture also
contains provisions permitting the Owners of Notes representing the majority of
the Outstanding Amount of the Notes on behalf of the Owners of all the Notes to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Owner of this Note (or any one or more Predecessor
Notes) shall be conclusive and binding upon such Owners and upon all future
Owners of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
amendment thereof, in certain limited circumstances, or the waiver of certain
terms and conditions set forth in the Indenture, without the consent of Owners
of the Notes issued thereunder.
<PAGE>
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Operative Documents, none of the Issuer in its individual
capacity, the Owner Trustee in its individual capacity, any owner of a
beneficial interest in the Issuer, or any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on this Note or performance of, or
omission to perform, any of the covenants, obligations or indemnifications
contained in the Indenture. The Owner of this Note by its acceptance hereof
agrees that, except as expressly provided in the Operative Documents, in the
case of an Event of Default under the Indenture, the Owner shall have no claim
against any of the foregoing for any deficiency, loss or claim therefrom;
provided, however, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.
<PAGE>
ASSIGNMENT
Social Security or Taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
- - --------------------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _______________________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: __________________*/
Signature Guaranteed:
________________________*/
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
Exhibit 4.2
INDENTURE
between
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2,
as Issuer
and
THE CHASE MANHATTAN BANK,
as Indenture Trustee
Dated as of June 1, 1998
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE........................................................................2
SECTION 1.1 Definitions............................................................................2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act......................................7
SECTION 1.3 Rules of Construction..................................................................8
ARTICLE II
THE NOTES.........................................................................................................8
SECTION 2.1 Form...................................................................................8
SECTION 2.2 Execution, Authentication, Delivery and Dating.........................................8
SECTION 2.3 Registration; Registration of Transfer and Exchange....................................9
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes............................................10
SECTION 2.5 Persons Deemed Owners.................................................................11
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.................................11
SECTION 2.7 Cancellation..........................................................................12
SECTION 2.8 Authentication of Notes...............................................................12
SECTION 2.9 Release of Collateral.................................................................12
SECTION 2.10 Book-Entry Notes......................................................................13
SECTION 2.11 Notices to Clearing Agency............................................................13
SECTION 2.12 Definitive Notes......................................................................13
SECTION 2.13 Tax Treatment.........................................................................14
ARTICLE III
COVENANTS........................................................................................................14
SECTION 3.1 Payment of Principal and Interest.....................................................14
SECTION 3.2 Maintenance of Office or Agency.......................................................14
SECTION 3.3 Money for Payments To Be Held in Trust................................................14
SECTION 3.4 Existence.............................................................................16
SECTION 3.5 Protection of Collateral..............................................................16
SECTION 3.6 Annual Opinions as to Collateral......................................................17
SECTION 3.7 Performance of Obligations; Servicing of Fixed Rate Mortgage Loans....................17
SECTION 3.8 Negative Covenants....................................................................18
SECTION 3.9 Annual Statement as to Compliance.....................................................19
SECTION 3.10 Covenants of the Issuer...............................................................19
SECTION 3.11 Investment Company Act................................................................20
SECTION 3.12 Restricted Payments...................................................................20
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes...........................................20
SECTION 3.14 Notice of Events of Default...........................................................20
SECTION 3.15 Further Instruments and Acts..........................................................20
SECTION 3.16 No Other Business.....................................................................20
SECTION 3.17 No Borrowing..........................................................................20
SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. ..................................20
SECTION 3.19 Capital Expenditures..................................................................21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE IV
SATISFACTION AND DISCHARGE.......................................................................................21
SECTION 4.1 Satisfaction and Discharge of Indenture...............................................21
SECTION 4.2 Application of Trust Money............................................................22
SECTION 4.3 Repayment of Moneys Held by Paying Agent..............................................22
ARTICLE V
REMEDIES.........................................................................................................22
SECTION 5.1 Events of Default.....................................................................22
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment....................................23
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.............24
SECTION 5.4 Remedies; Priorities..................................................................26
SECTION 5.5 Optional Preservation of the Collateral...............................................27
SECTION 5.6 Limitation of Suits...................................................................27
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest......................28
SECTION 5.8 Restoration of Rights and Remedies....................................................28
SECTION 5.9 Rights and Remedies Cumulative........................................................28
SECTION 5.10 Delay or Omission Not a Waiver........................................................28
SECTION 5.11 Control by Note Insurer or Owners.....................................................29
SECTION 5.12 Waiver of Past Defaults...............................................................29
SECTION 5.13 Undertaking for Costs.................................................................29
SECTION 5.14 Waiver of Stay or Extension Laws......................................................30
SECTION 5.15 Action on Notes.......................................................................30
SECTION 5.16 Performance and Enforcement of Certain Obligations....................................30
ARTICLE VI
THE INDENTURE TRUSTEE............................................................................................31
SECTION 6.1 Duties of Indenture Trustee...........................................................31
SECTION 6.2 Rights of Indenture Trustee...........................................................32
SECTION 6.3 Individual Rights of Indenture Trustee................................................32
SECTION 6.4 Indenture Trustee's Disclaimer........................................................32
SECTION 6.5 Notice of Defaults....................................................................33
SECTION 6.6 Reports by Indenture Trustee to Owners................................................33
SECTION 6.7 Compensation and Indemnity............................................................33
SECTION 6.8 Replacement of Indenture Trustee......................................................33
SECTION 6.9 Successor Indenture Trustee by Merger.................................................34
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.....................34
SECTION 6.11 Eligibility; Disqualification.........................................................35
SECTION 6.12 Preferential Collection of Claims Against Issuer......................................36
SECTION 6.13 Tax Administration of the Issuer......................................................36
SECTION 6.14 Representations and Warranties........................................................36
SECTION 6.15 Directions to Indenture Trustee.......................................................37
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VII
OWNERS' LISTS AND REPORTS........................................................................................37
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners.....................37
SECTION 7.2 Preservation of Information; Communications to Owners.................................37
SECTION 7.3 Reports by Issuer.....................................................................37
SECTION 7.4 Reports by Indenture Trustee..........................................................38
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES.............................................................................38
SECTION 8.1 Collection of Money...................................................................38
SECTION 8.2 Accounts; Distributions...............................................................38
SECTION 8.3 General Provisions Regarding Accounts.................................................39
SECTION 8.4 Monthly Statements....................................................................40
SECTION 8.5 Release of Collateral.................................................................40
SECTION 8.6 Opinion of Counsel....................................................................40
ARTICLE IX
SUPPLEMENTAL INDENTURES..........................................................................................41
SECTION 9.1 Supplemental Indentures Without Consent of Owners.....................................41
SECTION 9.2 Supplemental Indentures With Consent of Owners........................................42
SECTION 9.3 Execution of Supplemental Indentures..................................................43
SECTION 9.4 Effect of Supplemental Indenture......................................................43
SECTION 9.5 Conformity with Trust Indenture Act...................................................43
SECTION 9.6 Reference in Notes to Supplemental Indentures.........................................43
SECTION 9.7 Amendments to Trust Agreement.........................................................44
SECTION 9.8 Notice of Supplemental Indentures.....................................................44
ARTICLE X
REDEMPTION OF NOTES..............................................................................................44
SECTION 10.1 Redemption. ..........................................................................44
SECTION 10.2 Form of Redemption Notice.............................................................44
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture
Trustee, Owner Trustee and Note Insurer...............................................45
SECTION 10.4 Notice of Final Payment...............................................................45
ARTICLE XI
MISCELLANEOUS....................................................................................................45
SECTION 11.1 Compliance Certificates and Opinions, etc.............................................46
SECTION 11.2 Form of Documents Delivered to Indenture Trustee......................................46
SECTION 11.3 Acts of Owners........................................................................46
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and
Note Insurer..........................................................................47
SECTION 11.5 Notices to Owners; Waiver.............................................................47
SECTION 11.6 Conflict with Trust Indenture Act.....................................................48
SECTION 11.7 Effect of Headings and Table of Contents..............................................48
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11.8 Successors and Assigns................................................................48
SECTION 11.9 Separability..........................................................................48
SECTION 11.10 Benefits of Indenture.................................................................48
SECTION 11.11 Legal Holidays........................................................................48
SECTION 11.12 Governing Law.........................................................................48
SECTION 11.13 Counterparts..........................................................................48
SECTION 11.14 Recording of Indenture................................................................49
SECTION 11.15 Trust Obligation......................................................................49
SECTION 11.16 No Petition...........................................................................49
SECTION 11.17 Inspection............................................................................49
SECTION 11.18 Grant of Owner Rights to Note Insurer.................................................49
SECTION 11.19 Third Party Beneficiary...............................................................50
SECTION 11.20 Suspension and Termination of Note Insurer's Rights...................................50
SECTION 11.21 Certain Matters Regarding the Note Insurer............................................50
EXHIBITS
SCHEDULE A - Schedule of Fixed Rate Mortgage Loans
EXHIBIT A - Form of Note
</TABLE>
iv
<PAGE>
INDENTURE (this "Indenture" or this "Agreement") dated as of June 1,
1998, between FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business
trust (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as trustee and not in its individual capacity (the "Indenture
Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Owners of the First Alliance Mortgage Loan
Trust 1998-2 Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F and the
Note Insurer.
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants to the
Indenture Trustee on the Closing Date, as Indenture Trustee for the benefit of
the Owners of the Notes and the Note Insurer (and for the benefit of the owners
of the Adjustable Rate Notes and the Note Insurer to the limited extent provided
in the Sale and Servicing Agreement), all of the Issuer's right, title and
interest whether now existing or hereafter acquired in and to: (i) the Trust
Estate; (ii) all right, title and interest of the Issuer in the Sale and
Servicing Agreement relating to the Fixed Rate Mortgage Loans (including the
Issuer's right to cause the Seller to repurchase Fixed Rate Mortgage Loans from
the Issuer under certain circumstances described therein); (iii) with respect to
the Fixed Rate Mortgage Loans, all present and future claims, demands, causes of
action and choses in action in respect of any or all of the foregoing and all
payments on or under and all proceeds of every kind and nature whatsoever in
respect of any or all of the foregoing, including all proceeds of the conversion
thereof, voluntary or involuntary, into cash or other liquid property, all cash
proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel
paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights
to payment of any and every kind and other forms of obligations and receivables,
instruments and other property which at any time constitute all or part of or
are included in the proceeds of any of the foregoing; (iv) all funds on deposit
from time to time in the Accounts relating to the Fixed Rate Mortgage Loans or
the Notes (including the Fixed Rate Note Account) and (v) all other property of
the Trust relating to the Fixed Rate Mortgage Loans from time to time
(collectively, the "Collateral").
The foregoing Grant is made in trust to secure (i) the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and the Adjustable Rate Notes to the limited extent provided in the Sale
and Servicing Agreement, equally and ratably without prejudice, priority or
distinction, (ii) the payment of all other amounts payable under this Indenture,
(iii) compliance with the provisions of this Indenture, all as provided in this
Indenture and (iv) the payment of any amounts due to the Note Insurer in
accordance with the Sale and Servicing Agreement.
The Indenture Trustee, as Indenture Trustee on behalf of the Owners of
the Notes and the Note Insurer, acknowledges such Grant, accepts the trusts
hereunder and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of the Owners of the Notes and
the Note Insurer may be adequately and effectively protected. The Indenture
Trustee agrees that it will hold the Fixed Rate Note Insurance Policy in trust
and that it will hold any proceeds of any claim made upon the Fixed Rate Note
Insurance Policy solely for the use and benefit of the Owners of the Notes in
accordance with the terms hereof and the terms of the Fixed Rate Note Insurance
Policy. The Indenture Trustee agrees and acknowledges that the Files will be
held by the Custodian, as agent of the Indenture Trustee, in trust, for the use
and benefit of the Issuer, the Note Insurer and all present and future Owners of
the Notes, in New York, New York. The Indenture Trustee further agrees and
acknowledges that each other item of Collateral that is physically delivered to
the Indenture Trustee will be held by the Indenture Trustee in New York, New
York.
1
<PAGE>
The Indenture Trustee further acknowledges that in the event the
conveyance of the Fixed Rate Mortgage Loans by the Seller to the Issuer pursuant
to the Trust Agreement is determined to constitute a financing, the Indenture
Trustee holds the Fixed Rate Mortgage Loans as the designee of the Issuer,
subject, however, to a prior lien in favor of the Owners of the Notes and the
Note Insurer.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions. Except as otherwise specified herein or as the
context may otherwise require, the following terms have the respective meanings
set forth below for all purposes of this Indenture.
"Act": The meaning specified in Section 11.3(a) hereof.
"Adjustable Rate Indenture": The meaning specified in Section 3.8(iv)
hereof.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer": With respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter).
"Book-Entry Notes": A beneficial interest in the Notes, the ownership
and transfer of which shall be made through book entries by a Clearing Agency as
described in Section 2.10.
"Book-Entry Owner": With respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Business Day": Any day other than a Saturday, Sunday or a day on which
commercial banking institutions in the States of New York or California or in
the city in which the Corporate Trust Office is located or the city in which the
principal office of the Note Insurer is located are authorized or obligated by
law or executive order to be closed.
"Certificate of Trust": The certificate of trust of the Issuer
substantially in the form of Exhibit A to the Trust Agreement.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant": A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
2
<PAGE>
"Closing Date": June 26, 1998.
"Code": The Internal Revenue Code of 1986, as amended from time to
time, and the Treasury Regulations promulgated thereunder.
"Collateral": The meaning specified in the Granting Clause of this
Indenture.
"Corporate Trust Office": The principal office of the Indenture Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Agreement is located
at 450 West 33rd Street, New York, New York 10001, Attention: First Alliance
Mortgage Loan Trust 1998-2 - Fixed Rate Notes, or at such other address as the
Indenture Trustee may designate from time to time by notice to the Owners and
the Issuer, or the principal corporate trust office of any successor Indenture
Trustee at the address designated by such successor Indenture Trustee by notice
to the Owners, the Note Insurer and the Issuer.
"Default": Any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes": The meaning specified in Section 2.12.
"Event of Default": The meaning specified in Section 5.1 hereof.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Final Payment Date": September 20, 2029.
"Grant": To mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Indenture Trustee": The Chase Manhattan Bank, a New York banking
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee under this Indenture.
"Independent": When used with respect to any specified Person, that the
Person (a) is in fact independent of the Issuer, any other obligor on the Notes,
the Seller and any Affiliate of any of the foregoing Persons, (b) does not have
any direct financial interest or any material indirect financial interest in the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons and (c) is not connected with the Issuer, any such other
obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Independent Certificate": A certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the
3
<PAGE>
Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Issuer": First Alliance Mortgage Loan Trust 1998-2 until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
"Issuer Order" and "Issuer Request": A written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
"Moody's": Moody's Investor Service, Inc., and any successor thereto.
"Note": The Issuer's Fixed Rate Mortgage Loan Asset Backed Notes,
Series 1998-2F, substantially in the Form of Exhibit A hereto.
"Note Register" and "Note Registrar": The respective meanings specified
in Section 2.3.
"Officer's Certificate": A certificate signed by any Authorized Officer
of the Issuer, under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1, and delivered to the
Indenture Trustee.
"Opinion of Counsel": One or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and
the Note Insurer, and which opinion or opinions shall be addressed to the
Indenture Trustee, as Indenture Trustee, and the Note Insurer and shall comply
with any applicable requirements of Section 11.1 and shall be in form and
substance satisfactory to the Indenture Trustee and the Note Insurer.
"Outstanding": With respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the
Indenture Trustee or any Paying Agent in trust for the Owners
of such Notes (provided, however, that if such Notes are to be
redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision for such notice has
been made, satisfactory to the Indenture Trustee);
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture
unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a bona fide
purchaser; provided, that in determining whether the Owners of
the requisite Outstanding Amount of the Notes have given any
request, demand, authorization, direction, notice, consent, or
waiver hereunder or under any Operative Document, Notes owned
by the Issuer, any other obligor upon the Notes, the Seller or
any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except that, in
determining whether the Indenture Trustee shall be protected
4
<PAGE>
in relying upon any such request, demand, authorization,
direction, notice, consent, or waiver, only Notes that the
Indenture Trustee knows to be so owned shall be so
disregarded. Notes so owned that have been pledged in good
faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Indenture Trustee the
pledgee's right so to act with respect to such Notes and that
the pledgee is not the Issuer, any other obligor upon the
Notes, the Seller or any Affiliate of any of the foregoing
Persons;
(iv) Notes alleged to have been destroyed, lost or stolen for which
replacement Notes have been issued as provided for in Section
2.4 thereof; and
(v) Notes as to which the Indenture Trustee has made the final
distribution thereon, whether or not such Notes are ever
returned to the Indenture Trustee.
"Outstanding Amount": The aggregate principal amount of all Notes that
are Outstanding at the date of determination.
"Owner": The Person in whose name a Note is registered on the Note
Register; provided that the exercise of any rights of such Owner under this
Indenture shall at all times be subject to Section 11.18 hereto.
"Owner Trustee": Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, or any successor
Owner Trustee under the Trust Agreement.
"Paying Agent": The Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make payments to and distributions from the
Fixed Rate Note Account, including payment of principal of or interest on the
Notes on behalf of the Issuer.
"Payment Date": The 20th day of any month or if such day is not a
Business Day, the next succeeding Business Day, commencing in July 1998.
"Predecessor Note": With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 2.4 in lieu of a mutilated, lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Rating Agency": Either or both of (i) Standard & Poor's or (ii)
Moody's. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Note Insurer, notice of which
designation shall be given to the Issuer, the Indenture Trustee, the Owner
Trustee and the Servicer.
"Rating Agency Condition": With respect to any action to which a Rating
Agency Condition applies, that each Rating Agency shall have been given 10 days
(or such shorter period as is acceptable to each Rating Agency) prior notice
thereof and that each of the Rating Agencies shall have notified the Seller, the
Servicer, the Note Insurer and the Issuer in writing that such action will not
result in a reduction or withdrawal of the then current rating of the Notes.
5
<PAGE>
"Record Date": With respect to any Payment Date, the last Business Day
immediately preceding such Payment Date.
"Redemption Date": The first Payment Date on which the outstanding
aggregate Loan Balance of the Fixed Rate Mortgage Loans has declined to
$7,000,000 or less.
"Redemption Price": In the case of a redemption of the Notes pursuant
to Section 10.1, an amount equal to the sum of (i) the unpaid principal amount
of the Notes redeemed plus accrued and unpaid interest thereon at the Fixed Rate
Note Rate to but excluding the Redemption Date, (ii) any unpaid Indenture
Trustee Fees, Owner Trustee Fees and Premium Amounts relating to the Fixed Rate
Mortgage Loans, (iii) all other amounts owed to the Note Insurer pursuant to the
Insurance Agreement and (iv) any unreimbursed Delinquency Advances and Servicing
Advances relating to the Fixed Rate Mortgage Loans.
"Registered Owner": The Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
"Responsible Officer": With respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement": The Sale and Servicing Agreement dated
as of June 1, 1998, among the Issuer, the Seller, the Servicer and the Indenture
Trustee, as Indenture Trustee.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": First Alliance Mortgage Company, in its capacity as seller
under the Sale and Servicing Agreement, and its successor in interest.
"Servicer": First Alliance Mortgage Company, in its capacity as
servicer under the Sale and Servicing Agreement, and any Successor Servicer
thereunder.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., and any successor thereto.
"State": Any one of the 50 States of the United States of America or
the District of Columbia.
"Successor Servicer": The meaning specified in Section 3.7(e).
"Trust Estate": The assets relating to the Fixed Rate Mortgage Loans
and subject to this Agreement, the Sale and Servicing Agreement and the Trust
Agreement and assigned to the Trust, which assets consist of (a) the Initial
Fixed Rate Mortgage Loans listed in Schedule I to the Sale and Servicing
Agreement and any Subsequent Fixed Rate Mortgage Loans listed in Schedule I to
any Subsequent Transfer Agreement, including the related Files that the Seller
causes to be delivered to the Indenture Trustee, all payments of principal
received, collected or otherwise recovered after the Cut-Off Date (or Subsequent
Cut-Off Date) for each Fixed Rate Mortgage Loan (other than any principal
payments due thereon on or prior to the Cut-Off Date or Subsequent Cut-Off
Date), all payments of interest accruing on each Fixed Rate Mortgage Loan after
6
<PAGE>
the Cut-Off Date (or Subsequent Cut-Off Date) therefor (other than any interest
payments due thereon on or prior to the Cut-Off Date or Subsequent Cut-Off Date)
and all other proceeds received in respect of such Fixed Rate Mortgage Loans,
(b) the Fixed Rate Note Insurance Policy, (c) any Insurance Policies relating to
the Fixed Rate Mortgage Loans, (d) all cash, instruments or other property held
or required to be deposited in the Principal and Interest Account, relating to
the Fixed Rate Mortgage Loans and the Fixed Rate Note Account, including all
investments made with funds in such accounts (but not including any income on
funds deposited in, or investments made with funds deposited in, the Principal
and Interest Account, relating to the Fixed Rate Mortgage Loans, which income
shall belong to and be for the account of the Servicer, and not including any
income on funds deposited in, or investments made with funds deposited in, the
Fixed Rate Note Account, which income shall belong to and be for the account of
the Issuer), (e) the Issuer's rights under the Sale and Servicing Agreement, and
(f) all proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquid assets, including, without limitation, all
insurance proceeds and condemnation awards.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as
amended, as in force on the date hereof, unless otherwise specifically provided.
"UCC": Unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, for all purposes of this Indenture capitalized terms used but
not otherwise defined herein have the respective meanings set forth in the Sale
and Servicing Agreement or, if not defined therein, in the Trust Agreement.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security Owner" means an Owner.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the Indenture securities means the Issuer and any other
obligor on the Indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
7
<PAGE>
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or
statute as from time to time amended, modified or supplemented
(as provided in such agreements) and includes (in the case of
agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
THE NOTES
SECTION 2.1 Form. The Notes shall be designated as the "First Alliance
Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F" and, together with
the Indenture Trustee's certificate of authentication, shall be in substantially
the form set forth in Exhibit A hereto, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. Any portion of the text of any Note may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
The Notes may be marked as temporary, and any Note being so marked may
be cancelled and destroyed for substitution by a replacement Note, subject to
the provisions of Section 2.2.
SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Owner Trustee shall bind the Issuer,
notwithstanding that such individuals or any of them
8
<PAGE>
have ceased to hold such offices prior to the authentication and delivery of
such Notes or did not hold such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.8,
the Indenture Trustee shall authenticate and deliver Notes for original issue in
an aggregate principal amount of $70,000,000. The aggregate principal amount of
Notes Outstanding at any time may not exceed such amount.
The Notes that are authenticated and delivered by the Indenture Trustee
to or upon the order of the Issuer on the Closing Date shall be dated June 26,
1998. All other Notes that are authenticated after the Closing Date for any
other purpose under this Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $25,000 and integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar with the consent of the Note Insurer, the Issuer will give the
Indenture Trustee prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note
Register, and the Indenture Trustee shall have the right to inspect the Note
Register at all reasonable times and to obtain copies thereof, and the Indenture
Trustee and the Note Insurer shall have the right to rely upon a certificate
executed on behalf of the Note Registrar by an Authorized Officer thereof as to
the names and addresses of the Owners of the Notes and the principal amounts and
number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Owner shall
obtain from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes in any authorized denominations, of a like
aggregate principal amount.
At the option of any Owner, Notes owned by such Owner may be exchanged
for other Notes in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Indenture Trustee shall authenticate and the Owner shall obtain from the
Indenture Trustee, the Notes which the Owner making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
9
<PAGE>
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by the
Owner thereof or such Owner's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
Any Noteholder using the assets of (i) an employee benefit plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) that is subject to the provisions of Title I of ERISA,
(ii) a plan described in Section 4975(e)(1) of the Internal Revenue Code of
1986, as amended, or (iii) any entity whose underlying assets include plan
assets by reason of a plan's investment in the entity to purchase the Notes, or
to whom the Notes are transferred, will be deemed to have represented that the
acquisition and continued holding of the Notes will be covered by a U.S.
Department of Labor Class Exemption.
No service charge shall be made to an Owner for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.4 or Section 9.6 not involving any transfer.
The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer, the Note Insurer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, and provided that the requirements of Section 8-405 of the
UCC are met, the Issuer shall execute, and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer, the Note Insurer or the Indenture Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Owner of such Note, other than the Note
Insurer, of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other reasonable expenses (including
the fees and expenses of the Indenture Trustee) connected therewith.
10
<PAGE>
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.5 Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Note Insurer, the
Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture
Trustee may treat the Person in whose name any Note is registered (as of the day
of determination) as the owner of such Note for the purpose of receiving
payments of principal of and interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Issuer, the Note Insurer, the Indenture Trustee or any agent of the Issuer or
the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.
(a) The Notes shall accrue interest at the Fixed Rate Note Rate as set
forth in the Sale and Servicing Agreement, and such interest shall be payable on
each Payment Date as specified therein, subject to Section 3.1 hereof. Any
installment of interest or principal, if any, payable on any Note that is
punctually paid or duly provided for by the Issuer on the applicable Payment
Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered on the Record Date by check mailed first-class
postage prepaid to such Person's address as it appears on the Note Register on
such Record Date, except that, unless Definitive Notes have been issued pursuant
to Section 2.12, with respect to Notes registered on the Record Date in the name
of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payment will be made by wire transfer in immediately available funds to
the account designated by such nominee and except for the final installment of
principal payable with respect to such Note on a Payment Date or on the
applicable Final Payment Date (and except for the Redemption Price for any Note
called for redemption pursuant to Section 10.1), which shall be payable as
provided below. The funds represented by any such checks returned undelivered
shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the Sale and Servicing Agreement and the form of the
Notes set forth in Exhibit A. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the earlier of (i) the Final Payment Date, (ii) the Redemption Date or (iii)
the date on which an Event of Default shall have occurred and be continuing, if
either the Owners or the Note Insurer has declared the Notes to be immediately
due and payable in the manner provided in Section 5.2. All principal payments on
the Notes shall be made pro rata to the Owners. The Indenture Trustee shall
notify the Person in whose name a Note is registered at the close of business on
the Record Date preceding the Payment Date on which the Issuer expects that the
final installment of principal of and interest on such Note will be paid. Such
notice shall be mailed or transmitted by facsimile prior to such final Payment
Date and shall specify that such final installment will be payable only upon
presentation and surrender of such Note and shall specify the place where such
Note may be presented and surrendered for payment of such installment. A copy of
such form of notice shall be sent to the Note Insurer by the Indenture Trustee.
Notices in connection with redemptions of Notes shall be mailed to Owners as
provided in Section 10.2.
11
<PAGE>
SECTION 2.7 Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes may be held or disposed of by the Indenture
Trustee in accordance with its standard retention or disposal policy as in
effect at the time, unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided, that such Issuer Order is timely and
the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.8 Authentication of Notes. The Notes may be authenticated by
the Indenture Trustee upon Issuer Request.
SECTION 2.9 Release of Collateral.
(a) Subject to subsections (b) and (c) hereof, Section 11.1 hereof and
the terms of the Operative Documents, the Indenture Trustee shall release
property from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion
of Counsel in lieu of such Independent Certificates to the effect that the TIA
does not require any such Independent Certificates.
(b) The Servicer, on behalf of the Issuer, shall be entitled to obtain
a release from the lien of this Indenture for any Fixed Rate Mortgage Loan and
the related Property at any time (i) after a payment by the Seller or the Issuer
of the Loan Purchase Price of the Fixed Rate Mortgage Loan, (ii) after a
Qualified Replacement Mortgage is substituted for such Fixed Rate Mortgage Loan
and payment of the Substitution Amount if any, (iii) after liquidation of the
Fixed Rate Mortgage Loan in accordance with Section 4.13 of the Sale and
Servicing Agreement and the deposit of all Liquidation Proceeds thereon in the
Principal and Interest Account, or (iv) upon the termination of a Fixed Rate
Mortgage Loan (due to, among other causes, a prepayment in full of the Fixed
Rate Mortgage Loan and sale or other disposition of the related Property), if
the Issuer delivers to the Indenture Trustee and the Note Insurer an Issuer
Request (A) identifying the Fixed Rate Mortgage Loan and the related Property to
be released, (B) requesting the release thereof, (C) setting forth the amount
deposited in the Principal and Interest Account with respect thereto, and (D)
certifying that the amount deposited in the Principal and Interest Account (x)
equals the Loan Purchase Price of the Fixed Rate Mortgage Loan, in the event a
Fixed Rate Mortgage Loan and the related Property are being released from the
lien of this Indenture pursuant to item (i) above, (y) equals the Substitution
Amount related to the Qualified Replacement Mortgage and the Fixed Rate Mortgage
Loan being released from the lien of this Indenture pursuant to item (ii) above,
or (z) equals the entire amount of recoveries received with respect to such
Fixed Rate Mortgage Loan and the related Property in the event of a release from
the lien of this Indenture pursuant to items (iii) or (iv) above.
(c) The Indenture Trustee shall, if requested in writing by the
Servicer, temporarily release or cause the Custodian to temporarily release to
the Servicer the File pursuant to the provisions of Section 4.14 of the Sale and
Servicing Agreement upon compliance by the Servicer of the provisions thereof
provided that the Indenture Trustee's File shall have been stamped to signify
the Issuer's pledge to the Indenture Trustee under this Indenture.
12
<PAGE>
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by,
or on behalf of, the Issuer. The Book-Entry Notes shall be registered initially
on the Note Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Owner of any Note will receive a definitive Note
representing such Book-Entry Owner's interest in such Note, except as provided
in Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to such Book-Entry Owners pursuant to
Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar, the Note Insurer and the Indenture Trustee
shall be entitled to deal with the Clearing Agency for all
purposes of this Indenture (including the payment of principal
of and interest on the Notes and the giving of instructions or
directions hereunder) as the sole Owner of the Notes, and
shall have no obligation to the Book-Entry Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Book-Entry Owners shall be exercised only
through the Clearing Agency and shall be limited to those
established by law and agreements between such Book-Entry
Owners and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued
pursuant to Section 2.12, the initial Clearing Agency will
make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of
and interest on the Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Owners of Notes
evidencing a specified percentage of the Outstanding Amount of
the Notes, the Clearing Agency shall be deemed to represent
such percentage only to the extent that it has received
instructions to such effect from Book-Entry Owners and/or
Clearing Agency Participants owning or representing,
respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to
the Indenture Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Owners is required under this Indenture, unless and until
Definitive Notes shall have been issued to such Book-Entry Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Owners of the Notes to the
Clearing Agency, and shall have no obligation to such Book-Entry Owners.
SECTION 2.12 Definitive Notes. If (i) the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Notes and the Issuer is unable to locate a qualified successor, (ii)
the Issuer at its option advises the Indenture Trustee in writing that it elects
to terminate the book-entry system through the Clearing Agency or (iii) after
the occurrence of an Event of Default, Owners of the Book-Entry Notes
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of such Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Book-Entry Owners, then the Clearing Agency shall
notify all Book-Entry Owners and the Indenture Trustee of the occurrence of such
event and of the availability of Definitive Notes to Book-Entry Owners
requesting the same. Upon surrender to the Indenture Trustee of the typewritten
Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture
13
<PAGE>
Trustee shall authenticate the Definitive Notes in accordance with the
instructions of the Clearing Agency. None of the Issuer, the Note Registrar, the
Note Insurer or the Indenture Trustee shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Notes, the
Indenture Trustee shall recognize the Owners of the Definitive Notes as Owners.
SECTION 2.13 Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Collateral. The Issuer, by entering
into this Indenture, and each Owner, by its acceptance of a Note (and each
Book-Entry Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and
punctually pay (or will cause to be duly and punctually paid) the principal of
and interest, if any, on the Notes in accordance with the terms of the Notes and
this Indenture. Without limiting the foregoing, subject to and in accordance
with Section 8.2(c), on each Payment Date the Issuer will cause to be
distributed all amounts on deposit in the Fixed Rate Note Account deposited or
retained therein pursuant to the Sale and Servicing Agreement for the benefit of
the Owners of the Notes, to the Owners and the Note Insurer. Amounts properly
withheld under the Code by any Person from a payment to any Owner of interest
and/or principal shall be considered as having been paid by the Issuer to such
Owner for all purposes of this Indenture.
The Notes shall be non-recourse obligations of the Issuer and shall be
limited in right of payment to amounts available from the Collateral and any
amounts received by the Indenture Trustee under the Fixed Rate Note Insurance
Policy in respect of the Notes, as provided in this Indenture and the Sale and
Servicing Agreement. The Issuer shall not otherwise be liable for payments on
the Notes. If any other provision of this Indenture shall be deemed to conflict
with the provisions of this Section 3.1, the provisions of this Section 3.1
shall control.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Issuer will give
prompt written notice to the Indenture Trustee and the Note Insurer of the
location, and of any change in the location, of any such office or agency. If at
any time the Issuer shall fail to maintain any such office or agency or shall
fail to furnish the Indenture Trustee with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Issuer hereby appoints the Indenture Trustee as its agent to receive all such
surrenders, notices and demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Section 8.2 (a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Principal and
Interest Account or retained in the Fixed Rate Note Account pursuant to Section
8.2(c) shall be made on behalf of the Issuer by the Indenture Trustee or by the
Paying Agent, and
14
<PAGE>
no amounts so withdrawn from the Principal and Interest Account or retained in
the Fixed Rate Note Account for payments of Notes shall be paid over to the
Issuer except as provided in this Section 3.3.
On or before the second Business Day preceding each Payment Date and
Redemption Date, the Indenture Trustee shall cause to be deposited in the Fixed
Rate Note Account an aggregate sum sufficient to pay the amounts due on such
Payment Date under the Notes, such sum to be held in trust for the benefit of
the Persons entitled thereto.
Subject to the prior consent of the Note Insurer, any Paying Agent
shall be appointed by Issuer Order with written notice thereof to the Indenture
Trustee and the Note Insurer. Any Paying Agent appointed by the Issuer shall be
a Person who would be eligible to be Indenture Trustee hereunder as provided in
Section 6.11. The Issuer shall not appoint any Paying Agent (other than the
Indenture Trustee) which is not, at the time of such appointment, a Designated
Depository Institution.
The Issuer will cause each Paying Agent to execute and deliver to the
Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section 3.3, that such Paying
Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the 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 Owners as herein provided;
(ii) give the Indenture Trustee, the Rating Agencies and the Note
Insurer notice of any default by the Issuer (or any other
obligor upon the Notes) of which it has actual knowledge in
the making of any payment required to be made with respect to
the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to
the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment
of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its
appointment;
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect
to any applicable reporting requirements in connection
therewith; provided, however, that with respect to withholding
and reporting requirements applicable to original issue
discount (if any) on the Notes, the Issuer shall have first
provided the calculations pertaining thereto to the Indenture
Trustee; and
(vi) not commence a bankruptcy proceeding against the Issuer in
connection with this Indenture.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying
15
<PAGE>
Agent to the Indenture Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer on Issuer Request;
and the Owner of such Note shall thereafter, as an unsecured general creditor,
look only to the Issuer for payment thereof (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Indenture Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ,
at the expense and direction of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice of
such repayment to Owners whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Owner).
SECTION 3.4 Existence.
(a) Subject to subsection (b) of this Section 3.4, the Issuer will keep
in full effect its existence, rights and franchises as a business trust under
the laws of the State of Delaware (unless it becomes, or any successor Issuer
hereunder is or becomes, organized under the laws of any other State or of the
United States of America, in which case the Issuer will keep in full effect its
existence, rights and franchises under the laws of such other jurisdiction) and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
SECTION 3.5 Protection of Collateral. The Issuer will from time to time
and upon the direction of the Note Insurer execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of all or
any portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
16
<PAGE>
(iii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights of
the Indenture Trustee, the Owners and the Note Insurer in such
Collateral against the claims of all persons and parties.
SECTION 3.6 Annual Opinions as to Collateral. On or before March 15 in
each calendar year, beginning in 1999, the Issuer shall furnish to the Indenture
Trustee and the Note Insurer an Opinion of Counsel either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect to the
execution and filing of any financing statements and continuation statements as
is necessary to maintain the lien and security interest created by this
Indenture and reciting the details of such action or stating that in the opinion
of such counsel no such action is necessary to maintain such lien and security
interest. Such Opinion of Counsel shall also describe the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and the execution and filing of any financing
statements and continuation statements that will, in the opinion of such
counsel, be required to maintain the lien and security interest of this
Indenture until March 15 of the following calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Fixed Rate
Mortgage Loans.
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) Subject to the prior consent of the Note Insurer, the Issuer may
contract with or otherwise obtain the assistance of other Persons to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee and the Note Insurer in
an Officer's Certificate of the Issuer shall be deemed to be action taken by the
Issuer. Initially, the Issuer has contracted with the Servicer pursuant to the
Sale and Servicing Agreement to assist the Issuer in performing its duties under
this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Operative Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Operative
Document or any provision thereof without the consent of the Indenture Trustee,
the Note Insurer, and the Owners of at least a majority of the Outstanding
Amount of the Notes.
17
<PAGE>
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Servicing Termination under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies
thereof, and shall specify in such notice the action, if any, the Issuer is
taking with respect of such default. If such Event of Servicing Termination
shall arise from the failure of the Servicer to perform any of its duties or
obligations under the Sale and Servicing Agreement with respect to the Fixed
Rate Mortgage Loans, the Issuer shall take all reasonable steps available to it
to remedy such failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 4.20 of
the Sale and Servicing Agreement, the Issuer, upon the prior written consent of
or upon the direction of the Note Insurer, shall appoint a successor servicer
(the "Successor Servicer") in accordance with the provisions of Section 4.21 of
the Sale and Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Sale and Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee and the Note Insurer. As soon as a Successor Servicer is
appointed pursuant to Section 4.21 of the Sale and Servicing Agreement, the
Issuer shall notify the Indenture Trustee and the Rating Agencies of such
appointment, specifying in such notice the name and address of such Successor
Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee and the Note Insurer, or, if a
Note Insurer Default has occurred and is continuing, the Owners of at least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Sale and Servicing Agreement) or the Operative
Documents, or waive timely performance or observance by the Servicer or the
Seller under the Sale and Servicing Agreement; and (ii) that any such amendment
shall not (A) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, distributions that are required to be made for the benefit
of the Owners or (B) reduce the aforesaid percentage of the Notes that is
required to consent to any such amendment, without the consent of the Owners of
all the outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Indenture Trustee and the Note Insurer,
the Issuer agrees, promptly following a request by the Indenture Trustee or the
Note Insurer to do so, to execute and deliver, in its own name and at its own
expense, such agreements, instruments, consents and other documents as the
Indenture Trustee or the Note Insurer may deem necessary or appropriate in the
circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture, or the Sale
and Servicing Agreement, sell, transfer, exchange or otherwise
dispose of any of the properties or assets of the Issuer,
including those included in the Collateral, unless directed to
do so by the Indenture Trustee or the Note Insurer;
(ii) claim any credit on, or make any deduction from the principal
or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code)
or assert any claim against any present or former Owner by
reason of the payment of the taxes levied or assessed upon any
part of the Collateral;
18
<PAGE>
(iii) engage in any business or activity other than as permitted by
the Trust Agreement or other than in connection with, or
relating to, the issuance of Notes pursuant to this Indenture,
or amend the Trust Agreement as in effect on the Closing Date
other than in accordance with Section 11.1 thereof,
(iv) issue debt obligations under any indenture other than the
Indenture dated as of June 1, 1998 (the "Adjustable Rate
Indenture") between the Issuer and the Indenture Trustee
relating to First Alliance Mortgage Loan Trust 1998-2
Adjustable Rate Mortgage Loan Asset Backed Notes, Series
1998-2A, as contemplated by the Sale and Servicing Agreement;
(v) incur or assume any indebtedness or guaranty any indebtedness
of any Person, except for such indebtedness as may be incurred
by the Issuer in connection with the issuance of the Notes
pursuant to this Indenture or the Adjustable Rate Indenture;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
(vii) (A) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged,
or permit any Person to be released from any covenants or
obligations with respect to the Notes under this Indenture
except as may be expressly permitted hereby, (B) permit any
lien, charge, excise, claim, security interest, mortgage or
other encumbrance (other than the lien of this Indenture) to
be created on or extend to or otherwise arise upon or burden
the Collateral or any part thereof or any interest therein or
the proceeds thereof (other than tax liens, mechanics' liens
and other liens that arise by operation of law, in each case
on any of the Properties and arising solely as a result of an
action or omission of the related Mortgagor) or (C) permit the
lien of this Indenture not to constitute a valid first
priority (other than with respect to any such tax, mechanics'
or other lien) security interest in the Collateral;
(viii) take any other action or fail to take any action which may
cause the Issuer to be taxable as (a) an association pursuant
to Section 7701 of the Code and the corresponding regulations
or (b) as a taxable mortgage pool pursuant to Section 7701(i)
of the Code and the corresponding regulations.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee and the Note Insurer, within 120 days after the end of
each fiscal year of the Issuer (commencing with the 1999 fiscal year), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year and
of its performance under this Indenture has been made under
such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and
covenants under the Indenture throughout such year, or, if
there has been a default in its compliance with any such
condition or covenant, specifying each such default known to
such Authorized Officer and the nature and status thereof.
SECTION 3.10 Covenants of the Issuer. All covenants of the Issuer in
the Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner
19
<PAGE>
Trustee or any such successor Owner Trustee be personally liable on, or for any
loss in respect of, any of the statements, representations, warranties or
obligations of the Issuer hereunder, as to all of which the parties hereto agree
to look solely to the property of the Issuer.
SECTION 3.11 Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.11
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
SECTION 3.12 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Indenture Trustee, the Owner Trustee, the Note Insurer, the
Owners and the Certificateholders as contemplated by, and to the extent funds
are available for such purpose under, the Sale and Servicing Agreement or the
Trust Agreement. The Issuer will not, directly or indirectly, make or cause to
be made payments to or distributions from the Principal and Interest Account
except in accordance with this Indenture and the Operative Documents.
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer
shall treat the Notes as indebtedness for all federal, state and local income
and franchise tax purposes.
SECTION 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Note Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder and each default on the part of the
Servicer or the Seller of its obligations under the Sale and Servicing
Agreement.
SECTION 3.15 Further Instruments and Acts. Upon request of the
Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
SECTION 3.16 No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Mortgage Loans and the issuance of the Notes pursuant to this Indenture, the
Certificates issued pursuant to the Trust Agreement and the notes issued
pursuant to the Adjustable Rate Indenture in the manner contemplated by this
Indenture and the Operative Documents and all activities incidental thereto.
SECTION 3.17 No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes, the notes issued pursuant to the Adjustable
Rate Indenture and amounts due to the Note Insurer under this Indenture, the
Adjustable Rate Indenture and the Insurance Agreement.
SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by this Indenture, the Adjustable Rate Indenture or the
Operative Documents, the Issuer shall not make any loan or advance or credit to,
or guarantee (directly or indirectly or by an instrument having the effect of
assuring
20
<PAGE>
another's payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or own,
purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.19 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes (except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Owners to receive payments of
principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8 and
3.10 hereof, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.7 and
the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights
of Owners as beneficiaries hereof with respect to the property so deposited with
the Indenture Trustee payable to all or any of them), and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when all of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.4 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.3) have been delivered to the Indenture Trustee for
cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
a. have become due and payable,
b. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited
or caused to be irrevocably deposited with the Indenture Trustee cash or direct
obligations of or obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Indenture Trustee for cancellation
when due to the Final Payment Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1), as the case may be;
(B) the later of (a) eighteen months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full, in respect of
the Fixed Rate Mortgage Loans of all unpaid Indenture Trustee Fees and Premium
Amounts and all sums owing to the Note Insurer under the Insurance Agreement and
(c)
21
<PAGE>
the date on which the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture
Trustee) an Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.1 and, subject to Section
11.2, each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture with respect to the Notes have
been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.3 and 4.3 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Owners of the Notes for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest; but such
moneys need not be segregated from other funds except to the extent required
herein or in the Sale and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.3 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any Current Interest on any Note when the
same becomes due and payable; or
(b) default in the payment of the Principal Payment Amount of any Note
when the same becomes due and payable; or
(c) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section 5.1 specifically dealt with), or any representation or warranty of
the Issuer made in this Indenture, the Insurance Agreement, the Sale and
Servicing Agreement or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such default
shall continue or not be cured, or the circumstance or condition in respect of
which such misrepresentation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 30 days after there shall have
been given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Owners of a majority
of the Outstanding Amount of the Notes, a written notice specifying such default
22
<PAGE>
or incorrect representation or warranty and requiring it to be remedied and
stating that such notice is a notice of Default hereunder; or
(d) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Issuer's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(e) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Issuer to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Collateral, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due, or the taking of any action by the
Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee and the Note Insurer,
within five days after the occurrence thereof, written notice in the form of an
Officer's Certificate of any event which with the giving of notice and the lapse
of time would become an Event of Default under clause (c) above, its status and
what action the Issuer is taking or proposes to take with respect thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, the Indenture Trustee (x)
shall, at the direction or upon the prior written consent of the Note Insurer
or, (y) may, if a Note Insurer Default has occurred and is continuing, at the
direction of the Owners of Notes representing not less than a majority of the
Outstanding Amount of the Notes declare all the Notes to be immediately due and
payable, by a notice in writing to the Issuer (and to the Indenture Trustee if
given by Owners), and upon any such declaration the unpaid principal amount of
such Notes, together with accrued and unpaid interest thereon through the date
of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Note Insurer or, if a Note Insurer
Default exists, the Owners of Notes representing a majority of the Fixed Rate
Note Principal Balances of all Notes, by written notice to the Issuer and the
Indenture Trustee, may waive the related Event of Default and rescind and annul
such declaration and its consequences if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
(i) all payments of principal of and interest on all
Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred;
and
(ii) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee
and its agents and counsel; and
23
<PAGE>
(iii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely
by such acceleration, have been cured or waived as
provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer will, upon demand of the Indenture Trustee
and at the direction of the Note Insurer, pay to the Indenture Trustee, for the
benefit of the Owners of the Notes and the Note Insurer, the whole amount then
due and payable on such Notes for principal and interest, with interest upon the
overdue principal and, to the extent payment at such rate of interest shall be
legally enforceable, upon overdue installments of interest at the rate borne by
the Notes and in addition thereto such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee and
the Note Insurer and their respective agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, shall at the direction of the Note Insurer, and if a Note Insurer Default
has occurred and is continuing, the Indenture Trustee may, in its discretion,
and shall at the direction of the Owners of the Notes representing a majority of
the Outstanding Amount of the Notes, institute a Proceeding for the collection
of the sums so due and unpaid, and may prosecute such Proceeding to judgment or
final decree, and may enforce the same against the Issuer or other obligor upon
such Notes and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged
or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall, at the direction of the Note Insurer, and if a Note Insurer
Default has occurred and is continuing, the Indenture Trustee may, in its
discretion, and shall at the direction of the Owners of the Notes representing a
majority of the Outstanding Amount of the Notes, as more particularly provided
in Section 5.4, proceed to protect and enforce its rights and the rights of the
Note Insurer and the Owners, by such appropriate Proceedings as the Indenture
Trustee shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the Indenture
Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand
24
<PAGE>
pursuant to the provisions of this Section, shall be entitled and empowered,
upon the direction of the Note Insurer, by intervention in such Proceedings or
otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in
respect of the Notes and to file such other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to
the Indenture Trustee, each predecessor Indenture
Trustee and the Note Insurer, and their respective
agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each
predecessor Indenture Trustee (except as a result of
negligence or bad faith), the Note Insurer and of the
Owners allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Owners of Notes in any
election of a trustee, a standby trustee or Person
performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to
distribute all amounts received with respect to the
claims of the Owners, the Note Insurer and the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee, the Note
Insurer or the Owners of Notes allowed in any
judicial proceedings relative to the Issuer, its
creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Owners and the Note
Insurer to make payments to the Indenture Trustee and, in the event that the
Indenture Trustee shall consent to the making of payments directly to such
Owners and the Note Insurer, to pay to the Indenture Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Indenture Trustee,
each predecessor Indenture Trustee and their respective agents, attorneys and
counsel, and all other expenses and liabilities incurred, and all advances made,
by the Indenture Trustee and each predecessor Indenture Trustee except as a
result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Owner or the Note Insurer any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Owner thereof
or the Note Insurer or to authorize the Indenture Trustee to vote in respect of
the claim of any Owner in any such proceeding except, as aforesaid, to vote for
the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Owners of the Notes and the Note Insurer.
25
<PAGE>
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Owners, and it shall not be necessary to make any
Owner a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee shall, at the direction of the Note Insurer, and if a Note
Insurer Default has occurred and is continuing, the Indenture Trustee may and at
the direction of the Owners of the Notes representing a majority of the
Outstanding Amount of the Notes shall, upon receipt of satisfactory indemnity
and assurances, do one or more of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts
then payable on the Notes or under this Indenture
with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes
moneys adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture
with respect to the Collateral;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect
and enforce the rights and remedies of the Indenture
Trustee, the Note Insurer or the Owners; and
(iv) sell the Collateral or any portion thereof or rights
or interest therein in a commercially reasonable
manner, at one or more public or private sales called
and conducted in any manner permitted by law;
provided, however, that, if a Note Insurer Default has
occurred and is continuing, the Indenture Trustee may not sell
or otherwise liquidate the Collateral following an Event of
Default, unless (A) the Owners of 100% of the Outstanding
Amount of the Notes consent thereto, (B) the proceeds of such
sale or liquidation distributable to the Owners are sufficient
to discharge in full all amounts then due and unpaid upon such
Notes for principal and interest or (C) the Indenture Trustee
determines that the Collateral will not continue to provide
sufficient funds for the payment of principal of and interest
on the Notes as they would have become due if the Notes had
not been declared due and payable, and the Indenture Trustee
obtains the consent of Owners of 66-2/3% of the Outstanding
Amount of the Notes. In determining such sufficiency or
insufficiency with respect to clauses (B) and (C), the
Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting
firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Collateral
for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
26
<PAGE>
FIRST: to the Indenture Trustee for the Indenture Trustee Fee relating
to the Fixed Rate Mortgage Loans then due and any costs or expenses incurred by
it in connection with the enforcement of the remedies provided for in this
Article V and to the Owner Trustee for the Owner Trustee Fee relating to the
Fixed Rate Mortgage Loans then due;
SECOND: to the Note Insurer for the Premium Amount relating to the
Fixed Rate Mortgage Loans then due and unpaid;
THIRD: to the Servicer for the Servicing Fee relating to the Fixed Rate
Mortgage Loans then due and unpaid;
FOURTH: to Owners for amounts due and unpaid on the Notes for Current
Interest, pro rata, according to the amounts due and payable on the Notes for
interest;
FIFTH: to Owners of the Notes for amounts due and unpaid on the Notes
for principal, pro rata;
SIXTH: to the Note Insurer for any amounts then due and payable under
the Insurance Agreement; and
SEVENTH: to the Trust Paying Agent, for any amounts to be distributed,
pro rata, to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Owners pursuant to this Section. At least 15 days
before such record date, the Indenture Trustee shall mail to each Owner, the
Note Insurer and the Issuer a notice that states the record date, the payment
date and the amount to be paid.
SECTION 5.5 Optional Preservation of the Collateral. If the Notes have
been declared to be due and payable under Section 5.2 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee shall, if directed by the Note Insurer (or if a
Note Insurer Default has occurred and is continuing, the Indenture Trustee may,
but need not) elect to maintain possession of the Collateral. It is the desire
of the parties hereto and the Owners that there be at all times sufficient funds
for the payment of principal of and interest on the Notes, and the Indenture
Trustee shall take such desire into account when determining whether or not to
maintain possession of the Collateral. In determining whether to maintain
possession of the Collateral, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Collateral for such purpose.
SECTION 5.6 Limitation of Suits. No Owner of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder for so long as a Note Insurer Default has not occurred or is
not continuing and if a Note Insurer Default has occurred and is continuing,
unless:
(a) such Owner has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
27
<PAGE>
(b) the Owners of a majority of the Outstanding Amount of the Notes
have made written request to the Indenture Trustee to institute such Proceeding
in respect of such Event of Default in its own name as Indenture Trustee
hereunder;
(c) such Owner or Owners have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceedings; and
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Owners of a majority
of the Outstanding Amount of the Notes.
It is understood and intended that no one or more Owners of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Owners of Notes or to obtain or to seek to obtain priority or preference
over any other Owners or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Owner of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
Final Payment Date (or, in the case of redemption, on or after the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Owner.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
Trustee, the Note Insurer or any Owner has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee, the Note Insurer or to such Owner, then and in every such
case the Issuer, the Indenture Trustee, the Note Insurer and the Owners shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee and the Owners shall continue as though no
such Proceeding had been instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Note Insurer or to 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. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee, the Note Insurer or any Owner of any Note to exercise any
right or remedy accruing upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this Article
V or by law to the Indenture Trustee, the Note Insurer or to the Owners may be
exercised from time to time, and as often as may
28
<PAGE>
be deemed expedient, by the Indenture Trustee, the Note Insurer or by the
Owners, as the case may be, subject, in each case, however, to the right of the
Note Insurer to control any such right and remedy, except as provided in Section
11.20.
SECTION 5.11 Control by Note Insurer or Owners. The Note Insurer, or if
a Note Insurer Default exists, the Owners of a majority of the Outstanding
Amount of the Notes shall have the right to direct the time, method and place of
conducting any Proceeding for any remedy available to the Indenture Trustee with
respect to the Notes or exercising any trust or power conferred on the Indenture
Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) if a Note Insurer Default exists, subject to the express terms of
Section 5.4, any direction to the Indenture Trustee to sell or liquidate the
Collateral shall be by Owners of Notes representing not less than 100% of the
Outstanding Amount of the Notes;
(c) if the conditions set forth in Section 5.5 have been satisfied and
the Indenture Trustee elects to retain the Collateral pursuant to such Section,
then any direction to the Indenture Trustee by Owners of Notes representing less
than 100% of the Outstanding Amount of the Notes to sell or liquidate the
Collateral shall be of no force and effect; and
(d) if a Note Insurer Default exists, the Indenture Trustee may take
any other action deemed proper by the Indenture Trustee that is not inconsistent
with such direction.
Notwithstanding the rights of the Note Insurer and the Owners set forth
in this Section, subject to Section 6.1, the Indenture Trustee need not take any
action that it determines might involve it in liability unless it receives
assurances of sufficient indemnity or, if a Note Insurer Default exists, might
materially adversely affect the rights of any Owners not consenting to such
action.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the Note
Insurer, or if a Note Insurer Default exists, the Owners of Notes representing
not less than a majority of the Outstanding Amount of the Notes may waive any
past Default or Event of Default and its consequences except a Default (a) in
the payment of principal of or interest on any of the Notes or (b) during the
existence of a Note Insurer Default, in respect of a covenant or provision
hereof that cannot be modified or amended without the consent of the Owner of
each Note. In the case of any such waiver, the Issuer, the Indenture Trustee,
the Note Insurer and the Owners of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Owner of any Note by such Owner's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit,
29
<PAGE>
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to (a)
any suit instituted by the Indenture Trustee or the Note Insurer, (b) any suit
instituted by any Owner, or group of Owners, in each case holding in the
aggregate more than 10% of the Outstanding Amount of the Notes or (c) any suit
instituted by any Owner for the enforcement of the payment of principal of or
interest on any Note on or after the respective due dates expressed in such Note
and in this Indenture (or, in the case of redemption, on or after the Redemption
Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Owners shall be impaired by the recovery of any
judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee or the Note
Insurer to do so, the Issuer shall take all such lawful action as the Indenture
Trustee or the Note Insurer may request to compel or secure the performance and
observance by the Seller and the Servicer, as applicable, of each of their
obligations to the Issuer under or in connection with the Sale and Servicing
Agreement and to exercise any and all rights, remedies, powers and privileges
lawfully available to the Issuer under or in connection with the Sale and
Servicing Agreement to the extent and in the manner directed by the Indenture
Trustee or the Note Insurer, including the transmission of notices of default on
the part of the Seller or the Servicer thereunder and the institution of legal
or administrative actions or proceedings to compel or secure performance by the
Seller or the Servicer of each of their obligations under the Sale and Servicing
Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may (with the consent of the Note Insurer), and at the
direction of the Note Insurer (or if a Note Insurer Default exists, at the
written direction (which direction shall be in writing or by telephone,
confirmed in writing promptly thereafter) of the Owners of 66-2/3% of the
Outstanding Amount of the Notes) shall, exercise all rights, remedies, powers,
privileges and claims of the Issuer against the Seller or the Servicer under or
in connection with the Sale and Servicing Agreement, including the right or
power to take any action to compel or secure performance or observance by the
Seller or the Servicer, as the case may be, of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction, approval,
extension, or waiver under the Sale and Servicing Agreement and any right of the
Issuer to take such action shall be suspended.
30
<PAGE>
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee.
(a) If an Event of Default of which a Responsible Officer of the
Indenture Trustee shall have actual knowledge has occurred and is continuing,
the Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set
forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against
the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the
truth of the statements and the correctness of the
opinions expressed therein, upon certificates (or
similar documents) or opinions furnished to the
Indenture Trustee and conforming to the requirements
of this Indenture; however, the Indenture Trustee
shall examine the certificates (or similar documents)
and opinions to determine whether or not they conform
to the requirements of this Indenture; provided that
the Indenture Trustee shall not be responsible for
the accuracy or content of any certificate (or
similar document) or opinion furnished to it pursuant
to the terms of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Indenture Trustee shall not be personally liable
for any error of judgment made in good faith by a
Responsible Officer unless it is proved that the
Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be personally liable
with respect to any action it takes or omits to take
in good faith in accordance with a direction received
by it pursuant to Section 5.11 or for exercising or
omitting to exercise any trust or power conferred
upon the Indenture Trustee under this Indenture.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer and except to the extent of income or other gain on investments which are
deposits in or certificates of deposit of the Indenture Trustee in its
commercial capacity.
31
<PAGE>
(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and further provided that nothing in
this Section 6.1(g) shall be construed to limit the exercise by the Indenture
Trustee of any right or remedy permitted under this Indenture or otherwise in
the event of the Issuer's failure to pay the Indenture Trustee's fees and
expenses pursuant to Section 6.7. In determining that such repayment or
indemnity is not reasonably assured to it, the Indenture Trustee must consider
not only the likelihood of repayment or indemnity by or on behalf of the Issuer
but also the likelihood of repayment or indemnity from amounts payable to it
from the Collateral pursuant to Section 6.7.
(h) Every provision of this Indenture relating to the conduct of,
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Indenture
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel, which shall not be at
the expense of the Indenture Trustee. The Indenture Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on an
Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of any such
agent or attorney or custodian appointed by the Indenture Trustee with due care.
(d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any willful misconduct or gross negligence on the part of the
Custodian.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be
32
<PAGE>
accountable for the Issuer's use of the proceeds from the Notes, or responsible
for any statement of the Issuer in this Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to the Rating Agencies, the Note Insurer and each
Owner notice of the Default within 90 days after it occurs. Except in the case
of a Default in payment of principal of or interest on any Note (including
payments pursuant to the mandatory redemption provisions of such Note), the
Indenture Trustee may withhold the notice to each Owner if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of Owners.
SECTION 6.6 Reports by Indenture Trustee to Owners. The Indenture
Trustee shall deliver to each Owner such information as may be required to
enable such Owner to prepare its federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Indenture Trustee shall
receive compensation for fees and reimbursement for expenses pursuant to
Sections 3.5(b)(i)(A) and 3.5(b)(iv) of the Sale and Servicing Agreement. The
Indenture Trustee and any director, officer, employee or agent of the Indenture
Trustee shall be indemnified by the Issuer and held harmless against any loss,
liability, or "unanticipated out-of-pocket" expense incurred or paid to third
parties (which expenses shall not include salaries paid to employees, or
allocable overhead, of the Indenture Trustee) in connection with the acceptance
or administration of its trusts hereunder or the Notes, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder. All such amounts described in the
preceding sentence shall be payable as provided in Section 3.5(b)(iv) of the
Sale and Servicing Agreement, subject to Section 6.1(g) of this Indenture. The
provisions of this Section 6.7 shall survive the termination of this Indenture.
SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section. The Indenture Trustee may resign at
any time by so notifying the Issuer, the Rating Agencies and the Note Insurer.
The Note Insurer (or during the continuation of a Note Insurer Default, the
Owners of a majority of the Outstanding Amount of the Notes) may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. The Note Insurer (or the Issuer upon the prior
written consent of the Note Insurer) may remove the Indenture Trustee if:
(a) the Indenture Trustee fails to comply with Section 6.11;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed, or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Note
Insurer may, or if the Note Insurer fails to do so, the Issuer, shall promptly
appoint a successor Indenture Trustee acceptable to the Note Insurer. A
successor Indenture Trustee shall deliver a
33
<PAGE>
written acceptance of its appointment to the retiring Indenture Trustee, the
Note Insurer and to the Issuer. Thereupon the resignation or removal of the
retiring Indenture Trustee shall become effective, and the successor Indenture
Trustee shall have all the rights, powers and duties of the Indenture Trustee
under this Indenture. The successor Indenture Trustee shall mail a notice of its
succession to the Owners. The retiring Indenture Trustee shall promptly transfer
all property held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Owners of a majority of the Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee acceptable to the Note Insurer.
If the Indenture Trustee fails to comply with Section 6.11, the Note
Insurer (or during the continuation of a Note Insurer Default, any Owner) may
petition any court of competent jurisdiction for the removal of the Indenture
Trustee and the appointment of a successor Indenture Trustee acceptable to the
Note Insurer.
Notwithstanding anything to the contrary herein, no resignation or
removal of the Indenture Trustee shall be effective until a replacement
Indenture Trustee acceptable to the Note Insurer has accepted its appointment as
replacement Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.7 shall continue for the
benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Note
Insurer and the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force provided in the Notes or in this Indenture.
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Indenture
Trustee shall have the power, with the prior written consent of the Note
Insurer, and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person or
Persons,
34
<PAGE>
in such capacity and for the benefit of the Owners, such title to the
Collateral, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Indenture
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 6.11 and no notice to Owners of the appointment of any
co-trustee or separate trustee shall be required under Section 6.8 hereof;
provided that the Indenture Trustee shall deliver notice of any such co-trustee
or separate trustee to the Servicer and the Note Insurer.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be
conferred or imposed upon and exercised or performed
by the Indenture 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 Indenture Trustee joining
in such act), except to the extent that under any law
of any jurisdiction in which any particular act or
acts are to be performed the Indenture 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
Collateral 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 Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee
hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or
co-trustee.
(c) Any notice, request or other writing given to the Indenture 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 Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture 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 Indenture 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 Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall
at all times be acceptable to the Note Insurer and authorized to exercise
corporate trust powers. The Indenture Trustee shall also satisfy the
requirements of TIA Section 310(a) and have a combined capital and surplus of at
least
35
<PAGE>
$50,000,000 as set forth in its most recent published annual report of condition
and it or its parent shall have a long-term debt rating of Baa3 or better by
Moody's and BBB or better by Standard & Poor's. The Indenture Trustee shall
comply with TIA Section 310(b), including the optional provision permitted by
the second sentence of TIA Section 310(b)(9); provided, however, that there
shall be excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities of the Issuer are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met. If
at any time the Indenture Trustee shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect specified in Section 6.8 hereof.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
SECTION 6.13 Tax Administration of the Issuer. The Servicer shall
prepare and file (or cause to be prepared and filed), on behalf of the Owner
Trustee, all tax returns and information reports, tax elections and such annual
or other reports of the Issuer as are necessary for preparation of tax returns
and information reports as provided in Section 5.5 of the Trust Agreement,
including without limitation Form 1099.
SECTION 6.14 Representations and Warranties. The Indenture Trustee
hereby represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a banking corporation in good standing under the laws of New York
with power and authority to own its properties and to conduct its business as
such properties are currently owned and such business is presently conducted;
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly authorized
by the Indenture Trustee by all necessary corporate action;
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the articles of
organization or bylaws of the Indenture Trustee or any agreement or other
instrument to which the Indenture Trustee is a party or by which it is bound;
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court, regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Indenture Trustee or its properties: (A) asserting the
invalidity of this Indenture, (B) seeking to prevent the consummation of any of
the transactions contemplated by this Indenture or (C) seeking any determination
or ruling that might materially and adversely affect the performance by the
Indenture Trustee of its obligations under, or the validity or enforceability
of, this Indenture; and
(v) This Indenture when executed by the Indenture Trustee,
will constitute the legal, valid and binding obligation of the Indenture
Trustee, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and general equitable
principles.
36
<PAGE>
SECTION 6.15 Directions to Indenture Trustee. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Fixed Rate Mortgage Loans and hold the
assets of the Owner Trust Estate in trust for the Owners of the Notes and the
Note Insurer;
(b) to authenticate and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
ARTICLE VII
OWNERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of
Owners. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after each Record Date, a list, in such form
as the Indenture Trustee may reasonably require, of the names and addresses of
the Owners as of such Record Date, (b) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
10 days prior to the time such list is furnished; provided, however, that so
long as the Indenture Trustee is the Note Registrar, no such list shall be
required to be furnished.
SECTION 7.2 Preservation of Information; Communications to Owners.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Owners contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.1
and the names and addresses of Owners received by the Indenture Trustee in its
capacity as Note Registrar. The Indenture Trustee may destroy any list furnished
to it as provided in such Section 7.1 upon receipt of a new list so furnished.
(b) Owners may communicate pursuant to TIA Section 312(b) with other
Owners with respect to their rights under this Indenture or under the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.3 Reports by Issuer. The Issuer shall:
(a) file with the Indenture Trustee and the Note Insurer, within 15
days after the Issuer is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Issuer may be required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
37
<PAGE>
(b) file with the Indenture Trustee and the Note Insurer and the
Commission in accordance with the rules and regulations prescribed from time to
time by the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and regulations;
and
(c) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Owners described in TIA Section 313(c)) such summaries
of any information, documents and reports required to be filed by the Issuer
pursuant to clauses (i) and (ii) of this Section 7.3(a) and by rules and
regulations prescribed from time to time by the Commission.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each January 1, beginning with January 1, 1999, the
Indenture Trustee shall mail to the Note Insurer and to each Owner as required
by TIA Section 313(c) a brief report dated as of such date that complies with
TIA Section 313(a). The Indenture Trustee also shall comply with TIA Section
313(b).
A copy of each report at the time of its mailing to Owners shall be
filed by the Indenture Trustee with the Commission and each securities exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any securities exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money.
(a) General. Except as otherwise expressly provided herein, the
Indenture Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Collateral, the Indenture Trustee may (with the consent of the Note Insurer),
and upon written request of the Note Insurer shall, take such action as may be
appropriate to enforce such payment or performance, including the institution
and prosecution of appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
(b) Claims Under Fixed Rate Note Insurance Policy. The Notes will be
insured by the Fixed Rate Note Insurance Policy pursuant to the terms set forth
therein, notwithstanding any provisions to the contrary contained in this
Indenture or the Sale and Servicing Agreement. All amounts received under the
Fixed Rate Note Insurance Policy shall be used solely for the payment to Owners
of Insured Payments.
SECTION 8.2 Accounts; Distributions.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee for the
benefit of the Owners and the Note Insurer, the Accounts as
38
<PAGE>
provided in the Sale and Servicing Agreement. The Indenture Trustee shall
deposit amounts into the Accounts in accordance with the terms hereof and the
Sale and Servicing Agreement.
(b) On or before the Remittance Date prior to each Payment Date, the
Servicer shall withdraw from the Principal and Interest Account the amounts
specified in Section 3.3(a) of the Sale and Servicing Agreement and will deposit
such amount into the Fixed Rate Note Account. No later than the Business Day
prior to each Payment Date, to the extent funds are available in the Fixed Rate
Note Account, the Indenture Trustee shall either retain funds in the Fixed Rate
Note Account or make the withdrawals from the Fixed Rate Note Account and
deposits into the other Accounts for distribution on such Payment Date as
required pursuant to Section 3.3(b) of the Sale and Servicing Agreement.
(c) On each Payment Date and the Redemption Date, to the extent funds
are available in the Fixed Rate Note Account, the Indenture Trustee shall make
the following distributions from the amounts on deposit in the Fixed Rate Note
Account in the following order of priority (except as otherwise provided in
Section 5.4(b)):
(i) to the Owners of the Notes, the Current Interest for
such Payment Date; provided, that if there are not
sufficient funds in the Fixed Rate Note Account to
pay the entire amount of accrued and unpaid interest
then due on the Notes, the amount in the Fixed Rate
Note Account shall be applied to the payment of such
interest on the Notes pro rata on the basis of the
total such interest due on the Notes; and
(ii) to the Owners of the Notes, the Fixed Rate Principal
Payment Amount for such Payment Date.
(d) The Indenture Trustee shall make claims, in respect of the Fixed
Rate Mortgage Loans under the Fixed Rate Note Insurance Policy pursuant to
Section 3.3 of the Sale and Servicing Agreement and in accordance with the Fixed
Rate Note Insurance Policy. The Indenture Trustee shall deposit any Insured
Payment received from the Note Insurer in respect of the Fixed Rate Notes in the
Policy Payments Account. All amounts received under the Fixed Rate Note
Insurance Policy shall be used solely for the payment to Owners of principal and
interest on the Notes.
SECTION 8.3 General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Accounts shall be invested
in Eligible Investments and reinvested by the Indenture Trustee at the direction
of the Seller in accordance with the provisions of Section 3.6 of the Sale and
Servicing Agreement. The Issuer will not direct the Indenture Trustee to make
any investment of any funds or to sell any investment held in any of the
Accounts unless the security interest Granted and perfected in such Account will
continue to be perfected in such investment or the proceeds of such sale, in
either case without any further action by any Person, and, in connection with
any direction to the Indenture Trustee to make any such investment or sale.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible
39
<PAGE>
Investments issued by the Indenture Trustee, in its commercial capacity as
principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Seller shall have failed to give investment directions
for any funds on deposit in the Accounts to the Indenture Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Indenture
Trustee) on any Business Day or (ii) a Default or Event of Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.2 or (iii) if such
Notes shall been declared due and payable following an Event of Default, amounts
collected or receivable from the Collateral are being applied in accordance with
Section 5.5 as if there had not been such a declaration, then the Indenture
Trustee shall, to the fullest extent practicable, invest and reinvest funds in
the Accounts in one or more Eligible Investments.
SECTION 8.4 Monthly Statements. On each Payment Date (to the extent it
receives the supporting documentation from the Servicer on a timely basis), the
Indenture Trustee shall deliver the report required by Section 3.8 of the Sale
and Servicing Agreement with respect to such Payment Date to the Seller, the
Servicer, the Rating Agencies, and the Note Insurer.
SECTION 8.5 Release of Collateral.
(a) Subject to the payment of its fees and expenses pursuant to Section
6.7, the Indenture Trustee may, and when required by the provisions of this
Indenture and the Sale and Servicing Agreement shall, execute instruments to
release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Note Insurer, the Indenture Trustee and the
Owner Trustee in respect of the Notes have been paid, release any remaining
portion of the Collateral that secured the Notes from the lien of this Indenture
and release to the Issuer or any other Person entitled thereto any funds then on
deposit in the Accounts.
(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to Subsection (b) above only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA) Independent Certificates in accordance with TIA Sections
314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.6 Opinion of Counsel. The Indenture Trustee and the Note
Insurer shall receive at least seven Business Days notice when requested by the
Issuer to take any action pursuant to Section 8.5(a), accompanied by copies of
any instruments involved, and the Indenture Trustee shall also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with
and such action will not materially and adversely impair the security for the
Notes or the rights of the Owners in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Collateral. Counsel rendering
any such opinion may rely,
40
<PAGE>
without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Indenture Trustee in connection
with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Owners.
(a) Without the consent of the Owners of any Notes but with prior
notice to the Rating Agencies and with the prior written consent of the Note
Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or
better to assure, convey and confirm unto the
Indenture Trustee any property subject or required to
be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to
the Issuer, and the assumption by any such successor
of the covenants of the Issuer herein and in the
Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Owners of the Notes, or to surrender
any right or power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture
that may be inconsistent with any other provision
herein or in any supplemental indenture or to make
any other provisions with respect to matters or
questions arising under this Indenture or in any
supplemental indenture; provided, that such action
shall not adversely affect the interests of the
Owners of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with
respect to the Notes and to add to or change any of
the provisions of this Indenture as shall be
necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to
effect the qualification of the Indenture under the
TIA or under any similar federal statute hereafter
enacted and to add to the Indenture such other
provisions as may be expressly required by the TIA;
or
41
<PAGE>
(viii) to modify or alter the provisions of the definition
of the term "Outstanding".
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, with the prior written
consent of the Note Insurer, when authorized by an Issuer Order, may, upon
satisfaction of the Rating Agency Condition but without the consent of any of
the Owners , enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Owners of the Notes under this Indenture; provided, however, that
such action shall not, as evidenced by (i) an Opinion of Counsel or (ii)
satisfaction of the Rating Agency Condition, adversely affect in any material
respect the interests of any Owner.
SECTION 9.2 Supplemental Indentures with Consent of Owners. The Issuer
and the Indenture Trustee, when authorized by an Issuer Order, also may, with
the prior consent of the Note Insurer and with the consent of the Owners of not
less than a majority of the Outstanding Amount of the Notes, by Act of such
Owners delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Owners of the
Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Owner of each Note affected thereby
and the Note Insurer if affected thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof or, the Fixed Rate
Note Rate, change the provisions of this Indenture relating to the application
of collections on, or the proceeds of the sale of, the Collateral to payment of
principal of or interest on the Notes, or change any place of payment where, or
the coin or currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of the provisions of this
Indenture requiring the application of funds available therefor, as provided in
Article V, to the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or after the
Redemption Date);
(b) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Owners of which is required for any such supplemental indenture,
or the consent of the Owners of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(c) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Collateral pursuant to Section 5.4;
(d) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Operative Documents cannot be modified or waived without
the consent of the Owner of each Note affected thereby;
(e) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment of interest or principal due
on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to affect the rights of the Owners
of Notes to the benefit of any provisions for the mandatory redemption of the
Notes contained herein; or
42
<PAGE>
(f) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Owner of any
Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Owners of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
In connection with requesting the consent of the Owners pursuant to
this Section, the Indenture Trustee shall mail to the Owners of the Notes to
which such amendment or supplemental indenture relates a notice setting forth in
general terms the substance of such supplemental indenture. It shall not be
necessary for any Act of Owners under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be deemed to be modified and amended in accordance therewith with respect to the
Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Issuer and the Owners of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Notes.
43
<PAGE>
SECTION 9.7 Amendments to Trust Agreement. Subject to Section 11.1 of
the Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to
any proposed amendment to the Trust Agreement or an amendment to or waiver of
any provision of any other document relating to the Trust Agreement, such
consent to be given without the necessity of obtaining the consent of the Owners
of any Notes upon satisfaction of the requirements under Section 11.1 of the
Trust Agreement.
Nothing in this Section shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
SECTION 9.8 Notice of Supplemental Indentures. The Indenture Trustee
shall, upon execution thereof, provide notice of the form and substance of any
Supplemental Indenture to each party hereto, the Note Insurer, the Rating
Agencies and each Owner.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption. The Servicer has the option to purchase all of
the Collateral at the Redemption Price on the Redemption Date or any Payment
Date thereafter pursuant to Section 5.2 of the Sale and Servicing Agreement. If
the Servicer declines to exercise such option to purchase the Collateral, the
Note Insurer may do so as provided in Section 5.2(c) of the Sale and Servicing
Agreement. Upon such purchase by either the Servicer or the Note Insurer, the
Issuer shall use the proceeds it receives to redeem the Notes, in whole and not
in part, and terminate this Indenture.
Any such redemption by the Servicer or the Note Insurer, as applicable,
shall be accomplished by the Servicer or the Note Insurer, as applicable,
depositing or causing to be deposited into the Principal and Interest Account by
10:00 A.M. New York City time on the Remittance Date prior to the Redemption
Date (or such later Payment Date on which the Collateral is purchased) the
amount of the Redemption Price. On the Payment Date after the date that the
Redemption Price is deposited into the Principal and Interest Account, the
Redemption Price shall be transferred to the Fixed Rate Note Account for
distribution to the Owners on the Redemption Date; and any amounts received with
respect to the Fixed Rate Mortgage Loans and REO Properties subsequent to such
transfer shall belong to the Servicer or the Note Insurer, as applicable.
The Servicer or the Issuer shall furnish the Indenture Trustee, the
Rating Agencies and the Note Insurer notice of any such redemption in accordance
with Section 10.2 no later than 15 days prior to the Redemption Date.
SECTION 10.2 Form of Redemption Notice.
(a) Notice of redemption under Section 10.1 shall be given by the
Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed
or transmitted not later than 10 days prior to the applicable Redemption Date to
each Owner of Notes, as of the close of business on the Record Date
44
<PAGE>
preceding the applicable Redemption Date, at such Owner's address or facsimile
number appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as
provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give notice of redemption, or any defect therein, to any Owner of any Note shall
not impair or affect the validity of the redemption of any other Note
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of
Indenture Trustee, Owner Trustee and Note Insurer. The Notes or portions thereof
to be redeemed shall, following notice of redemption as required by Section 10.2
(in the case of redemption pursuant to Section 10.1), on the Redemption Date
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on the
Redemption Price for any period after the date to which accrued interest is
calculated for purposes of calculating the Redemption Price. The Issuer may not
redeem the Notes unless, (i) all outstanding obligations under the Notes have
been paid in full and (ii) the Indenture Trustee and the Owner Trustee have been
paid all amounts in respect of the Notes to which they are entitled hereunder
and the Note Insurer has been paid all Premium Amounts and Reimbursement Amounts
to which it is entitled in respect of the Notes as of the applicable Redemption
Date.
SECTION 10.4 Notice of Final Payment. The Indenture Trustee shall
provide notice to the Note Insurer, the Seller, the Servicer, the Rating
Agencies and each Owner of the final payment under the Notes, whether by
redemption, acceleration or payment of the Notes in accordance with their terms.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc.
Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and (ii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
45
<PAGE>
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; and
(3) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Seller or the Issuer, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Seller or the Issuer, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by Owners
may be embodied in and evidenced by one or
46
<PAGE>
more instruments of substantially similar tenor signed by such Owners in person
or by agents duly appointed in writing; and except as herein otherwise expressly
provided such action shall become effective when such instrument or instruments
are delivered in writing to the Indenture Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the 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 Indenture and (subject to Section 6.1)
conclusive in favor of the Indenture Trustee and the Issuer, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Notes shall bind the Owner of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies and Note Insurer. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Owners or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Owners is to be made
upon, given or furnished to or filed with:
(a) the Indenture Trustee by any Owner or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Indenture Trustee at its Corporate Trust Office, or
(b) in the case of the Issuer, Rating Agencies or Note Insurer as
provided in Section 6.16 of the Sale and Servicing Agreement.
SECTION 11.5 Notices to Owners; Waiver. Where this Indenture provides
for notice to Owners of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Owner affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Owners is given by mail, neither the failure to mail
such notice nor any defect in any notice so mailed to any particular Owner shall
affect the sufficiency of such notice with respect to other Owners, and any
notice that is mailed in the manner herein provided shall conclusively be
presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Owners shall be filed with the Indenture Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Owners when such notice is required
47
<PAGE>
to be given pursuant to any provision of this Indenture, then any manner of
giving such notice as shall be satisfactory to the Indenture Trustee shall be
deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.7 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.8 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
SECTION 11.9 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.10 Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Owners, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Collateral, any benefit or any legal or equitable right, remedy or claim
under this Indenture, except that the Note Insurer is an express third party
beneficiary to this Indenture as provided in Section 11.19.
SECTION 11.11 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.12 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
48
<PAGE>
SECTION 11.14 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Owners or any other Person secured
hereunder or for the enforcement of any right or remedy granted to the Indenture
Trustee under this Indenture.
SECTION 11.15 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any Owner of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
SECTION 11.16 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Owner, by accepting a Note, hereby covenant and agree that
they will not at any time institute against the Issuer, or join in any
institution against the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Notes, this Indenture or any of the Operative
Documents.
SECTION 11.17 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or the Note
Insurer, during the Issuer's normal business hours, to examine all the books of
account, records, reports and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information except to the extent disclosure may be
required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
SECTION 11.18 Grant of Owner Rights to Note Insurer. In consideration
for the guarantee of the Notes by the Note Insurer pursuant to the Fixed Rate
Note Insurance Policy, the Owners hereby grant to the Note Insurer the right to
act as the Owner of 100% of the outstanding Notes for the purpose of exercising
the rights of the Owners of the Notes hereunder, including the voting rights of
such Owners, but excluding those rights requiring the consent of all such Owners
under Section 9.2 and any rights of such Owners to distributions under Section
8.2 hereof; provided that the preceding grant of rights to the Note Insurer by
the Owners shall be subject to Section 11.20 hereof. The rights of the Note
Insurer to direct certain actions and
49
<PAGE>
consent to certain actions of the Owners hereunder will terminate at such time
as the Fixed Rate Note Principal Balance has been reduced to zero and the Note
Insurer has been reimbursed for all Insured Payments and any other amounts
respecting the Notes owed under the Fixed Rate Note Insurance Policy and the
Insurance Agreement and the Note Insurer has no further obligation under the
Fixed Rate Note Insurance Policy.
SECTION 11.19 Third Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce any rights reserved to it hereunder as if it were actually a party
hereto.
SECTION 11.20 Suspension and Termination of Note Insurer's Rights.
(a) During the continuation of a Note Insurer Default, rights granted
or reserved to the Note Insurer hereunder shall vest instead in the Owners;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Reimbursement Amount, and the Note Insurer shall retain
those rights under Section 9.2 hereof to consent to any supplement to this
Indenture.
(b) At such time as either (i) the Fixed Rate Note Principal Balance
has been reduced to zero or (ii) the Fixed Rate Note Insurance Policy has been
terminated following a Note Insurer Default, and in either case of (i) or (ii)
the Note Insurer has been reimbursed for all Insured Payments and any other
amounts respecting the Notes owed under the Fixed Rate Note Insurance Policy and
the Insurance Agreement (and the Note Insurer no longer has any obligation under
the Fixed Rate Note Insurance Policy, except for breach thereof by the Note
Insurer), then the rights and benefits granted or reserved to the Note Insurer
hereunder (including the rights to direct certain actions and receive certain
notices) shall terminate and the Owners shall be entitled to the exercise of
such rights and to receive such benefits of the Note Insurer following such
termination to the extent that such rights and benefits are applicable to the
Owners.
SECTION 11.21 Certain Matters Regarding the Note Insurer. The
provisions of Article VII of the Sale and Servicing Agreement, the extent
applicable to this Indenture, are hereby incorporated by reference herein and
each Owner by acceptance of its Notes agrees to the provisions contained in
Article VII of the Sale and Servicing Agreement.
50
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
By: /s/ Debra Eberly
------------------------------
Name: Debra Eberly
Title: Administrative Account Manager
THE CHASE MANHATTAN BANK,
as Indenture Trustee
By: /s/ Diane E. Wallace
--------------------
Name Diane E. Wallace
Title: Trust Officer
51
<PAGE>
STATE OF Delaware )
) ss
COUNTY OF New Castle )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Debra Eberly, known to me to
be the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said WILMINGTON TRUST
COMPANY, not in its individual capacity, but solely as Owner Trustee on behalf
of FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust, and
that such person executed the same as the act of said business trust for the
purpose and consideration therein expressed, and in the capacities therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of June, 1998.
/s/ Kathleen A. Pedelini
------------------------
Notary Public
in and for the State of Delaware
(Seal)
My commission expires: October 31, 1998
<PAGE>
STATE OF New York )
) ss
COUNTY OF New York )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Diane E. Wallace, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of THE CHASE
MANHATTAN BANK, a New York banking corporation and that such person executed the
same as the act of said corporation for the purpose and consideration therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of June, 1998.
/s/ Margaret M. Price
---------------------
Notary Public
in and for the State of New York
(Seal)
My commission expires: April 22, 1999
<PAGE>
SCHEDULE A
Available Upon Request to the Indenture Trustee
<PAGE>
EXHIBIT A
Form of Note
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS
NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE
HEREOF.
<TABLE>
<S> <C>
Date of Indenture: As of June 1, 1998 Original Note Principal Balance: $__________
First Payment Date: July 20, 1998 CUSIP No. ___________
Denomination: $______________________ Note No: ___________
</TABLE>
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
FIXED RATE MORTGAGE LOAN ASSET-BACKED NOTES, SERIES 1998-2F
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of _____________ ($___________) payable on
each Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $____________ and the denominator of which is
$________________ by (ii) the aggregate amount, if any, payable under this Note
pursuant to the Indenture dated as of June 1, 1998, between the Issuer and The
Chase Manhattan Bank, a New York banking corporation as Indenture Trustee (the
"Indenture Trustee") relating to the Issuer's Fixed Rate Mortgage Loan, Asset
Backed Notes, Series 1998-2F; provided, however, that the entire unpaid
principal amount of this Note shall be due and payable on the earlier of (i) the
Payment Date occurring in __________ (the "Final Payment Date"), (ii) the
Redemption Date, if any, pursuant to Article X of the Indenture or (iii) the
date on which an Event of Default
<PAGE>
shall have occurred and be continuing, if the Note Insurer or in the event of a
Note Insurer Default, the Indenture Trustee or the Owners of Notes representing
not less than a majority of the Outstanding Amount of the Notes have declared
the Notes to be immediately due and payable in the manner provided in Section
5.2 of the Indenture. Capitalized terms used but not defined herein are defined
in Article I of the Indenture.
Pursuant to the terms of the Indenture, payments will be made on the
20th day of each month or, if such day is not a Business Day, on the Business
Day immediately following such 20th day (the "Payment Date"), commencing on the
first Payment Date specified above, to the Person in whose name this Note is
registered at the close of business on the applicable Record Date, in an amount
equal to the product of (a) the Percentage Interest evidenced by this Note and
(b) the sum of the Current Interest, Fixed Rate Principal Payment Amount and any
Insured Payment with respect to such Payment Date, all as more specifically set
forth in the Indenture and the Sale and Servicing Agreement.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
[Signatures follow]
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date: ____________________
FIRST ALLIANCE MORTGAGE LOAN
TRUST 1998-2
By: WILMINGTON TRUST COMPANY
not in its individual capacity
but solely as Owner Trustee
under the Trust Agreement
By: __________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: ____________________
THE CHASE MANHATTAN BANK,
as Indenture Trustee
By: _______________________
Authorized Signatory
<PAGE>
[Reverse of Note]
This Note is one of a Series of a duly authorized issue of Notes of the
Issuer, designated as its Fixed Rate Mortgage Loan Asset-Backed Notes, Series
1998-2F (herein called the "Notes"), issued under the Indenture, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the Owners of the Notes. To the extent that any provision
of this Note contradicts or is inconsistent with the provisions of the
Indenture, the provisions of the Indenture shall control and supersede such
contradictory or inconsistent provision herein. The Notes are subject to all
terms of the Indenture.
The Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Payment Date and the
Redemption Date, if any, pursuant to Article X of the Indenture. Notwithstanding
the foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee, upon the prior written direction of
Financial Security Assurance Inc. (the "Note Insurer") or, upon the occurrence
of a Note Insurer Default, the Owners of the Notes representing not less than a
majority of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
Owners entitled thereto on the basis of their Fixed Rate Note Principal Balance.
The Note Insurer has issued a Fixed Rate Note Insurance Policy in the
name of the Indenture Trustee for the benefit of the Owners. Unless a Note
Insurer Default shall be continuing, subject to Section 11.18 of the Indenture,
the Note Insurer shall be deemed to be the Owner of 100% of the Fixed Rate Note
Principal Balance of the Outstanding Notes for the purpose of exercising the
rights, including voting rights, of the Owners under the Indenture. In addition,
on each Payment Date, after the Owners have been paid all amounts to which they
are entitled, the Note Insurer will be entitled to be reimbursed for any
unreimbursed Insured Payments and any other amounts owed under the Fixed Rate
Note Insurance Policy.
Payments of interest on this Note are due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Owner of the Note (or one or more Predecessor Notes) on the
Note Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payments will be
made by wire transfer in
<PAGE>
immediately available funds to the account designated by such nominee. Such
checks shall be mailed to the Person entitled thereto at the address of such
Person as it appears on the Note Register as of the applicable Record Date
without requiring that this Note be submitted for notation of payment. Any
reduction in the principal amount of this Note (or any one or more Predecessor
Notes) effected by any payments made on any Payment Date shall be binding upon
all future Owners of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Note on a
Payment Date, then the Indenture Trustee, in the name of and on behalf of the
Issuer, will notify the Person who was the Owner hereof as of the Record Date
preceding such Payment Date by notice mailed or transmitted by facsimile prior
to such Payment Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the Indenture Trustee's
principal Corporate Trust Office or at the office of the Indenture Trustee's
agent appointed for such purposes located in The City of New York.
As provided in the Indenture, the Notes may be redeemed in whole, but
not in part, at the option of the Servicer on any Payment Date on and after the
Redemption Date pursuant to Article X of the Indenture and Section 5.2 of the
Sale and Servicing Agreement. If the Servicer declines to exercise such option,
the Note Insurer may do so as provided in Article X of the Indenture and Section
5.2 of the Sale and Servicing Agreement.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by the Owner hereof or such Owner's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one more new Notes of authorized denominations and in the
same aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be charged for any registration of transfer
or exchange of this Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any such registration of transfer or exchange.
Each Owner, by acceptance of a Note or, in the case of a Book-Entry
Owner, a beneficial interest in a Note, covenants and agrees that no recourse
may be taken, directly or indirectly, with respect to the obligations of the
Issuer, the Seller, the Servicer, the Owner Trustee or the Indenture Trustee on
the Notes or under the Indenture or any certificate or other writing delivered
in connection therewith, against (i) the Indenture Trustee or the Owner Trustee
in its individual capacity, (ii) any owner of a beneficial interest in the
Issuer or (iii) any partner, owner, beneficiary,
<PAGE>
agent, officer, director or employee of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such person may have expressly agreed and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
Each Owner or Book-Entry Owner, by acceptance of a Note or, in the case
of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Owner or Book-Entry Owner will
not at any time institute against the Seller, the Servicer, or the Issuer, or
join in any institution against the Seller, the Servicer, or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or similar law in connection
with any obligations relating to the Notes, the Indenture or any of the
Operative Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Owner, by acceptance of a Note (and each
Book-Entry Owner by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Owners of the Notes under the Indenture at any time
by the Issuer with the consent of the Note Insurer and the Owner of Notes
representing a majority of the Outstanding Amount of Notes. The Indenture also
contains provisions permitting the Owners of Notes representing the majority of
the Outstanding Amount of the Notes on behalf of the Owners of all the Notes to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Owner of this Note (or any one or more Predecessor
Notes) shall be conclusive and binding upon such Owners and upon all future
Owners of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
amendment thereof, in certain limited circumstances, or the waiver of certain
terms and conditions set forth in the Indenture, without the consent of Owners
of the Notes issued thereunder.
<PAGE>
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Operative Documents, none of the Issuer in its individual
capacity, the Owner Trustee in its individual capacity, any owner of a
beneficial interest in the Issuer, or any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on this Note or performance of, or
omission to perform, any of the covenants, obligations or indemnifications
contained in the Indenture. The Owner of this Note by its acceptance hereof
agrees that, except as expressly provided in the Operative Documents, in the
case of an Event of Default under the Indenture, the Owner shall have no claim
against any of the foregoing for any deficiency, loss or claim therefrom;
provided, however, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.
<PAGE>
ASSIGNMENT
Social Security or Taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
- - --------------------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _______________________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: __________________*/
Signature Guaranteed:
________________________*/
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
Exhibit 4.3
TRUST AGREEMENT
between
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller
and
WILMINGTON TRUST COMPANY
as Owner Trustee
Dated as of June 1, 1998
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE...............................................................1
SECTION 1.1 Capitalized Terms.............................................................1
SECTION 1.2 Other Definitional Provisions.................................................4
ARTICLE II
ORGANIZATION.............................................................................................5
SECTION 2.1 Name..........................................................................5
SECTION 2.2 Office........................................................................5
SECTION 2.3 Purpose and Powers............................................................5
SECTION 2.4 Appointment of Owner Trustee..................................................6
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate........................6
SECTION 2.6 Declaration of Trust..........................................................6
SECTION 2.7 Liability of the Holders......................................................6
SECTION 2.8 Title to Trust Property.......................................................6
SECTION 2.9 Situs of Trust................................................................7
SECTION 2.10 Representations and Warranties of the Seller..................................7
SECTION 2.11 Federal Income Tax Allocations................................................8
ARTICLE III
THE CERTIFICATES.........................................................................................9
SECTION 3.1 Initial Certificate Ownership.................................................9
SECTION 3.2 Form of the Certificates......................................................9
SECTION 3.3 Execution, Authentication and Delivery........................................9
SECTION 3.4 Registration; Registration of Transfer and Exchange of Certificates..........10
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates............................10
SECTION 3.6 Persons Deemed Certificateholders............................................11
SECTION 3.7 Access to List of Holders' Names and Addresses...............................11
SECTION 3.8 Maintenance of Office For Surrenders.........................................12
SECTION 3.9 Appointment of Trust Paying Agent............................................12
SECTION 3.10 Restriction on Transfers of Certificate......................................12
ARTICLE IV
ACTIONS BY OWNER TRUSTEE................................................................................16
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters.......................16
SECTION 4.2 Action by Holders with Respect to Certain Matters............................18
SECTION 4.3 Action by Holders with Respect to Bankruptcy.................................18
SECTION 4.4 Restrictions on Holders' Power...............................................18
SECTION 4.5 Majority Control.............................................................18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES.......................................................19
SECTION 5.1 Establishment of Certificate Distribution Account............................19
SECTION 5.2 Application of Trust Funds...................................................19
SECTION 5.3 Method of Payment............................................................20
SECTION 5.4 Segregation of Moneys; No Interest...........................................20
SECTION 5.5 Accounting and Reports to the Certificateholders, the Internal
Revenue Service and Others...................................................20
SECTION 5.6 Signature on Returns; Tax Matters Partner....................................20
ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE...............................................................22
SECTION 6.1 General Authority............................................................22
SECTION 6.2 General Duties...............................................................22
SECTION 6.3 Action upon Instruction by Owners............................................22
SECTION 6.4 No Duties Except as Specified in this Agreement, the Operative
Documents or in Instructions.................................................23
SECTION 6.5 No Action Except Under Specified Documents or Instructions...................24
SECTION 6.6 Restrictions.................................................................24
ARTICLE VII
CONCERNING THE OWNER TRUSTEE............................................................................25
SECTION 7.1 Acceptance of Trusts and Duties..............................................25
SECTION 7.2 Furnishing of Documents......................................................26
SECTION 7.3 Representations and Warranties of Owner Trustee..............................27
SECTION 7.4 Reliance; Advice of Counsel..................................................27
SECTION 7.5 Owner Trustee May Own Certificates and Notes.................................28
SECTION 7.6 Licenses.....................................................................28
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE...........................................................................29
SECTION 8.1 Owner Trustee's Fee and Expenses.............................................29
SECTION 8.2 Indemnification..............................................................29
SECTION 8.3 Payments to the Owner Trustee................................................30
ARTICLE IX
TERMINATION OF TRUST AGREEMENT..........................................................................31
SECTION 9.1 Termination of Trust Agreement...............................................31
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES..................................................32
SECTION 10.1 Eligibility Requirements for Owner Trustee...................................32
SECTION 10.2 Resignation or Removal of Owner Trustee......................................32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 10.3 Successor Owner Trustee......................................................33
SECTION 10.4 Merger or Consolidation of Owner Trustee.....................................33
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee................................33
ARTICLE XI
MISCELLANEOUS...........................................................................................35
SECTION 11.1 Amendments Without Consent of Certificateholders or Owners
of the Notes.................................................................35
SECTION 11.2 Amendments With Consent of Certificateholders................................35
SECTION 11.3 Form of Amendments...........................................................35
SECTION 11.4 No Legal Title to Owner Trust Estate.........................................36
SECTION 11.5 Limitations on Rights of Others..............................................36
SECTION 11.6 Notices......................................................................36
SECTION 11.7 Severability.................................................................37
SECTION 11.8 Counterparts.................................................................37
SECTION 11.9 Successors and Assigns.......................................................37
SECTION 11.10 No Petition Covenant.........................................................37
SECTION 11.11 No Recourse..................................................................37
SECTION 11.12 Headings.....................................................................37
SECTION 11.13 Governing Law................................................................38
SECTION 11.14 Integration..................................................................38
SECTION 11.15 Third-Party Beneficiary......................................................38
SECTION 11.16 Suspension and Termination of Note Insurer's Rights..........................38
</TABLE>
iii
<PAGE>
TRUST AGREEMENT, dated as of June 1, 1998, between FIRST ALLIANCE
MORTGAGE COMPANY, a California corporation (the "Seller") and WILMINGTON TRUST
COMPANY, a Delaware corporation, not in its individual capacity but solely as
Owner Trustee (the "Owner Trustee").
The Seller and the Owner Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Adjustable Rate Indenture" shall mean the Indenture, dated as
of June 1, 1998, between the Issuer and the Indenture Trustee relating to the
First Alliance Mortgage Loan Trust 1998-2 Adjustable Rate Mortgage Loan Asset
Backed Notes, Series 1998-2A.
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Bankruptcy Action" shall have the meaning assigned to such
term in Section 4.1 hereof.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
the Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be amended
from time to time.
"Certificate" shall mean a certificate evidencing the
beneficial interest of a Certificateholder in the Trust, substantially in the
form attached hereto as Exhibit B.
"Certificate Distribution Account" shall have the meaning
assigned to such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit A to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register mentioned and the registrar appointed pursuant to Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose
name a Certificate is registered.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and Treasury Regulations promulgated thereunder.
<PAGE>
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
Rodney Square North, 1100 N. Market Street, Wilmington, Delaware 19890-0001; or
at such other address in the State of Delaware as the Owner Trustee may
designate by notice to the Owners and the Seller, or the principal corporate
trust office of any successor Owner Trustee (the address (which shall be in the
State of Delaware) of which the successor owner trustee will notify the Owners,
the Holders and the Seller).
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Fixed Rate Indenture" shall mean the Indenture, dated as of
June 1, 1998, between the Issuer and the Indenture Trustee relating to the First
Alliance Mortgage Loan Trust 1998-2 Fixed Rate Mortgage Loan Asset Backed Notes,
Series 1998-2F.
"Indemnification Agreement" shall mean the Indemnification
Agreement dated as of June 10, 1998 among the Note Insurer, the Seller, the
Issuer and Wheat First Securities, Inc., doing business as First Union Capital
Markets, a division of Wheat First Securities, Inc.
"Indentures" shall mean the Adjustable Rate Indenture and the
Fixed Rate Indenture.
"Indenture Trustee" means The Chase Manhattan Bank, as
Indenture Trustee under the Indentures.
"Insurance Agreement" shall mean the Insurance and Indemnity
Agreement, dated as of June 1, 1998, among the Seller, the Servicer, the Issuer,
the Indenture Trustee and the Note Insurer.
"Issuer" shall mean First Alliance Mortgage Loan Trust 1998-2,
the Delaware business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set
forth in Section 3.10.
"Non-U.S. Person" shall mean an individual, corporation,
partnership or other person other than a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income.
"Note Insurer" shall mean Financial Security Assurance Inc.
and its successors and assigns.
"Operative Documents" shall mean this Agreement, the Notes,
the Certificates, the Custodial Agreement, the Indentures, the Insurance
Agreement, the Indemnification Agreement, the Sale and Servicing Agreement and
the other documents and certificates delivered in connection therewith.
"Owner" shall mean each holder of a Note.
2
<PAGE>
"Owner Trust Estate" shall mean the Trust Estate (as defined
in the Indenture), including the contribution of $1 referred to in Section 2.5
hereof.
"Owner Trustee" shall mean Wilmington Trust Company, a
Delaware corporation, not in its individual capacity but solely as owner trustee
under this Agreement, and any successor owner trustee hereunder.
"Owner Trustee Fee": The fees payable to the Owner Trustee for
its services as owner trustee of the Trust, as provided in the fee agreement
between the Owner Trustee and the Seller.
"Percentage Interest" shall mean with respect to each
Certificate, the percentage portion of all of the Certificates evidenced thereby
as stated on the face of such Certificate.
"Prospective Holder" shall have the meaning set forth in
Section 3.10(a).
"Rating Agency Condition" means, with respect to any action to
which a Rating Agency Condition applies, that each Rating Agency shall have been
given 10 days (or such shorter period as is acceptable to each Rating Agency)
prior notice thereof and that each of the Rating Agencies shall have notified
the Seller, the Servicer, the Note Insurer, the Owner Trustee and the Issuer in
writing that such action will not result in a reduction or withdrawal of the
then current rating of the related Series of Notes, without taking into account
the Note Insurance Policy relating to such Series of Notes.
"Record Date" shall mean as to each Payment Date the last day
of the calendar month immediately preceding the calendar month in which such
Payment Date occurs, whether or not such day is a Business Day.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement dated as of the date hereof, among the Issuer, the Seller,
the Servicer and the Indenture Trustee.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Seller" shall mean First Alliance Mortgage Company, a
California corporation.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Paying Agent" shall mean The Chase Manhattan Bank or
any successor in interest thereto or any other paying agent or co-paying agent
appointed pursuant to Section 3.9 and
3
<PAGE>
authorized by the Issuer to make payments to and distributions from the
Certificate Distribution Account, including payment of principal of or interest
on the Certificates on behalf of the Issuer.
SECTION 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Sale and Servicing Agreement
or, if not defined therein, in the Indentures.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
4
<PAGE>
ARTICLE II
ORGANIZATION
SECTION 2.1 Name. The Trust created hereby shall be known as "First
Alliance Mortgage Loan Trust 1998-2", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued on behalf of the Trust.
SECTION 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders,
the Note Insurer, the Owners and the Seller.
SECTION 2.3 Purpose and Powers. The purpose of the Trust is to engage
in the following activities:
(i) to issue the Notes pursuant to the Indentures and the
Certificates pursuant to this Agreement and to sell the Notes and
Certificates;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to pay the organizational, start-up and transactional
expenses of the Trust and to pay the balance to the Seller pursuant to
the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Owner Trust Estate pursuant to the terms of the Indentures and to
hold, manage and distribute to the Certificateholders pursuant to the
terms of the Sale and Servicing Agreement any portion of the Owner
Trust Estate released from the lien of, and remitted to the Trust
pursuant to, the Indentures;
(iv) to enter into and perform its obligations under the
Operative Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Operative Documents, to
engage in such other activities as may be required in connection with
conservation of the assets of the Trust and the making of distributions
to the Certificateholders and the Owners of the Notes.
The Trust is hereby authorized to engage in the foregoing activities
and shall not engage in any activity other than in connection with the foregoing
or other than as required or authorized by the terms of this Agreement or the
Operative Documents.
5
<PAGE>
SECTION 2.4 Appointment of Owner Trustee. The Seller hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein. The Owner Trustee
hereby accepts its appointment subject to the terms and conditions hereof.
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate. The
Seller hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Seller, as of the date hereof, of the
foregoing contribution which shall constitute the initial Owner Trust Estate and
shall be deposited in the Certificate Distribution Account. The Seller shall pay
the organizational expenses of the Trust as they may arise or shall, upon the
request of the Owner Trustee, promptly reimburse the Owner Trustee for any such
expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Operative Documents. It is the
intention of the parties hereto that the Trust shall constitute a business trust
under the Business Trust Statute and that this Agreement shall constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for federal and state income and state and local franchise tax
purposes, the Trust shall not be treated as (i) an association subject
separately to taxation as a corporation, (ii) a "publicly traded partnership" as
defined in Treasury Regulation Section 1.7704-1 or (iii) a "taxable mortgage
pool" as defined in Section 7701(i) of the Code, and that each Series of Notes
shall be debt, and the provisions of this Trust Agreement shall be interpreted
to further this intention. Except as otherwise provided in this Trust Agreement,
the rights of the Certificateholders will be those of equity owners of the
Trust. Effective as of the date hereof, the Owner Trustee shall have the rights,
powers and duties set forth herein and in the Business Trust Statute with
respect to accomplishing the purposes of the Trust. The Owner Trustee shall file
the Certificate of Trust pursuant to the Business Trust Statute with the
Secretary of State.
SECTION 2.7 Liability of the Holders. No Certificateholder shall have
any personal liability for any liability or obligation of the Trust. The
Certificates shall be fully paid and nonassessable.
SECTION 2.8 Title to Trust Property.
(a) Subject to the Indentures, legal title to all of the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. No transfer by operation of law or otherwise of
any interest of the Certificateholders shall operate to terminate this Agreement
or the trusts hereunder or entitle any transferee to an accounting or to the
transfer to it of any part of the Owner Trust Estate.
6
<PAGE>
SECTION 2.9 Situs of Trust. The Trust shall be located and administered
in the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York. The Trust shall not have any employees; provided, however, that
nothing herein shall restrict or prohibit the Owner Trustee from having
employees within or without the State of Delaware. Payments shall be received by
the Trust only in Delaware or New York, and payments will be made by the Trust
only from Delaware or New York. The only office of the Trust shall be the
Corporate Trust Office in Delaware.
SECTION 2.10 Representations and Warranties of the Seller. The Seller
hereby represents and warrants to the Owner Trustee and the Note Insurer that:
(a) The Seller has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
California, with power and authority to own its properties and to
conduct its business as such properties are presently owned and such
business is presently conducted.
(b) The Seller is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business requires such qualifications.
(c) The Seller has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Seller has full
power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trust, and the Seller has duly
authorized such sale and assignment to the Trust by all necessary
corporate action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Seller by all necessary
corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms of this Agreement do not
conflict with, result in any breach of any of the terms and provisions
of or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or by-laws of the Seller, or any
indenture, agreement or other instrument to which the Seller is a party
or by which it is bound; nor result in the creation or imposition of
any lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to the
Operative Documents); nor violate any law or, to the best of the
Seller's knowledge, any order, rule or regulation applicable to the
Seller of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Seller or any of its properties.
(e) There are no proceedings or investigations pending or
notice of which has been received in writing before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties:
(i) asserting the invalidity of this Agreement, (ii) seeking to prevent
the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or
7
<PAGE>
ruling that might materially and adversely affect the performance by
the Seller of its obligations under, or the validity or enforceability
of, this Agreement.
(f) The representations and warranties of the Seller in
Section 2.1 of the Sale and Servicing Agreement are true and correct.
(g) The Trust is not required to register as an investment
company under the Investment Company Act and is not under the control
of a Person required to so register.
SECTION 2.11 Federal Income Tax Allocations. Net income of the Trust
for any month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the Certificateholders, pro rata.
8
<PAGE>
ARTICLE III
THE CERTIFICATES
SECTION 3.1 Initial Certificate Ownership. Upon the formation of the
Trust by the contribution by the Seller pursuant to Section 2.5 and until the
issuance of the Certificates, the Seller shall be the sole owner of the Trust.
SECTION 3.2 Form of the Certificates.
(a) The Certificates shall be issued without a principal
amount in the form of one or more Certificates each representing not less than a
10% Percentage Interest. The Certificates shall be executed on behalf of the
Trust by manual or facsimile signature of an authorized signatory of the Owner
Trustee. Certificates bearing the manual or facsimile signatures of individuals
who were, at the time when such signatures shall have been affixed, authorized
to sign on behalf of the Trust shall be valid, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates.
(b) The Certificates shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders) all as determined by the authorized signatory
of the Owner Trustee or the Owner Trustee's authenticating agent executing such
Certificates, as evidenced by their execution of such Certificates.
(c) A transferee of a Certificate shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder, upon such transferee's acceptance
of a Certificate duly registered in such transferee's name pursuant to Section
3.4.
SECTION 3.3 Execution, Authentication and Delivery. Concurrently with
the initial sale of the Mortgage Loans by the Seller to the Trust pursuant to
the Sale and Servicing Agreement, the Owner Trustee shall execute, or cause its
authenticating agent to execute the Certificates representing 100% of the
Percentage Interests of the Trust to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Seller, signed
by an Authorized Officer of the Seller, without further corporate action by the
Seller. The Certificates shall be registered in the name of First Alliance
Portfolio Services, Inc. The Trust shall not issue any other Certificate without
the prior written consent of the Note Insurer, provided, however, that such
consent shall not be unreasonably withheld. No Certificate shall entitle its
Holder to any benefit under this Agreement, or shall be valid for any purpose,
unless there shall appear on such Certificate a certificate of authentication
substantially in the form set forth in Exhibit B, executed by the Owner Trustee
or the Certificate Registrar by manual or facsimile signature. Such
authentication shall constitute conclusive evidence that such Certificate shall
have been duly authenticated and delivered hereunder. All Certificates shall be
dated the date of their authentication.
9
<PAGE>
SECTION 3.4 Registration; Registration of Transfer and Exchange of
Certificates.
The Certificate Registrar shall cause to be kept at its office or
agency in New York, New York, or at its designated agent, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, it shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Upon any resignation of a Certificate
Registrar, the Owner Trustee shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of the Certificate Registrar.
The Chase Manhattan Bank shall be the initial Certificate Registrar.
Subject to Section 3.10, upon surrender for registration of transfer of
any Certificate at the office or agency of the Owner Trustee maintained pursuant
to Section 3.8, the Owner Trustee shall execute, and the Owner Trustee or the
Certificate Registrar shall authenticate and deliver in the name of the
designated transferee or transferees, a new Certificate or Certificates of the
same Percentage Interest and dated the date of authentication by the Owner
Trustee or the Certificate Registrar. The Certificate Registrar shall thereupon
provide the Rating Agencies with notice of such Certificate transfer.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of a like aggregate Percentage Interest, upon surrender of
the Certificates to be exchanged at such office. Whenever any Certificates are
so surrendered for exchange, the Owner Trustee or the Certificate Registrar
shall execute, authenticate and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be marked "canceled" by the Owner Trustee.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of Certificates for a period of 15 days preceding the due
date for any payment with respect to the Certificates.
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates.
(a) If (i) any mutilated Certificate is surrendered to the
Certificate Registrar, or the Certificate Registrar receives evidence to its
satisfaction of the destruction, loss or theft of any Certificate, and (ii)
there is delivered to the Certificate Registrar, the Owner Trustee and the Trust
such security or indemnity as may be required by them to hold each of them
harmless, then, in the absence of notice to the Certificate Registrar or the
Owner Trustee that such Certificate has been acquired by a bona fide purchaser,
the Owner Trustee shall execute on behalf of the Trust and the Owner Trustee or
the Certificate Registrar shall authenticate and deliver, in exchange for or in
lieu
10
<PAGE>
of any such mutilated, destroyed, lost or stolen Certificate, a replacement
Certificate of a like Percentage Interest; provided, however, that if any such
destroyed, lost or stolen Certificate, but not a mutilated Certificate, shall
have become or within seven days shall be due and payable, then instead of
issuing a replacement Certificate the Owner Trustee may pay such destroyed, lost
or stolen Certificate when so due or payable.
(b) In connection with the issuance of any replacement
Certificate under this Section 3.5, the Owner Trustee or the Certificate
Registrar may require the payment by the Holder of such Certificate of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Owner Trustee and the Certificate Registrar) connected
therewith.
(c) Any duplicate Certificate issued pursuant to this Section
3.5 in replacement of any mutilated, destroyed, lost or stolen Certificate shall
constitute an original additional contractual obligation of the Trust, whether
or not the mutilated, destroyed, lost or stolen Certificate shall be found at
any time or be enforced by anyone, and shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Certificates
duly issued hereunder.
(d) The provisions of this Section 3.5 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 3.6 Persons Deemed Certificateholders. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Trust Paying Agent may treat the Person in
whose name any Certificate shall be registered in the Certificate Registrar as
the owner of such Certificate for the purpose of receiving distributions
pursuant to Article V and for all other purposes whatsoever, and neither the
Owner Trustee, nor the Certificate Registrar nor the Trust Paying Agent shall be
affected by any notice to the contrary.
SECTION 3.7 Access to List of Holders' Names and Addresses. The Owner
Trustee shall furnish or cause to be furnished to the Servicer and the Seller,
within 15 days after receipt by the Owner Trustee of a request therefor from the
Servicer or the Seller in writing, a list, in such form as the Servicer or the
Seller may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more
Certificateholders or one or more Holders of Certificates together evidencing a
Percentage Interest totaling not less than 25% apply in writing to the Owner
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Owner Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Certificateholder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Servicer, the
Seller, the Certificate Registrar or the Owner Trustee accountable by reason of
the disclosure of its name and address, regardless of the source from which
information was derived.
11
<PAGE>
SECTION 3.8 Maintenance of Office For Surrenders. The Owner Trustee
shall maintain an office or offices or agency or agencies where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certificates and the
Operative Documents may be served. The Owner Trustee initially designates the
Corporate Trust Office as its principal office for such purposes. The Owner
Trustee shall give prompt written notice to the Seller and to the
Certificateholders and Owners of any change in the location of the Certificate
Register or any such office or agency.
SECTION 3.9 Appointment of Trust Paying Agent. The Owner Trustee hereby
appoints The Chase Manhattan Bank as the Trust Paying Agent under this
Agreement. The Trust Paying Agent shall make distributions to Certificateholders
from the Certificate Distribution Account pursuant to Section 5.2(a) and shall
report the amounts of such distributions to the Owner Trustee and the Servicer.
The Trust Paying Agent shall have the revocable power to withdraw funds from the
Certificate Distribution Account for the purpose of making the distributions
referred to above. The Owner Trustee may revoke such power and remove the Trust
Paying Agent if the Owner Trustee determines in its sole discretion that the
Trust Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. If The Chase Manhattan Bank shall no longer
be the Trust Paying Agent, the Owner Trustee shall appoint a successor to act as
Trust Paying Agent (which shall be a bank or trust company acceptable to the
Seller, the Note Insurer and the Rating Agencies). The Owner Trustee shall cause
such successor Trust Paying Agent or any additional Trust Paying Agent appointed
by the Owner Trustee to execute and deliver to the Owner Trustee an instrument
in which such successor Trust Paying Agent or additional Trust Paying Agent
shall agree with the Owner Trustee that as Trust Paying Agent, such successor
Trust Paying Agent or additional Trust Paying Agent shall hold all sums, if any,
held by it for payment to the Certificateholders in trust for the benefit of the
Certificateholders entitled thereto until such sums shall be paid to such
Holders. The Trust Paying Agent shall return all unclaimed funds to the Trust
and upon removal of a Trust Paying Agent such Trust Paying Agent shall also
return all funds in its possession to the Trust. The provisions of Article VI
shall apply to the Owner Trustee also in its role as Trust Paying Agent, for so
long as the Owner Trustee shall act as Trust Paying Agent and, to the extent
applicable, to any other Trust Paying Agent (including The Chase Manhattan Bank)
appointed hereunder. Any reference in this Agreement to the Trust Paying Agent
shall include any co-paying agent unless the context requires otherwise.
SECTION 3.10 Restriction on Transfers of Certificate.
(a) Each prospective purchaser and any subsequent transferee
of a Certificate (each, a "Prospective Holder"), other than First Alliance
Portfolio Services, Inc., shall either:
(i) represent and warrant, in writing, to the Owner
Trustee and the Certificate Registrar and any of their respective
successors that:
(A) Such Person is (I) a "qualified
institutional buyer" as defined in Rule 144A under
the Securities Act of 1933, as amended (the
"Securities Act"), and is aware that the seller of
the Certificate may be relying on the exemption
from the registration requirements of the
Securities Act provided
12
<PAGE>
by Rule 144A and is acquiring such Certificate for
its own account or for the account of one or more
qualified institutional buyers for whom it is
authorized to act, or (II) a Person involved in the
organization or operation of the Trust or an
affiliate of such Person within the meaning of Rule
3a-7 of the Investment Company Act of 1940, as
amended (including, but not limited to, the
Seller).
(B) Such Person understands that the
Certificate has not been and will not be registered
under the Securities Act and may be offered, sold,
pledged or otherwise transferred only to a person
whom the seller reasonably believes is (A) a
qualified institutional buyer or (B) a Person
involved in the organization or operation of the
Trust or an affiliate of such Person, in a
transaction meeting the requirements of Rule 144A
under the Securities Act and in accordance with any
applicable securities laws of any state of the
United States.
(C) Such Person understands that the
Certificate bears a legend to the following effect:
"THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS.
THIS CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY
OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING
PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO
RULE 144A OR (II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN
AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OF
RULE 3a-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED (INCLUDING, BUT NOT LIMITED TO, FIRST
ALLIANCE MORTGAGE COMPANY) IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS.
NO PERSON IS OBLIGATED TO REGISTER THIS CERTIFICATE
UNDER THE ACT OR ANY STATE SECURITIES LAWS"; or
13
<PAGE>
(ii) furnish to the Owner Trustee and the
Certificate Registrar and any of their respective successors an opinion
of counsel acceptable to such persons that such transfer may be made
pursuant to an exemption to the Securities Act, describing the
applicable exemption and the basis therefor, or is being made pursuant
to the Securities Act, which opinion of counsel shall not be an expense
of the Trust, the Owner Trustee or the Certificate Registrar.
(b) Each Prospective Holder, other than First Alliance
Portfolio Services, Inc., shall represent and warrant, in writing, to the Owner
Trustee and the Certificate Registrar and any of their respective successors
that the Prospective Holder is not an "employee benefit plan" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "plan" within the meaning of Section 4975(e)(1) of the
Code (any such plan or employee benefit plan, a "Plan") and is not directly or
indirectly purchasing such Certificate on behalf of, as investment manager of,
as named fiduciary of, as trustee of, or with assets of a Plan.
(c) By its acceptance of a Certificate, each Prospective
Holder agrees and acknowledges that no legal or beneficial interest in all or
any portion of any Certificate may be transferred directly or indirectly to (i)
an entity that holds residual securities as nominee to facilitate the clearance
and settlement of such securities through electronic book-entry changes in
accounts of participating organizations (a "Book-Entry Nominee"), or (ii) an
individual, corporation, partnership or other person unless such transferee is
not a Non-U.S. Person (any such person being referred to herein as a
"Non-permitted Foreign Holder"), and any such purported transfer shall be void
and have no effect.
(d) The Owner Trustee shall not execute, and shall not
countersign and deliver, a Certificate in connection with any transfer thereof
unless the transferor shall have provided to the Owner Trustee an IRS Form W-9
and a certificate, signed by the transferee, that it is not a Book-Entry
Nominee or a Non-permitted Foreign Holder, which certificate shall contain the
consent of the transferee to any amendments of this Agreement as may be required
to effectuate further the foregoing restrictions on transfer of the Certificate
to Book-Entry Nominees or Non-permitted Foreign Holders, and an agreement by the
transferee that it will not transfer a Certificate without providing to the
Owner Trustee a certificate in the form provided above.
(e) The Certificates shall bear an additional legend referring
to the restrictions contained in paragraph (c) above.
(f) No offer, sale, transfer, pledge, hypothecation or other
disposition (including any pledge or transfer under a repurchase transaction or
securities loan) of any Certificate shall be made to any entity unless, prior to
such disposition, (i) the Note Insurer has given its prior written consent to
the offer, sale, transfer, pledge, hypothecation or other disposition; provided,
however, that such consent shall not be unreasonably withheld and (ii) the
Prospective Holder delivers to the Owner Trustee an opinion of counsel, rendered
by a law firm generally recognized to be qualified to opine concerning the tax
aspects of asset securitization, to the effect that such transfer (including any
disposition permitted following any default under any pledge or repurchase
transaction will not cause the Trust to be (i) treated as an association taxable
as a corporation for federal income tax
14
<PAGE>
purposes, (ii) taxable as a taxable mortgage pool as defined in Section 7701(i)
of the Code or (iii) taxable as a "publicly traded partnership" as defined in
Treasury Regulation Section 1.7704-1. Notwithstanding the foregoing, the
provisions of this paragraph shall not apply to the initial transfer of the
Certificates to First Alliance Portfolio Services, Inc.
15
<PAGE>
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters. The
Owner Trustee shall not take action with respect to the following matters,
unless (i) the Owner Trustee shall have notified the Certificateholders, the
Rating Agencies and the Note Insurer in writing of the proposed action at least
30 days before the taking of such action, and (ii) neither the
Certificateholders nor the Note Insurer shall have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such
Certificateholders or the Note Insurer have withheld consent or provided
alternative direction (provided that any directions by the Certificateholders
shall require the prior consent of the Note Insurer):
(a) the initiation of any claim or lawsuit by the Trust
(except claims and law suits brought in connection with the collection of the
Mortgage Loans) or the compromise of any action, claim or lawsuit brought by or
against the Trust (except claims and law suits brought in connection with the
collection of the Mortgage Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust, (except to the extent such amendment is required under the
Business Trust Statute);
(c) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of a Note or
the Note Insurer is required;
(d) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of a Note or
the Note Insurer is not required and such amendment materially adversely affects
the interest of the Certificateholders;
(e) the appointment pursuant to an Indenture of a successor
Note Registrar, Paying Agent or Indenture Trustee or, pursuant to this
Agreement, of a successor Certificate Registrar or Trust Paying Agent, or the
consent to the assignment by the Note Registrar, Paying Agent or Indenture
Trustee, Certificate Registrar or Trust Paying Agent of its obligations under
the Indentures or this Agreement, as applicable;
(f) the consent to the calling or waiver of any default of any
Operative Document;
(g) the consent to the assignment of the Indenture Trustee or
Servicer of their respective obligations under the Operative Document;
(h) except as provided in Article IX hereof, dissolve,
terminate or liquidate the Trust in whole or in part;
16
<PAGE>
(i) merge or consolidate the Trust with or into any other
entity, or convey or transfer all or substantially all of the Trust's assets to
any other entity;
(j) cause the Trust to incur, assume or guaranty any
indebtedness other than as set forth in this Agreement;
(k) do any act that conflicts with any other Operative
Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust as described in Section 2.3 hereof;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth
in this Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness and any operating expenses from its
own funds, and the Trust shall not pay the indebtedness, operating expenses or
liabilities of any other entity. The Trust shall maintain appropriate minutes or
other records of all appropriate actions and shall maintain its office separate
from the offices of the Seller and the Servicer.
The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders with the consent of the Note Insurer, and to the
extent otherwise consistent with the Operative Documents, to (i) remove or
replace the Servicer or the Indenture Trustee, (ii) institute proceedings to
have the Trust declared or adjudicated a bankruptcy or insolvent, (iii) consent
to the institution of bankruptcy or insolvency proceedings against the Trust,
(iv) file a petition or consent to a petition seeking reorganization or relief
on behalf of the Trust under any applicable federal or state law relating to
bankruptcy, (v) consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or any similar official) of the Trust or a substantial
portion of the property of the Trust, (vi) make any assignment for the benefit
of the Trust's creditors, (vii) cause the Trust to admit in writing its
inability to pay its debts generally as they become due or (viii) take any
action, or cause the Trust to take any action, in furtherance of any of the
foregoing (any of the above, a "Bankruptcy Action"). So long as an Indenture
remains in effect and no Note Insurer Default exists, no Certificateholder shall
have the power to take, and shall not take, any Bankruptcy Action with respect
to the Trust or direct the Owner Trustee to take any Bankruptcy Action with
respect to the Trust.
17
<PAGE>
SECTION 4.2 Action by Holders with Respect to Certain Matters. The
Owner Trustee shall not have the power to remove the Servicer under the Sale and
Servicing Agreement.
SECTION 4.3 Action by Holders with Respect to Bankruptcy. Neither the
Owner Trustee nor any Certificateholder shall have the power to commence a
voluntary proceeding in bankruptcy relating to the Trust without the consent and
approval of (i) the Note Insurer, (ii) the unanimous prior approval of all
Certificateholders and Owners of Notes, (iii) the Owner Trustee and (iv) the
Indenture Trustee and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent. This paragraph shall survive
for one year and one day following termination of this Agreement.
SECTION 4.4 Restrictions on Holders' Power. The Certificateholders
shall not direct the Owner Trustee to take or refrain from taking any action if
such action or inaction would be contrary to any obligation of the Trust or the
Owner Trustee under this Agreement or any of the Operative Documents or would be
contrary to Section 2.3, nor shall the Owner Trustee be obligated to follow any
such direction, if given.
SECTION 4.5 Majority Control. Except as expressly provided herein any
action that may be taken or consent that may be given or withheld or written
notice delivered by the Certificateholders under this Agreement may be taken by
Holders of Certificates representing not less than a majority of the
Certificates.
18
<PAGE>
ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES
SECTION 5.1 Establishment of Certificate Distribution Account. The
Owner Trustee shall cause the Servicer, for the benefit of the
Certificateholders, to establish and maintain with The Chase Manhattan Bank for
the benefit of the Owner Trustee a Trust Account which, while the Trust Paying
Agent holds such Account, shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT,
THE CHASE MANHATTAN BANK AS TRUST PAYING AGENT, IN TRUST FOR THE FIRST ALLIANCE
MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 1998-2." Funds shall be
deposited in the Certificate Distribution Account as required by the Indentures,
or following satisfaction or release of an Indenture, by the Sale and Servicing
Agreement.
All of the right, title and interest of the Owner Trustee in all funds
on deposit from time to time in the Certificate Distribution Account and in all
proceeds thereof shall be held for the benefit of the Certificateholders. Except
as otherwise expressly provided herein or in the Sale and Servicing Agreement,
the Certificate Distribution Account shall be under the sole dominion and
control of the Owner Trustee for the benefit of the Certificateholders.
SECTION 5.2 Application of Trust Funds.
(a) On each Payment Date, the Trust Paying Agent shall
distribute to the Certificateholders, pro rata, from amounts on deposit in the
Certificate Distribution Account the distributions as provided in Sections
3.5(b)(v) and 3.5(f)(v) of the Sale and Servicing Agreement with respect to such
Payment Date.
(b) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to a Certificateholder, such tax
shall reduce the amount otherwise distributable to the Certificateholder in
accordance with this Section. The Trust Paying Agent is hereby authorized and
directed to retain from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust (but such authorization shall not prevent the Trust Paying
Agent from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Holder at the
time it is withheld by the Trust Paying Agent and remitted to the appropriate
taxing authority. If there is a possibility that withholding tax is payable with
respect to a distribution (such as a distribution to a non-U.S. Holder), the
Trust Paying Agent may in its sole discretion withhold such amounts in
accordance with this paragraph (b). In the event that a Certificateholder wishes
to apply for a refund of any such withholding tax, the Trust Paying Agent shall
reasonably cooperate with such Certificateholder in making such claim so long as
such Certificateholder agrees to reimburse the Trust Paying Agent for any
out-of-pocket expenses incurred.
(c) Distributions to Certificateholders shall be subordinated
to the creditors of the Trust, including the Owners of each Series of Notes and
the Note Insurer.
19
<PAGE>
SECTION 5.3 Method of Payment. Distributions required to be made to
Certificateholders on any Payment Date shall be made to each Certificateholder
of record on the immediately preceding Record Date either by wire transfer, in
immediately available funds, to the account of such Certificateholder at a bank
or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date, or,
if not, by check mailed to such Certificateholder at the address of such
Certificateholder appearing in the Certificate Register.
SECTION 5.4 Segregation of Moneys; No Interest. Subject to Sections 5.1
and 5.2, moneys received by the Trust Paying Agent hereunder and deposited into
the Certificate Distribution Account will be segregated except to the extent
required otherwise by law and shall be invested, at the direction of the Seller,
in Eligible Investments maturing no later than one Business Day prior to the
related Payment Date. The Trust Paying Agent shall not be liable for payment of
any interest or losses in respect of such moneys. Investment gains shall be for
the account of and paid to the Certificateholders.
SECTION 5.5 Accounting and Reports to the Certificateholders, the
Internal Revenue Service and Others.
(a) The Indenture Trustee shall (i) maintain (or cause to be
maintained) the books of the Trust on a calendar year basis on the accrual
method of accounting, and such books shall be maintained separately from those
of any other entity and reflect the separate interest of the Trust, (ii) deliver
to each Certificateholder, as may be required by the Code and applicable
Treasury Regulations, such information as may be required (including Schedule
K-1) to enable such Certificateholder to prepare its federal and state income
tax returns and (iii) withhold from any income or distributions to
Certificateholders made pursuant to this Agreement, any tax required to be
withheld (as certified by the Seller).
(b) The Servicer shall (i) file such tax returns relating to
the Trust (including a partnership information return, IRS Form 1065), and make
such elections as may from time to time be required or appropriate under any
applicable state or federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a partnership for federal income tax
purposes and (ii) cause such tax returns to be signed in the manner required by
law. The Servicer shall elect under Section 1278 of the Code to include in
income currently any market discount that accrues with respect to the Mortgage
Loans. The Servicer shall not make the election provided under Section 754 of
the Code.
SECTION 5.6 Signature on Returns; Tax Matters Partner.
(a) The Indenture Trustee shall sign on behalf of the Trust
the tax returns of the Trust, unless applicable law requires a Certificateholder
to sign such documents, in which case such documents shall be signed by the
Seller.
20
<PAGE>
(b) The Seller shall be designated the "tax matters partner"
of the Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable
Treasury Regulations.
21
<PAGE>
ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE
SECTION 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver, or cause to be executed and delivered, the
Certificates and the Operative Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Operative Documents to which the Trust is to be a party and any amendment or
other agreement or instrument described in Article III, in each case, in such
form as the Seller shall approve, as evidenced conclusively by the Owner
Trustee's execution thereof, and, on behalf of the Trust, to direct the
Indenture Trustee to authenticate and deliver the Adjustable Rate Notes in the
aggregate principal amount of $30,000,000 and the Fixed Rate Notes, in the
aggregate principal amount of $70,000,000. In addition to the foregoing, the
Owner Trustee is authorized, but shall not be obligated, to take all actions
required of the Trust, pursuant to the Operative Documents.
SECTION 6.2 General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Operative
Documents to which the Trust is a party and to administer the Trust in the
interest of the Certificateholders, and in accordance with the provisions of
this Agreement; and
(b) to obtain and preserve, the Trust's qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Indentures, the
Notes, and each other instrument and agreement included in the Owner Trust
Estate.
SECTION 6.3 Action upon Instruction by Owners.
(a) Subject to Article IV, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust, but
only to the extent consistent with the limited purposes of the Trust. Such
direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not
be required to take any action hereunder or under any Operative Document if the
Owner Trustee shall have reasonably determined, or shall have been advised by
counsel, that such action is likely to result in liability on the part of the
Owner Trustee or is contrary to the terms hereof or of any Operative Document or
is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Operative Document, or is unsure as to the application, intent,
interpretation or meaning of any provision of this agreement or the Operative
Documents, the Owner Trustee shall promptly give notice (in such form as shall
be
22
<PAGE>
appropriate under the circumstances) to the Note Insurer and the
Certificateholders requesting instruction as to the course of action to be
adopted, and, to the extent the Owner Trustee acts in good faith in accordance
with any such instruction received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not have
received appropriate instructions within ten days of such notice (or within such
shorter period of time as reasonably may be specified in such notice or may be
necessary under the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action which is consistent, in its view, with this
Agreement or the Operative Documents, and as it shall deem to be the best
interests of the Certificateholders, and the Owner Trustee shall have no
liability to any Person for any such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Operative Document or any
such provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account of such
action or inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Operative
Documents, as it shall deem to be in the best interest of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement, the
Operative Documents or in Instructions. The Owner Trustee shall not have any
duty or obligation to manage, make any payment with respect to, register,
record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to
otherwise take or refrain from taking any action under, or in connection with,
any document contemplated hereby to which the Owner Trustee is a party, except
as expressly provided by the terms of this Agreement, any Operative Document or
in any document or written instruction received by the Owner Trustee pursuant to
Section 6.3; and no implied duties or obligations shall be read into this
Agreement or any Operative Document against the Owner Trustee. The Owner Trustee
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or to otherwise perfect or maintain the
perfection of any security interest or lien granted to it hereunder or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Agreement or any Operative Document. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Owner Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Owner Trust
Estate.
23
<PAGE>
SECTION 6.5 No Action Except Under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement, (ii) in accordance with the Operative Documents and (iii) in
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
SECTION 6.6 Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section.
24
<PAGE>
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties. Except as otherwise
provided in this Article VII, in accepting the trusts hereby created Wilmington
Trust Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Operative Document shall
look only to the assets of the Trust for payment or satisfaction thereof. The
Owner Trustee accepts the trusts hereby created and agrees to perform its duties
hereunder with respect to such trusts but only upon the terms of this Agreement.
The Owner Trustee also agrees to disburse all moneys actually received by it
constituting part of the assets of the Trust upon the terms of the Operative
Documents and this Agreement. The Owner Trustee shall not be liable or
accountable hereunder or under any Operative Document under any circumstances,
except (i) for its own gross negligent action, its own gross negligent failure
to act or its own willful misconduct or (ii) in the case of the inaccuracy of
any representation or warranty contained in Section 7.3 and expressly made by
the Owner Trustee. In particular, but not by way of limitation (and subject to
the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall at no time have any responsibility
or liability for or with respect to the legality, validity and enforceability of
any Mortgage Loan, or the perfection and priority of any security interest
created by any Mortgage Loan in any Property or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the assets
of the Trust or their ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Owners of the Notes under the
Indentures, including, without limitation: the existence, condition and
ownership of any Property; the existence and enforceability of any insurance
thereon; the existence and contents of any Mortgage Loan on any computer or
other record thereof; the validity of the assignment of any Mortgage Loan to the
Trust or of any intervening assignment; the completeness of any Mortgage Loan;
the performance or enforcement of any Mortgage Loan; the compliance by the
Seller or the Servicer with any warranty or representation made under any
Operative Document or in any related document or the accuracy of any such
warranty or representation or any action of the Indenture Trustee, the Custodian
or the Servicer or any subservicer taken in the name of the Owner Trustee.
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions of
the Note Insurer or any Certificateholder;
(c) no provision of this Agreement or any Operative Document
shall require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Operative Document, if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
25
<PAGE>
(d) under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Operative Documents,
including the Fixed Rate Note Principal Balance and the Adjustable Rate Note
Principal Balance and the interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in
respect of and makes no representation as to the validity or sufficiency of any
provision of this Agreement or for the due execution hereof by the Seller or for
the form, character, genuineness, sufficiency, value or validity of any of the
Owner Trust Estate or for or in respect of the validity or sufficiency of the
Operative Documents, the Notes, the Certificates (other than the certificate of
authentication on the Certificates, if executed by the Owner Trustee) or of any
Mortgage Loans or any related documents, and the Owner Trustee shall in no event
assume or incur any liability, duty or obligation to any Owner of a Note or to
any Certificateholder, other than as expressly provided for herein and in the
Operative Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Indenture Trustee, the Custodian, the Seller or the Servicer
under any of the Operative Documents or otherwise and the Owner Trustee shall
have no obligation or liability to perform the obligations of the Trust under
this Agreement or the Operative Documents that are required to be performed by
the Indenture Trustee under the Indentures, the Custodian under the Custodial
Agreement or the Seller or Servicer under the Sale and Servicing Agreement;
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement, the Underwriting Agreement or any Operative
Document, at the request, order or direction of any of the Note Insurer or any
of the Certificateholders, unless the Note Insurer or such Certificateholders
have offered to the Owner Trustee security or indemnity satisfactory to it
against the costs, expenses and liabilities that may be incurred by the Owner
Trustee therein or thereby. The right of the Owner Trustee to perform any
discretionary act enumerated in this Agreement or in any Operative Document
shall not be construed as a duty, and the Owner Trustee shall not be answerable
for other than its negligence or willful misconduct in the performance of any
such act;
(h) The Owner Trustee shall have no responsibility for filing
any financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare, execute or file any Securities and
Exchange Commission filing or tax return for the Trust or to record this
Agreement or any Operative Document.
SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish
(a) to the Certificateholders, promptly upon receipt of a written request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Operative Documents, and (b) to the Note Insurer and the
Rating Agencies, copies of any reports, notices, requests, demands,
certificates, financial statements, and any other instruments relating to the
Trust, the Certificates or the Notes in the possession of the Owner Trustee,
that the Note Insurer shall request in writing.
26
<PAGE>
SECTION 7.3 Representations and Warranties of Owner Trustee. The Owner
Trustee hereby represents and warrants to the Seller, for the benefit of the
Certificateholders and the Note Insurer, that:
(a) It is a banking corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) It has full power, authority and legal right to execute,
deliver and perform its obligations under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Agreement.
(c) The execution, delivery and performance by it of this
Agreement (i) shall not violate any provision of any law or regulation governing
the banking and trust powers of the Owner Trustee or any order, writ, judgment
or decree of any court, arbitrator or governmental authority applicable to the
Owner Trustee or any of its assets, (ii) shall not violate any provision of the
corporate charter or by-laws of the Owner Trustee, or (iii) shall not violate
any provision of, or constitute, with or without notice or lapse of time, a
default under, or result in the creation or imposition of any lien on any
properties included in the Trust pursuant to the provisions of any mortgage,
indenture, contract, agreement or other undertaking to which it is a party,
which violation, default or lien could reasonably be expected to have a
materially adverse effect on the Owner Trustee's performance or ability to
perform its duties as Owner Trustee under this Agreement or on the transactions
contemplated in this Agreement.
(d) This Agreement has been duly executed and delivered by the
Owner Trustee and constitutes the legal, valid and binding agreement of the
Owner Trustee, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
other similar law affecting the enforcement of creditors' rights in general and
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(e) The Owner Trustee 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 (financial or other) or
operations of the Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder.
(f) No litigation is pending or, to the best of the Owner
Trustee's knowledge, threatened against the Owner Trustee which would prohibit
its entering into this Trust Agreement or performing its obligations under this
Trust Agreement.
SECTION 7.4 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, note or other document or paper believed by
it to be genuine and believed by it to be signed by the proper
27
<PAGE>
party or parties. The Owner Trustee may accept a certified copy of a resolution
of the board of directors or other governing body of any corporate party as
conclusive evidence that such resolution has been duly adopted by such body and
that the same is in full force and effect. As to any fact or matter the method
of the determination of which is not specifically prescribed herein, the Owner
Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or other authorized officers
of the relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Owner Trustee for any action taken or omitted
to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the Trust hereunder
and in the performance of its duties and obligations under this Agreement or the
Operative Documents, the Owner Trustee: (i) may act directly or through its
agents, attorneys, custodians or nominees, and the Owner Trustee shall not be
liable for the conduct or misconduct of such agents, attorneys, custodians or
nominees if such agents, attorneys, custodians or nominees shall have been
selected by the Owner Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
opinion or advice of any such counsel, accountants or other such Persons and not
contrary to this Agreement or any of the Operative Documents.
(c) In providing any certificates required of the Issuer
pursuant to an Indenture, the Owner Trustee may rely on an Officer's Certificate
of the Seller or the Servicer in a form satisfactory to the Owner Trustee.
SECTION 7.5 Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Seller, the Indenture Trustee and
the Servicer in transactions in the same manner and with the same rights as it
would have if it were not the Owner Trustee.
SECTION 7.6 Licenses. The Owner Trustee shall cause the Trust to use
its best efforts to obtain and maintain the effectiveness of any licenses
required in connection with this Agreement and the Operative Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
28
<PAGE>
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1 Owner Trustee's Fee and Expenses. The Owner Trustee shall
receive from the Seller as compensation for its services hereunder such fees as
have been separately agreed upon before the date hereof between the Seller and
the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by
the Seller for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, custodians, nominees,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder. The amount of the Owner Trustee Fee shall be paid to the Owner
Trustee pursuant to Section 3.5 of the Sale and Servicing Agreement.
SECTION 8.2 Indemnification. The Seller shall be liable as primary
obligor pursuant to the Sale and Servicing Agreement for, and shall indemnify
the Owner Trustee and its successors, assigns, agents and servants
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may at any time be imposed on, incurred by, or asserted
against the Owner Trustee or any Indemnified Party in any way relating to or
arising out of this Agreement, the Operative Documents, the Owner Trust Estate,
the administration of the Trust or the action or inaction of the Owner Trustee
hereunder, provided that:
(i) the Seller shall not be liable for or required to
indemnify an Indemnified Party from and against Expenses arising or resulting
from the Owner Trustee's willful misconduct, gross negligence or bad faith, as
specified in the fourth sentence of Section 7.1 or as a result of any inaccuracy
of a representation or warranty contained in Section 7.3 expressly made by the
Owner Trustee;
(ii) with respect to any such claim, the Indemnified Party
shall have given the Seller written notice thereof promptly after the
Indemnified Party shall have actual knowledge thereof;
(iii) while maintaining control over its own defense, the
Seller shall consult with the Indemnified Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Seller shall not be liable for settlement of any claim by an
Indemnified Party entered into without the prior consent of the Seller which
consent shall not be unreasonably withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Agreement. In the
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section 8.2, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection with
the execution and delivery of this Agreement, shall be subject to the approval
of the Seller, which
29
<PAGE>
approval shall not be unreasonably withheld. In addition, upon written notice to
the Owner Trustee and with the consent of the Owner Trustee which consent shall
not be unreasonably withheld, the Seller has the right to assume the defense of
any claim, action or proceeding against the Owner Trustee.
SECTION 8.3 Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
30
<PAGE>
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust
shall terminate and be of no further force or effect on the earlier of: (i) the
final distribution by the Indenture Trustee of all moneys or other property or
proceeds of the assets of the Trust in accordance with the terms of the
Indentures and (ii) the expiration of 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 St. James's). The bankruptcy, liquidation,
dissolution, death or incapacity of any Certificateholder shall not (x) operate
to terminate this Agreement or the Trust, nor (y) entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or the Owner Trust Estate or (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) The Certificates shall be subject to an early redemption
or termination at the option of the Holders of a majority of the Certificates,
and in certain instances the Note Insurer, in the manner and subject to the
provisions of Section 5.2 of the Sale and Servicing Agreement.
(c) Except as provided in paragraphs (a) and (b) of this
Section 9.1, none of the Seller, the Servicer, the Note Insurer or any
Certificateholder shall be entitled to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the
Payment Date upon which the Certificateholders shall surrender their
Certificates to the Owner Trustee for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to the Note Insurer,
the Rating Agencies and the Trust Paying Agent mailed within five Business Days
of receipt of notice of such termination, stating: (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Owner
Trustee therein designated; (ii) the amount of any such final payment; and (iii)
that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Owner Trustee therein specified. The Owner
Trustee shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Trust Paying Agent at the time such notice is given to
Certificateholders. The Owner Trustee will give notice to the Trust Paying Agent
of each presentation and surrender of the Certificates and the Trust Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.3 of the Sale and Servicing
Agreement.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(d) of the Business Trust Statute.
31
<PAGE>
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers;
having a combined capital and surplus of at least $100,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a rating of at least "Baa3" by Moody's and "A-1" by
Standard & Poor's and being acceptable to the Note Insurer. If such corporation
shall publish reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Owner Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 10.2.
SECTION 10.2 Resignation or Removal of Owner Trustee. The Owner Trustee
may at any time resign and be discharged from the trusts hereby created by
giving 30 days prior written notice thereof to the Seller, the Indenture
Trustee, the Rating Agencies and the Note Insurer. Upon receiving such notice of
resignation, the Seller shall promptly appoint a successor Owner Trustee
(acceptable to the Note Insurer) by written instrument, in duplicate, one copy
of which instrument shall be delivered to the resigning Owner Trustee and one
copy to the successor Owner Trustee. If no successor Owner Trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Owner Trustee or the Note Insurer
may petition any court of competent jurisdiction for the appointment of a
successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Indenture Trustee, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Note Insurer, or the Indenture Trustee
with the consent of the Note Insurer, may remove the Owner Trustee. If the
Indenture Trustee or the Note Insurer shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Note Insurer, or the
Servicer with the consent of the Note Insurer, shall promptly appoint a
successor Owner Trustee by written instrument in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee and payment of all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3, written approval by the Note Insurer and
payment of all fees and expenses owed to the outgoing Owner Trustee. The Seller
shall provide notice of such resignation or removal of the Owner Trustee to each
of the Rating Agencies and the Note Insurer.
32
<PAGE>
SECTION 10.3 Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Seller, the Indenture Trustee, the Note Insurer and to its predecessor Owner
Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee (if acceptable to the Note
Insurer), without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties, and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Seller and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Seller shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Indenture Trustee, the Owners of the
Notes, the Note Insurer and the Rating Agencies. If the Seller fails to mail
such notice within 10 days after acceptance of appointment by the successor
Owner Trustee, the successor Owner Trustee shall cause such notice to be mailed
at the expense of the Seller.
SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, and without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto; provided, however, that the Owner Trustee shall mail notice
of such merger or consolidation to the Note Insurer and each of the Rating
Agencies.
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at
any time, for the purpose of meeting any legal requirement of any jurisdiction
in which any part of the Owner Trust Estate or any Property may at the time be
located, the Owner Trustee (with the consent of the Note Insurer) shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and the Note Insurer to act as co-trustee,
jointly with the Owner Trustee, or as separate trustee or trustees, of all or
any part of the assets of the Trust, and to vest in such Person, in such
capacity, such title to the Trust, or any part thereof, and, subject to the
other provisions of this Section, such powers, duties, obligations, rights and
trusts as the Note Insurer and the Owner Trustee may consider necessary or
desirable. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant
33
<PAGE>
to Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
(b) Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred
upon and exercised or performed by the Owner Trustee, and such
separate trustee or co-trustee jointly (it being understood
that such separate trustee or co-trustee is not authorized to
act separately without the Owner Trustee joining in such act),
except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed, the
Owner Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be
personally liable by reason of any act or omission of any
other trustee under this Agreement; and
(iii) the Owner Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Owner
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Note Insurer.
(d) Any separate trustee or co-trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
34
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Amendments Without Consent of Certificateholders or Owners
of the Notes. This Agreement may be amended by the Seller and the Owner Trustee
without the consent of any of the Certificateholders (but with the prior written
consent of the Note Insurer), to (i) cure any ambiguity, (ii) correct or
supplement any provision in this Agreement that may be defective or inconsistent
with any other provision in this Agreement, (iii) add or supplement any credit
enhancement for the benefit of the Owners of the Notes or the
Certificateholders, (iv) add to the covenants, restrictions or obligations of
the Seller or the Owner Trustee and (v) add, change or eliminate any other
provision of this Agreement in any manner that shall not, adversely affect in
any material respect the interests of the Owners of the Notes or the
Certificateholders. An amendment described above shall be deemed not to
adversely affect in any material respect the interests of any Certificateholder
or Owner of a Note if (i) an opinion of counsel is obtained to such effect or
(ii) the party requesting the amendment satisfies the Rating Agency Condition
with respect to such amendment.
SECTION 11.2 Amendments With Consent of Certificateholders. This
Agreement may be amended from time to time by the Seller and the Owner Trustee
with the consent of the Note Insurer and more than a majority in Percentage
Interests of the Certificates for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
or of modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
Mortgage Loans or distributions that shall be made for the benefit of the
Certificateholders or (b) reduce the aforesaid percentage required to consent to
any such amendment, without the consent of the Holders of all of the
Certificates then outstanding.
SECTION 11.3 Form of Amendments.
(a) Promptly after the execution of any amendment, supplement
or consent pursuant to Section 11.1 or 11.2, the Owner Trustee shall furnish
written notification of the substance of such amendment or consent to each
Certificateholder, the Indenture Trustee, the Note Insurer and each Rating
Agency.
(b) It shall not be necessary for the consent of the
Certificateholders, pursuant to Section 11.2 to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Certificateholders provided for in this Agreement or in
any other Operative Document) and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
(c) Promptly after the execution of any amendment to the
Certificate of Trust, the Owner Trustee shall cause the filing of such amendment
with the Secretary of State.
35
<PAGE>
(d) Prior to the execution of any amendment to this Agreement
or the Certificate of Trust, the Owner Trustee shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
(e) The Owner Trustee shall, upon execution thereof, provide
each Certificateholder, the Seller, the Note Insurer and the Rating Agencies
with notice of the form and substance of any amendment to this Agreement.
SECTION 11.4 No Legal Title to Owner Trust Estate. The
Certificateholders shall not have legal title to any part of the assets of the
Owner Trust Estate solely by virtue of their status as Certificateholders. The
Certificateholders shall be entitled to receive distributions with respect to
their undivided ownership interest therein only in accordance with Articles V
and IX. No transfer, by operation of law or otherwise, of any right, title, and
interest of the Certificateholders to and in their ownership interest in the
assets of the Trust shall operate to terminate this Agreement or the trusts
hereunder or entitle any transferee to an accounting or to the transfer to it of
legal title to any part of the assets of the Trust.
SECTION 11.5 Limitations on Rights of Others. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Note Insurer,
the Owner Trustee, the Seller, the Certificateholders and, to the extent
expressly provided herein, the Indenture Trustee and the Owners of the Notes,
and nothing in this Agreement (other than Section 2.7), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the assets of the Trust or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 11.6 Notices.
(a) All demands, notices and communications hereunder shall be
in writing and shall be deemed to have been duly given if personally delivered
at or mailed by overnight mail, certified mail or registered mail, postage
prepaid, to (i) in the case of the Servicer, First Alliance Mortgage Company,
17305 Von Karman Avenue, Irvine, California 92614-6203, Attention: Manager,
Investor Reporting, or such other addresses as may hereafter be furnished to the
Certificateholders in writing by the Servicer, (ii) in the case of the Seller,
First Alliance Mortgage Company, 17305 Von Karman Avenue, Irvine, California
92614-6203, Attention: Director, Secondary Marketing, or such other addresses as
may hereafter be furnished to the Certificateholders in writing by the Seller,
(iii) in the case of the Owner Trustee, Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: First
Alliance Mortgage Loan Trust 1998-2, (iv) in the case of the Certificateholders,
as set forth in the Certificate Register, (v) in the case of the Indenture
Trustee, The Chase Manhattan Bank, 450 West 33rd Street, New York, New York
10006, Attention: First Alliance Mortgage Loan Trust 1998-2, (vi) in the case of
Moody's, 99 Church Street, New York, New York 10007, Attention: Home Equity
Monitoring Group, (vii) in the case of Standard & Poor's, 25 Broadway, New York,
New York 10004, Attention: Residential Mortgage Group, and (viii) in the case of
the Note Insurer, Financial Security Assurance
36
<PAGE>
Inc., 350 Park Avenue, New York, New York 10022, Attention: First Alliance
Mortgage Loan Trust 1998-2. Any such notices shall be deemed to be effective
with respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Certificateholders shall be effective upon mailing or
personal delivery.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.7 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 11.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
SECTION 11.9 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the Seller,
the Owner Trustee, the Note Insurer and each Certificateholder and their
respective successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by a
Certificateholder shall bind the successors and assigns of such
Certificateholder.
SECTION 11.10 No Petition Covenant. Notwithstanding any prior
termination of this Agreement, the Trust (or the Owner Trustee on behalf of the
Trust), the Seller, each Certificateholder and the Indenture Trustee shall not
acquiesce, petition or otherwise invoke or cause the Trust to invoke the process
of any court or governmental authority for the purpose of commencing or
sustaining a case against the Trust under any federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Trust or any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Trust.
SECTION 11.11 No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Seller, the Servicer, the Owner Trustee, the Indenture
Trustee or any affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Agreement, the Certificates or the Operative Documents.
SECTION 11.12 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
37
<PAGE>
SECTION 11.13 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
SECTION 11.15 Third-Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce the provisions hereunder as if it were actually a party hereto. Nothing
in this section, however, shall be construed to mitigate in any way, the
fiduciary responsibilities of the Owner Trustee to the Certificateholders nor to
create a fiduciary responsibility of the Owner Trustee to the Note Insurer.
SECTION 11.16 Suspension and Termination of Note Insurer's Rights.
During the continuation of a Note Insurer Default, rights granted or reserved to
the Note Insurer hereunder shall vest instead in the Certificateholders;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Reimbursement Amount, and the Note Insurer shall retain
those rights under Section 11.1 to consent to any amendment of this Agreement.
At such time as either (i) both the Adjustable Rate Note
Principal Balance and the Fixed Rate Note Principal Balance have been reduced to
zero and (ii) the Note Insurance Policies have been terminated and in either
case of (i) or (ii) the Note Insurer has been reimbursed for all Insured
Payments and any other amounts owed under the Note Insurance Policies and the
Insurance Agreement (and the Note Insurer no longer has any obligation under the
Note Insurance Policies, except for breach thereof by the Note Insurer), then
the rights and benefits granted or reserved to the Note Insurer hereunder
(including the rights to direct certain actions and receive certain notices)
shall terminate and the Certificateholders shall be entitled to the exercise of
such rights and to receive such benefits of the Note Insurer following such
termination to the extent that such rights and benefits are applicable to the
Certificateholders.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
WILMINGTON TRUST COMPANY,
as Owner Trustee
By: /s/ Debra Eberly
------------------------------
Name: Debra Eberly
Title: Administrative Account Manager
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller
By: /s/ Brian Chisick
---------------------------------
Name: Brian Chisick
Title: President/Chief Executive Officer
Acknowledged and Accepted:
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
By: /s/ Brian Chisick
---------------------------------
Name: Brian Chisick
Title: President/Chief Executive Officer
THE CHASE MANHATTAN BANK,
as Trust Paying Agent and Certificate
Registrar
By: /s/ Diane E. Wallace
--------------------
Name: Diane E. Wallace
Title: Trust Officer
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
THIS Certificate of Trust of First Alliance Mortgage Loan Trust 1998-2
(the "Trust") dated as of June 1, 1998, is being duly executed and filed by
Wilmington Trust Company, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, ss.3801 et
seq.).
1. Name. The name of the business trust formed hereby is First Alliance
Mortgage Loan Trust 1998-2.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
3. This Certificate of Trust shall be effective as of its filing. IN
WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has
executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
By: _______________________________
Name: ________________________
Title: ________________________
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE)
THE EQUITY INTEREST IN THE TRUST REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OR (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN
THE MEANING OR RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING BUT NOT LIMITED TO, FIRST ALLIANCE MORTGAGE COMPANY AND FIRST
ALLIANCE RESIDUAL HOLDING COMPANY) IN A TRANSACTION THAT IS REGISTERED UNDER THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS
EQUITY INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN SHALL BE MADE
TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE
TRANSFEREE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN "EMPLOYEE BENEFIT PLAN"
WITHIN THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED ("ERISA"), OR A "PLAN" WITHIN THE MEANING OF SECTION
4975(e)(1) OF THE CODE (ANY SUCH PLAN OR EMPLOYEE BENEFIT PLAN, A "PLAN") AND IS
NOT DIRECTLY OR INDIRECTLY PURCHASING SUCH CERTIFICATE ON BEHALF OF, AS
INVESTMENT MANAGER OF, AS NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH ASSETS OF A
PLAN.
THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS,
PRIOR TO SUCH DISPOSITION, THE PROPOSED TRANSFEREE DELIVERS TO THE OWNER TRUSTEE
AND THE CERTIFICATE REGISTRAR A CERTIFICATE STATING THAT SUCH TRANSFEREE (A)
AGREES TO BE BOUND BY AND TO ABIDE BY THE TRANSFER RESTRICTIONS APPLICABLE TO
THIS CERTIFICATE; (B) IS NOT AN ENTITY THAT WILL HOLD THIS CERTIFICATE AS
NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF SUCH SECURITY THROUGH THIS
CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT IS A
NON-U.S. PERSON. THE TERM "NON-U.S. PERSON" MEANS A PERSON WHO IS NOT ONE OF
THE FOLLOWING: A CITIZEN OR RESIDENT OF THE UNITED STATES, A CORPORATION,
PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE
<PAGE>
UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF, AN ESTATE THAT IS SUBJECT TO
U.S. FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF ITS INCOME OR A TRUST IF (I)
A COURT IN THE UNITED STATES IS ABLE TO EXERCISE PRIMARY SUPERVISION OVER THE
ADMINISTRATION OF THE TRUST AND (II) ONE OR MORE UNITED STATES FIDUCIARIES HAVE
THE AUTHORITY TO CONTROL ALL SUBSTANTIAL DECISIONS OF THE TRUST.
B-2
<PAGE>
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
CERTIFICATE
No. 0001
THIS CERTIFIES THAT First Alliance Portfolio Services, Inc. (the "Owner")
is the registered owner of a 100% Percentage Interest in First Alliance Mortgage
Loan Trust 1998-2 (the "Trust") existing under the laws of the State of Delaware
and created pursuant to the Trust Agreement, dated as of June 1, 1998 (the
"Trust Agreement"), between First Alliance Mortgage Company, as Seller, and
Wilmington Trust Company, in its individual capacity and in its fiduciary
capacity as owner trustee under the Trust Agreement (the "Owner Trustee").
Capitalized terms used but not otherwise defined herein have the meanings
assigned to such terms in the Trust Agreement. The Owner Trustee, on behalf of
the Issuer and not in its individual capacity, has executed this Certificate by
one of its duly authorized signatories as set forth below. This Certificate is
one of the Certificates referred to in the Trust Agreement and is issued under
and is subject to the terms, provisions and conditions of the Trust Agreement to
which the holder of this Certificate by virtue of the acceptance hereof agrees
and by which the holder hereof is bound. Reference is hereby made to the Trust
Agreement for the rights of the holder of this Certificate, as well as for the
terms and conditions of the Trust created by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Certificate except in accordance with terms and provisions of the Agreement.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Certificate to be duly executed.
FIRST ALLIANCE MORTGAGE LOAN
TRUST 1998-2
By: WILMINGTON TRUST COMPANY
not in its individual capacity but solely
as Owner Trustee under the Trust
Agreement
By: _________________________________________
Authorized Signatory
Dated: June 26, 1998
B-3
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Agreement.
WILMINGTON TRUST COMPANY,
as Owner Trustee
By: ___________________________
Authorized Signatory
B-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- - ------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- - ------------------------------------------------------------------------------
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
_____________________________________________________________ Attorney to
transfer said Instrument on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated: _____________________
_________________________________________ */
Signature Guaranteed:
_________________________________________ */
NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Instrument in every particular,
without alteration, enlargement or any change whatever. Such signature
must be guaranteed by a member firm of the New York Stock Exchange or a
commercial bank or trust company.
B-5
Exhibit 10.1
SALE AND SERVICING AGREEMENT
Dated as of June 1, 1998
Among
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2,
as Issuer,
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller,
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
and
THE CHASE MANHATTAN BANK,
as Indenture Trustee
Dated as of June 1, 1998
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2
ADJUSTABLE RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2A
FIXED RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2F
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION.......................................................................1
1.1. Definitions.....................................................................................1
1.2. Use of Words and Phrases.......................................................................23
1.3. Captions; Table of Contents....................................................................23
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLER AND THE SERVICER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS.............................................................23
2.1. Representations and Warranties of the Seller...................................................23
2.2. Representations and Warranties of the Servicer.................................................25
2.3. Representations and Warranties of the Seller with Respect to the Mortgage Loans................28
2.4. Covenants of the Seller to Take Certain Actions with Respect to the Mortgage Loans
In Certain Situations..........................................................................33
2.5. Conveyance of the Mortgage Loans...............................................................33
2.6. Acceptance by Indenture Trustee; Certain Substitutions of Mortgage Loans;
Certification by Indenture Trustee.............................................................37
2.7. Cooperation Procedures.........................................................................38
2.8. Conveyance of the Subsequent Mortgage Loans....................................................38
2.9. Books and Records..............................................................................40
ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES....................................................................41
3.1. Collection of Money............................................................................41
3.2. Establishment of Accounts......................................................................41
3.3. The Note Insurance Policies....................................................................41
3.4 Pre-Funding Account and Capitalized Interest Account...........................................42
3.5. Flow of Funds..................................................................................43
3.6. Investment of Accounts.........................................................................47
3.7. Eligible Investments...........................................................................48
3.8. Reports by Indenture Trustee...................................................................48
3.9. Additional Reports by Indenture Trustee........................................................50
ARTICLE IV
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS..........................................................50
4.1. Servicer and Sub-Servicers.....................................................................50
4.2. Collection of Certain Mortgage Loan Payments...................................................51
4.3. Sub-Servicing Agreements Between Servicer and Sub-Servicers....................................52
4.4. Successor Sub-Servicers........................................................................52
4.5. Liability of Servicer..........................................................................52
4.6. No Contractual Relationship Between Sub-Servicer and Indenture Trustee
or the Owners..................................................................................52
4.7. Assumption or Termination of Sub-Servicing Agreement by Indenture Trustee......................52
4.8. Principal and Interest Account.................................................................53
4.9. Delinquency Advances, Compensating Interest and Servicing Advances.............................54
4.10. Purchase of Mortgage Loans.....................................................................55
4.11. Maintenance of Insurance.......................................................................55
4.12. Due-on-Sale Clauses; Assumption and Substitution Agreements....................................56
4.13. Realization Upon Defaulted Mortgage Loans......................................................56
i
<PAGE>
4.14. Indenture Trustee to Cooperate; Release of Files...............................................57
4.15. Servicing Compensation.........................................................................58
4.16. Annual Statement as to Compliance..............................................................58
4.17. Annual Independent Certified Public Accountants' Reports.......................................58
4.18. Access to Certain Documentation and Information Regarding the Mortgage Loans...................58
4.19. Assignment of Agreement........................................................................59
4.20. Events of Servicing Termination................................................................59
4.21. Resignation of Servicer and Appointment of Successor...........................................61
4.22. Waiver of Past Events of Servicing Termination.................................................63
4.23. Inspections by Note Insurer; Errors and Omissions Insurance....................................63
4.24. Merger, Conversion, Consolidation or Succession to Business of Servicer........................63
4.25. Notices of Material Events.....................................................................64
4.26. Monthly Servicing Report and Servicing Certificate.............................................64
4.27. Indemnification by the Seller..................................................................66
4.29. Administration of the Issuer...................................................................66
4.28. Indemnification by the Servicer................................................................66
ARTICLE V
TERMINATION.............................................................................................67
5.1. Termination....................................................................................67
5.2. Termination Upon Option of Servicer............................................................67
5.3 Redemption of Notes............................................................................67
5.4. Disposition of Proceeds........................................................................68
5.5. Netting of Amounts.............................................................................68
ARTICLE VI
MISCELLANEOUS...........................................................................................68
6.1 Acts of Owners.................................................................................68
6.2 Recordation of Agreement.......................................................................68
6.3 Duration of Agreement..........................................................................68
6.4 Successors and Assigns.........................................................................68
6.5 Severability...................................................................................68
6.6. Benefits of Agreement..........................................................................68
6.7. Legal Holidays.................................................................................68
6.8. Governing Law..................................................................................69
6.9. Counterparts...................................................................................69
6.10. Amendment......................................................................................69
6.11. Specification of Certain Tax Matters...........................................................69
6.12. The Note Insurer...............................................................................70
6.13. Third Party Rights.............................................................................70
6.14. Usury..........................................................................................70
6.15. No Petition....................................................................................70
6.16. Notices........................................................................................70
ARTICLE VII
CERTAIN MATTERS REGARDING THE NOTE INSURER..............................................................72
Section 7.01 Trust Estate and Accounts Held for Benefit of the Note Insurer........................72
Section 7.02 Claims Upon the Note Insurance Policies; Policy Payments Account......................72
Section 7.03 Effect of Payments by the Note Insurer; Subrogation...................................73
Section 7.04 Notices to the Note Insurer...........................................................73
Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners...............................74
ii
<PAGE>
EXHIBIT A -- Mortgage Loan Schedule
EXHIBIT B -- Form of Certificate Re: Mortgage Loans Prepaid in full After the Cut-Off Date
EXHIBIT C -- Form of Initial Certification
EXHIBIT D -- Form of Final Certification
EXHIBIT E -- Form of Monthly Report
EXHIBIT F -- Form of Request for Release
EXHIBIT G -- Form of Subsequent Transfer Agreement
</TABLE>
iii
<PAGE>
SALE AND SERVICING AGREEMENT, dated as of June 1, 1998, by and among
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust (the
"Issuer" or the "Trust"), FIRST ALLIANCE MORTGAGE COMPANY, a California
corporation in its capacity as the Seller and the Servicer (respectively, the
"Seller" and the "Servicer"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, in its capacity as Indenture Trustee (the "Indenture Trustee").
WHEREAS, the Issuer desires to purchase a pool of Mortgage Loans (the
"Mortgage Loan Pool") consisting of two subpools (the "Adjustable Rate Pool" and
the "Fixed Rate Pool") which were originated or purchased by the Seller in the
ordinary course of its business;
WHEREAS, the Servicer has agreed to service the Mortgage Loans, in
accordance with the terms of this Agreement;
WHEREAS, all things necessary to make this Agreement a valid agreement,
in accordance with their and its terms, have been done;
WHEREAS, The Chase Manhattan Bank is willing to serve in the capacity
of Indenture Trustee hereunder; and
WHEREAS, Financial Security Assurance Inc. (the "Note Insurer") is
intended to be a third party beneficiary of this Agreement and is hereby
recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Issuer, the Seller, the Servicer and the
Indenture Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.1. 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 3.2 or
4.8 hereof.
"Addition Notice": With respect to a transfer of Subsequent Mortgage
Loans to the Issuer for inclusion in the Adjustable Rate Pool or the Fixed Rate
Pool pursuant to Section 2.8 hereof, notice given not less than two Business
Days prior to the related Subsequent Transfer Date of the Seller's designation
of Subsequent Mortgage Loans to be sold to the Issuer for inclusion in the
Adjustable Rate Pool or the Fixed Rate Pool and the aggregate Loan Balance of
such Subsequent Mortgage Loans to be designated for inclusion in such Mortgage
Loan Pool.
"Adjustable Rate Amortized Subordinated Amount Requirement": As of any
date of determination, the product of (x) 2.00% and (y) the Adjustable Rate
Maximum Collateral Amount.
"Adjustable Rate Available Funds": As defined in Section 3.3(a)(i)
hereof.
"Adjustable Rate Available Funds Shortfall": As defined in Section
3.5(b)(ii)(A) hereof.
"Adjustable Rate Capitalized Interest Requirement": $17,500.
1
<PAGE>
"Adjustable Rate Cumulative Loss Percentage": As of any date of
determination thereof, the aggregate of all Realized Losses on Mortgage Loans in
the Adjustable Rate Pool since the Closing Date as a percentage of the
Adjustable Rate Maximum Collateral Amount.
"Adjustable Rate Cumulative Loss Test": The Adjustable Rate Cumulative
Loss Test for each period indicated below is satisfied if the Adjustable Rate
Cumulative Loss Percentage for such period does not exceed the percentage set
out for such period below:
<TABLE>
<CAPTION>
Adjustable Rate
Cumulative Loss
Period Percentage
------ ----------
<S> <C>
June 2, 1998 - June 1, 1999 1.75%
June 2, 1999 - June 1, 2000 2.25%
June 2, 2000 - June 1, 2001 2.75%
June 2, 2001 - June 1, 2002 3.25%
June 2, 2002 - and thereafter 3.75%
</TABLE>
"Adjustable Rate Current Interest": With respect to interest accruing
after the Cut-Off Date and as of any Payment Date, the sum of (i) the aggregate
amount of interest accrued on the Adjustable Rate Note Principal Balance
immediately prior to such Payment Date during the related Interest Accrual
Period at the Adjustable Rate Note Rate and (ii) any related Interest
Carry-Forward Amount for such Payment Date.
"Adjustable Rate Indenture": The Indenture, dated June 1, 1998 between
the Issuer and the Indenture Trustee, relating to the issuance of the Adjustable
Rate Notes.
"Adjustable Rate Interest Determination Date": With respect to any
Interest Accrual Period for the Adjustable Rate Notes, the second London
Business Day preceding such Interest Accrual Period.
"Adjustable Rate Interest Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) all scheduled interest due on or
prior to the Due Date occurring during the related Due Period, with respect to
the Adjustable Rate Mortgage Loans to the extent collected by the Servicer
during the related Remittance Period, (ii) all Delinquency Advances relating to
interest made by the Servicer on such Remittance Date with respect to the
Adjustable Rate Mortgage Loans and (iii) all Compensating Interest paid by the
Servicer on such Remittance Date with respect to the Adjustable Rate Mortgage
Loans and (iv) any amounts relating to the Adjustable Rate Pool required to be
transferred from the Capitalized Interest Account to the Adjustable Rate Note
Account pursuant to Section 3.4(e) hereof on the related Payment Date.
"Adjustable Rate Maximum Collateral Amount": $30,000,000.
"Adjustable Rate Monthly Payment Amount": With respect to a Payment
Date, the sum of (x) the Adjustable Rate Principal Payment Amount payable to the
Owners of the Adjustable Rate Notes pursuant to Section 3.5(b)(iv)(C) on such
Payment Date and (y) the Adjustable Rate Current Interest payable to the Owners
of the Adjustable Rate Notes pursuant to Section 3.5(b)(iv)(B) on such Payment
Date.
"Adjustable Rate Monthly Remittance Amount": As of any Remittance Date,
the sum of (i) the Adjustable Rate Interest Remittance Amount and (ii) the
Adjustable Rate Principal Remittance Amount.
"Adjustable Rate Mortgage Loan": A Mortgage Loan included in the
Adjustable Rate Pool.
"Adjustable Rate Net Monthly Excess Cashflow": As defined in Section
3.5(b)(iii) hereof.
2
<PAGE>
"Adjustable Rate Note Account": The Adjustable Rate Note Account
established in accordance with Section 3.2(a) hereof and maintained by the
Indenture Trustee, provided that the funds in such account shall not be
commingled with any other funds held by the Indenture Trustee.
"Adjustable Rate Note Insurance Policy": The financial guaranty
insurance policy (number 50700B-N) dated June 26, 1998 issued by the Note
Insurer to the Indenture Trustee for the benefit of the Owners of the Adjustable
Rate Notes.
"Adjustable Rate Note Principal Balance": As of any time of
determination, the Original Adjustable Rate Note Principal Balance less any
amounts actually distributed on account of the Adjustable Rate Principal Payment
Amount pursuant to Section 3.5(b)(iv)(C) hereof with respect to principal
thereon on all prior Payment Dates.
"Adjustable Rate Note Rate": For the initial Payment Date, 5.81625%. As
of any Payment Date thereafter, the lesser of (x) LIBOR plus, in the case of any
Payment Date on or prior to the Redemption Date relating to the Adjustable Rate
Pool, 0.16% per annum, or in the case of any Payment Date thereafter, 0.32% per
annum and (y) the Available Funds Cap for such Payment Date.
"Adjustable Rate Notes": Any one of the Notes substantially in the form
attached to the Adjustable Rate Indenture as Exhibit A.
"Adjustable Rate Pool": The pool of Adjustable Rate Mortgage Loans
identified in the related Schedules of Mortgage Loans as having been assigned to
the Adjustable Rate Pool, including any Qualified Replacement Mortgages
delivered in replacement thereof and each Subsequent Mortgage Loan included
therein.
"Adjustable Rate Premium Amount": As to any Payment Date, the product
of one-twelfth of (x) the Adjustable Rate Premium Percentage and (y) the
Adjustable Rate Note Principal Balance on such Payment Date (before taking into
account any distributions of principal to be made to the Owners of the
Adjustable Rate Notes on such Payment Date).
"Adjustable Rate Premium Percentage": The rate at which note insurance
premium is calculated in respect of the Adjustable Rate Notes in accordance with
the Premium Letter.
"Adjustable Rate Principal Carry-Forward Amount": With respect to any
Payment Date, the amount, if any, by which (i) the Adjustable Rate Principal
Payment Amount as of the immediately preceding Payment Date exceeded (ii) the
amount of the actual payment of principal made to the Owners of the Adjustable
Rate Notes on such immediately preceding Payment Date.
"Adjustable Rate Principal Payment Amount": With respect to the
Adjustable Rate Note for any Payment Date, the lesser of:
(x) the Adjustable Rate Total Available Funds plus any
Insured Payment on the Adjustable Rate Notes minus
the Adjustable Rate Current Interest and any Fees and
Expenses related to the Adjustable Rate Pool for such
Payment Date; and
(y) the excess, if any, of (i) the sum, without
duplication of:
(a) the Adjustable Rate Principal Carry-Forward
Amount for such Payment Date,
(b) the principal portion of all scheduled
monthly payments on the Mortgage Loans in
the Adjustable Rate Pool due on or prior to
the related Due Date during the related Due
Period, to the extent actually received by
the Servicer on or prior to the related
Remittance Date or to the extent
3
<PAGE>
advanced by the Servicer on or prior to the
related Remittance Date and the principal
portion of any Prepayments made by the
respective Mortgagors during the related
Remittance Period,
(c) the Loan Balance of each Mortgage Loan in
the Adjustable Rate Pool that either was
repurchased by the Seller or an Originator
or purchased by the Servicer on the related
Remittance Date,
(d) any Substitution Amounts delivered by the
Seller or an Originator on the related
Remittance Date in connection with a
substitution of a Mortgage Loan in the
Adjustable Rate Pool (to the extent such
Substitution Amounts relate to principal),
(e) all Net Liquidation Proceeds actually
collected by the Servicer with respect to
the Mortgage Loans in the Adjustable Rate
Pool during the related Remittance Period
(to the extent such Net Liquidation Proceeds
relate to principal),
(f) the amount of the excess, if any, of (i) the
Adjustable Rate Subordination Deficit for
such Payment Date over (ii) the Fixed Rate
Subordinated Amount for such Payment Date,
(g) the proceeds received by the Indenture
Trustee with respect to any liquidation of
the Adjustable Rate Mortgage Loans, as set
forth in Article V hereof (to the extent
such proceeds related to principal),
(h) any moneys released from the Pre-Funding
Account as a prepayment of the Adjustable
Rate Notes on the Payment Date which
immediately follows the end of the Funding
Period; and
(i) the amount of any Subordination Increase
Amount with respect to the Adjustable Rate
Pool for such Payment Date, to the extent of
any Adjustable Rate Net Monthly Excess
Cashflow available for such purpose;
over
(ii) the amount of any Subordination Reduction Amount with
respect to the Adjustable Rate Pool for such Payment
Date.
"Adjustable Rate Principal Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) the scheduled principal due on or
prior to the Due Date occurring during the related Due Period with respect to
Mortgage Loans in the Adjustable Rate Pool to the extent collected by the
Servicer during the related Remittance Period, (ii) Prepayments collected in the
related Remittance Period and relating to principal on the Adjustable Rate
Mortgage Loans, (iii) the Loan Balance of each Mortgage Loan in the Adjustable
Rate Pool that either was repurchased by an Originator or by the Seller or
purchased by the Servicer on such Remittance Date, (iv) any Substitution Amounts
delivered by the Seller in connection with a substitution of a Mortgage Loan in
the Adjustable Rate Pool to the extent such Substitution Amounts relate to
principal, (v) all Net Liquidation Proceeds actually collected by the Servicer
with respect to Mortgage Loans in the Adjustable Rate Pool during the related
Remittance Period (to the extent such Liquidation Proceeds related to
principal), (vi) all Delinquency Advances relating to principal made by the
Servicer on such Remittance Date with respect to the Adjustable Rate Pool and
(vii) the amount of any investment losses required to be deposited by the Seller
or the Servicer pursuant to Sections 3.6(e) or 4.8(b).
"Adjustable Rate Projected Net Monthly Excess Cashflow": As of
any date of calculation, Adjustable Rate Net Monthly Excess Cashflow (other than
any Subordination Reduction Amount included
4
<PAGE>
therein), as calculated pursuant to Section 3.5(b)(iii) hereof on the Payment
Date immediately preceding such date of calculation.
"Adjustable Rate Reimbursement Amount": As of any Payment Date, the sum
of (x)(i) all Insured Payments relating to the Adjustable Rate Notes previously
received by the Indenture Trustee and not previously repaid to the Note Insurer
pursuant to Section 3.5(b)(ii)(B) hereof plus (ii) interest accrued on each such
Insured Payment not previously repaid calculated at the Late Payment Rate from
the date the Indenture Trustee received the related Insured Payment to, but not
including, such Payment Date and (y)(i) any amounts then due and owing to the
Note Insurer relating to the Adjustable Rate Notes under the Insurance Agreement
plus (ii) interest on such amounts at the Late Payment Rate. The Note Insurer
shall notify the Indenture Trustee and the Seller of the amount of any
Adjustable Rate Reimbursement Amount.
"Adjustable Rate Residual Net Monthly Excess Cashflow": With respect to
any Payment Date, the Adjustable Rate Net Monthly Excess Cashflow for such
Payment Date, if any, remaining after making all of the applications described
in Sections 3.5(b)(i), (ii), (iii) and (iv) hereof.
"Adjustable Rate Specified Subordinated Amount": Means (a) for any
Payment Date occurring during the period commencing on the Closing Date and
ending on the later of (i) the date on which principal equal to one-half of the
Adjustable Rate Maximum Collateral Amount has been received and (ii) the 30th
Payment Date (inclusive) following the Closing Date, the greater of (A) the
Adjustable Rate Amortized Subordinated Amount Requirement and (B) two (2) times
the excess, if any, of (x) one-half of the aggregate Loan Balances of all
Mortgage Loans in the Adjustable Rate Pool which are 90 or more days Delinquent
(including REO Properties and Mortgage Loans in foreclosure) over (y) five times
the Adjustable Rate Projected Net Monthly Excess Cashflow as of such Payment
Date; and (b) for any Payment Date occurring after the end of the period in
clause (a) above, the greatest of (i) the lesser of (A) the Adjustable Rate
Amortized Subordinated Amount Requirement and (B) 4.00% times the current
Adjustable Rate Note Principal Balance, (ii) two (2) times the excess of (A)
one-half of the aggregate Loan Balances of all Mortgage Loans in the Adjustable
Rate Pool which are 90 or more days Delinquent (including REO Properties and
Mortgage Loans in foreclosure) over (B) three times the Adjustable Rate
Projected Net Monthly Excess Cashflow as of such Payment Date and (iii) an
amount equal to 0.50% of the Adjustable Rate Maximum Collateral Amount;
provided, however, notwithstanding the above, in the event that any Insured
Payment is made by the Note Insurer with respect to the Adjustable Rate Notes,
the amount described in this clause (b) shall remain equal to the Adjustable
Rate Amortized Subordinated Amount Requirement. The Adjustable Rate Specified
Subordinated Amount may be reduced or eliminated by the Note Insurer in its sole
discretion. Prior to any such reduction or elimination, the Servicer and the
Note Insurer shall give written notice to the Rating Agencies.
"Adjustable Rate Subordinated Amount": As of any Payment Date, the
difference, if any, between (x) the sum of (i) the aggregate Loan Balances of
the Mortgage Loans in the Adjustable Rate Pool as of the close of business on
the last day of the related Remittance Period and (ii) any amount on deposit in
the Pre-Funding Account relating to the Adjustable Rate Pool less any
Pre-Funding Account Earnings relating to the Adjustable Rate Pool at such time
and (y) the Adjustable Rate Note Principal Balance as of such Payment Date
(after taking into account the payment of the Adjustable Rate Monthly Payment
Amount (except for any portion thereof related to an Insured Payment) on such
Payment Date).
"Adjustable Rate Subordination Deficit": With respect to any Payment
Date, the amount, if any, by which (x) the Adjustable Rate Note Principal
Balance, after taking into account the payment of the Adjustable Rate Monthly
Payment Amount on such Payment Date (except any payment to be made as to
principal from the proceeds of the Adjustable Rate Note Insurance Policy),
exceeds the sum of (y) the aggregate Loan Balance of the Mortgage Loans in the
Adjustable Rate Pool as of the close of business on the last day of the
preceding Remittance Period after taking into account payments of scheduled
principal on such Mortgage Loans due on the Due Date in the calendar month in
which such Payment Date occurs and (z) the portion of the Pre-Funded Amount
relating to the Adjustable Rate Notes; provided that for the purpose of
calculating Loan Balances to determine if an Adjustable Rate Subordination
Deficit exists, the
5
<PAGE>
aggregate amount of the principal component of all unreimbursed Delinquency
Advances relating to the Adjustable Rate Pool shall be deducted from the related
actual Loan Balances.
"Adjustable Rate Total Available Funds": As defined in Section
3.3(a)(i) hereof.
"Adjustable Rate Total Available Funds Shortfall": As defined in clause
(ii) of Section 3.3(b) hereof.
"Adjustable Rate Total Monthly Excess Cashflow": As defined in Section
3.5(b)(ii) hereof.
"Adjustable Rate Total Monthly Excess Spread": With respect to any
Payment Date, the difference between (i) the Adjustable Rate Interest Remittance
Amount for such Remittance Period and (ii) the sum of (x) the interest due on
the Adjustable Rate Notes on such Payment Date, (y) the Fees and Expenses
relating to the Adjustable Rate Pool, if any, for such Payment Date and (z) the
Servicing Fee relating to the Adjustable Rate Pool for such Payment Date.
"Agreement": This Sale and Servicing Agreement, as it may be amended
from time to time, and including the Exhibits hereto.
"Annual Loss Percentage (Rolling Six Months)": As of any date of
determination thereof, and with respect to either Mortgage Loan Pool, the
product of (i) two and (ii) a fraction, expressed as a percentage, the numerator
of which is the aggregate of the Realized Losses in respect of such Mortgage
Loan Pool as of the last day of each of the six immediately preceding Remittance
Periods and the denominator of which is the aggregate Loan Balance of the
Mortgage Loans in such Mortgage Loan Pool as of the first day of the sixth
preceding Remittance Period.
"Appraised Value": The appraised value of any Property based upon the
appraisal or other valuation made at the time of the origination of the related
Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase money
mortgage, the sales price of the Property at such time of origination, if such
sales price is less than such appraised value.
"Authorized Officer": With respect to any Person, any person who is
authorized to act for such Person in matters relating to this Agreement, and
whose action is binding upon such Person and, with respect to the Seller and the
Servicer, initially including those individuals whose names appear on the lists
of Authorized Officers delivered on the Closing Date, and with respect to the
Indenture Trustee, any Vice President, Assistant Vice President, Assistant
Treasurer or Assistant Secretary of the Indenture Trustee.
"Available Funds": With respect to the Adjustable Rate Pool, the
Adjustable Rate Available Funds and with respect to the Fixed Rate Pool, the
Fixed Rate Available Funds.
"Available Funds Cap": As of any Payment Date (x) the weighted average
of the Coupon Rates on the Mortgage Loans in the Adjustable Rate Pool less (y)
the sum of (a) the sum of (i) the Servicing Fee Rate, (ii) the Indenture Trustee
Fee Rate and (iii) the Owner Trustee Fee (expressed as a per annum percentage),
(b) the Adjustable Rate Premium Percentage and (c) 0.50% per annum.
"Available Funds Cap Carry-Forward Amortization Amount": As of any
Payment Date, any amount distributed from the Available Funds Cap Carry-Forward
Amount Account on such Payment Date pursuant to Section 3.5(c) hereof.
"Available Funds Cap Carry-Forward Amount": As of any Payment Date, the
excess, if any, of (x) the sum of (i) the excess, if any, equal to (a) the
aggregate amount of interest due on the Adjustable Rate Notes on all prior
Payment Dates, calculated at the Formula Note Rate applicable to each such
Payment Date over (b) the aggregate amount of interest due on the Adjustable
Rate Notes on all prior Payment Dates, calculated at the Adjustable Rate Note
Rate applicable to each such Payment Date, (ii) the amount, if any,
6
<PAGE>
described in clause (iii) hereof as of the immediately preceding Payment Date
and (iii) the product of (a) one-twelfth of the Formula Note Rate on such
Payment Date and (b) the sum of the amounts described in clauses (i) and (ii)
preceding over (y) all Available Funds Cap Carry-Forward Amortization Amounts
actually funded on all prior Payment Dates.
"Available Funds Cap Carry-Forward Amount Account": The Available Funds
Cap Carry- Forward Amount Account established in accordance with Section 3.2
hereof and maintained by the Indenture Trustee.
"Available Funds Shortfall": Either the Adjustable Rate Available Funds
Shortfall or the Fixed Rate Available Funds Shortfall.
"Business Day": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in the States of New York or California or
in the city in which the Corporate Trust Office is located or the city in which
the principal office of the Note Insurer is located are authorized or obligated
by law or executive order to be closed.
"Capitalized Interest Account": The Capitalized Interest Account
established in accordance with Section 3.2(b) hereof and maintained by the
Indenture Trustee.
"Certificate": Any one of the Certificates issued pursuant to the Trust
Agreement.
"Certificate Distribution Account": The Certificate Distribution
Account established in accordance with the Trust Agreement.
"Closing Date": June 26, 1998.
"Code": The Internal Revenue Code of 1986, as amended and any successor
statute.
"Combined Loan-to-Value Ratio": With respect to any First Mortgage
Loan, the percentage equal to the Original Principal Amount of the related
Mortgage Note divided by the Appraised Value of the related Property and with
respect to any Second Mortgage Loan, the percentage equal to (a) the sum of (i)
the remaining principal balance, as of origination of the Second Mortgage Loan
of the Senior Lien note(s) relating to such Second Mortgage Loan and (ii) the
Original Principal Amount of the Mortgage Note relating to such Second Mortgage
Loan divided by (b) the Appraised Value of the related Property.
"Compensating Interest": As defined in Section 4.9(b) hereof.
"Corporate Trust Office": The principal office of the Indenture Trustee
at 450 West 33rd Street, 15th Floor, New York, New York 10001, attention: First
Alliance Mortgage Loan Trust 1998-2 or any other office of the Indenture Trustee
designated as such hereunder.
"Coupon Rate": The annual rate of interest borne by each Mortgage Note.
"Current Interest": As applicable, the Adjustable Rate Current Interest
or the Fixed Rate Current Interest.
"Curtailment": With respect to a Mortgage Loan, any payment of
principal received during a Remittance Period as part of a payment that is in
excess of the amount of the monthly payment due for such Remittance Period and
which is not a Prepaid Installment or made in respect of a Paid-in-Full Mortgage
Loan, nor is intended to cure a delinquency.
"Custodial Agreement": The Custodial Agreement, dated as of June 1,
1998, among the Custodian, the Indenture Trustee, the Seller and the Servicer.
7
<PAGE>
"Custodian": The Bank of New York, a New York banking corporation, as
Custodian on behalf of the Indenture Trustee pursuant to the Custodial
Agreement, or any successor thereto.
"Cut-Off Date": June 1, 1998.
"Delinquency Advance": As defined in Section 4.9(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. A Mortgage Loan is "30 days Delinquent" if such payment has
not been received by the close of business on the second day of the month
immediately succeeding the month in which such payment was due. Similarly for
"60 days Delinquent," "90 days Delinquent" and so on.
"Designated Depository Institution": With respect to any Account an
institution whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, the long-term deposits of which shall be
rated (x) A or better by Standard & Poor's and (y) A2 or better by Moody's and
in one of the highest short-term rating categories, unless otherwise approved in
writing by the Note Insurer and each of Moody's and Standard & Poor's, and which
is any of the following: (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, (iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Note Insurer, Moody's and Standard & Poor's and, in each case
acting or designated by the Servicer as the depository institution for the
Principal and Interest Account; provided, however, that any such institution or
association shall have combined capital, surplus and undivided profits of at
least $100,000,000. Notwithstanding the foregoing, any Account may be held by
(a) the Indenture Trustee or (b) an institution otherwise meeting the preceding
requirements except that the only applicable rating requirement shall be that
the unsecured and uncollateralized debt obligations thereof shall be rated Baa3
or better by Moody's if such institution has trust powers and the Principal and
Interest Account is held by such institution in its trust capacity and not in
its commercial capacity.
"Determination Date": The 12th day of each month, or if such day is not
a Business Day, the next succeeding Business Day.
"Due Date": The first day of the month of the related Payment Date.
"Due Period": With respect to any Payment Date, the period commencing
on the second day of the month preceding the month of such Payment Date (or,
with respect to the first Due Period, the day following the Cut-Off Date) and
ending on the related Due Date.
"Eligible Investments": Those investments so designated pursuant to
Section 3.7 hereof.
"Event of Servicing Termination": Any event as described in Section
4.20 hereof.
"Excess Subordinated Amount": With respect to any Mortgage Loan Pool
and Payment Date, the excess, if any, of (x) the Subordinated Amount that would
apply to such Mortgage Loan Pool on such Payment Date after taking into account
the payment of the related Monthly Payment Amount on such Payment Date (except
for any distributions of the Subordination Reduction Amount on such Payment
Date) over (y) the related Specified Subordinated Amount for such Payment Date.
"Fannie Mae": Fannie Mae, a federally-chartered and privately-owned
corporation existing under the Federal National Mortgage Association Charter
Act, as amended, or any successor thereof.
"FDIC": The Federal Deposit Insurance Corporation, or any successor
thereto.
8
<PAGE>
"Fees and Expenses": With respect to any Payment Date, the sum of (a)
the Premium Amount, (b) the Indenture Trustee Fee for such Payment Date and (c)
the Owner Trustee Fee for such Payment Date.
"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 Custodian, on behalf of the
Indenture Trustee pursuant to Section 2.5 hereof pertaining to a particular
Mortgage Loan and any additional documents required to be added to the mortgage
file pursuant to this Agreement.
"Final Certification": The final certification in the form set forth as
Exhibit D hereto and delivered by the Custodian, on behalf of the Indenture
Trustee to the Seller within 90 days after the Closing Date pursuant to Section
2.6 hereof.
"Final Payment Date": September 20, 2029, for each Series of Notes.
"First Mortgage Loan": A Mortgage Loan which constitutes a first
priority mortgage lien with respect to any Property.
"Fixed Rate Amortized Subordinated Amount Requirement": As of any date
of determination, the product of (x) 1.00% and (y) the Fixed Rate Maximum
Collateral Amount.
"Fixed Rate Available Funds": As defined in Section 3.3(a)(ii) hereof.
"Fixed Rate Available Funds Shortfall": As defined in Section
3.5(f)(ii)(A) hereof.
"Fixed Rate Capitalized Interest Requirement": $77,500.
"Fixed Rate Cumulative Loss Percentage": As of any date of
determination thereof, the aggregate of all Realized Losses on Mortgage Loans in
the Fixed Rate Pool since the Closing Date as a percentage of the Fixed Rate
Maximum Collateral Amount.
"Fixed Rate Cumulative Loss Test": The Fixed Rate Cumulative Loss Test
for each period indicated below is satisfied if the Fixed Rate Cumulative Loss
Percentage for such period does not exceed the percentage set out for such
period below:
Fixed Rate
Cumulative Loss
Period Percentage
------ ----------
June 2, 1998 - June 1, 1999 1.00%
June 2, 1999 - June 1, 2000 1.50%
June 2, 2000 - June 1, 2001 2.00%
June 2, 2001 - June 1, 2002 2.50%
June 2, 2002 - and thereafter 3.00%
"Fixed Rate Current Interest": With respect to interest accruing after
the Cut-Off Date and as of any Payment Date, the sum of (i) the aggregate amount
of interest accrued on the Fixed Rate Note Principal Balance immediately prior
to such Payment Date during the related Interest Accrual Period at the Fixed
Rate Note Rate and (ii) any related Interest Carry-Forward Amount for such
Payment Date.
9
<PAGE>
"Fixed Rate Indenture": The Indenture, dated June 1, 1998 between the
Issuer and the Indenture Trustee, relating to the issuance of the Fixed Rate
Notes.
"Fixed Rate Interest Remittance Amount": As of any Remittance Date, the
sum, without duplication, of (i) all scheduled interest due on or prior to the
Due Date occurring during the related Due Period, with respect to the Fixed Rate
Mortgage Loans to the extent collected by the Servicer during the related
Remittance Period, (ii) all Delinquency Advances relating to interest made by
the Servicer on such Remittance Date with respect to the Fixed Rate Mortgage
Loans, (iii) all Compensating Interest paid by the Servicer on such Remittance
Date with respect to the Fixed Rate Mortgage Loans and (iv) any amounts relating
to the Fixed Rate Pool required to be transferred from the Capitalized Interest
Account to the Fixed Rate Note Account pursuant to Section 3.4(e) hereof on the
related Payment Date.
"Fixed Rate Maximum Collateral Amount": $70,000,000.
"Fixed Rate Monthly Payment Amount": With respect to a Payment Date,
the sum of (x) the Fixed Rate Principal Payment Amount payable to the Owners of
the Fixed Rate Notes pursuant to Section 3.5(f)(iv)(C) on such Payment Date and
(y) the Fixed Rate Current Interest payable to the Owners of the Fixed Rate
Notes pursuant to Section 3.5(f)(iv)(B) on such Payment Date.
"Fixed Rate Monthly Remittance Amount": As of any Remittance Date, the
sum of (i) the Fixed Rate Interest Remittance Amount and the Fixed Rate
Principal Remittance Amount.
"Fixed Rate Mortgage Loan": A Mortgage Loan included in the Fixed Rate
Pool.
"Fixed Rate Net Monthly Excess Cashflow": As defined in Section
3.5(f)(iii) hereof.
"Fixed Rate Note Account": The Fixed Rate Note Account established in
accordance with Section 3.2(a) hereof and maintained by the Indenture Trustee,
provided that the funds in such account shall not be commingled with any other
funds held by the Indenture Trustee.
"Fixed Rate Note Insurance Policy": The financial guaranty insurance
policy (number 50700A-N) dated June 26, 1998 issued by the Note Insurer to the
Indenture Trustee for the benefit of the Owners of the Fixed Rate Notes.
"Fixed Rate Note Principal Balance": As of any time of determination,
the Original Fixed Rate Note Principal Balance less any amounts actually
distributed on account of the Fixed Rate Principal Payment Amount pursuant to
Section 3.5(f)(iv)(C) hereof with respect to principal thereon on all prior
Payment Date.
"Fixed Rate Note Rate": 6.52% per annum; provided that on any Payment
Date after the Redemption Date for the Fixed Rate Pool, the Fixed Rate Note Rate
shall be 7.02% per annum.
"Fixed Rate Notes": Any one of the Notes substantially in the form
attached to the Fixed Rate Indenture as Exhibit A.
"Fixed Rate Pool": The pool of Fixed Rate Mortgage Loans identified in
the related Schedules of Mortgage Loans as having been assigned to the Fixed
Rate Pool, including any Qualified Replacement Mortgages delivered in
replacement thereof and each Subsequent Mortgage Loan included therein.
"Fixed Rate Premium Amount": As to any Payment Date, the product of
one-twelfth of (x) the Fixed Rate Premium Percentage and (y) the Fixed Rate Note
Principal Balance on such Payment Date (before taking into account any
distributions of principal to be made to the Owners of the Fixed Rate Notes on
such Payment Date).
10
<PAGE>
"Fixed Rate Premium Percentage": The rate at which note insurance
premium is calculated in respect of the Fixed Rate Notes in accordance with the
Premium Letter.
"Fixed Rate Principal Carry-Forward Amount": With respect to any
Payment Date, the amount, if any, by which (i) the Fixed Rate Principal Payment
Amount as of the immediately preceding Payment Date exceeded (ii) the amount of
the actual payment of principal made to the Owners of the Fixed Rate Notes on
such immediately preceding Payment Date.
"Fixed Rate Principal Payment Amount": With respect to the Fixed Rate
Notes for any Payment Date, the lesser of:
(x) the Fixed Rate Total Available Funds plus any Insured
Payment on the Fixed Rate Notes minus the Fixed Rate
Current Interest and any Fees and Expenses related to
the Fixed Rate Pool for such Payment Date; and
(y) the excess, if any, of (i) the sum, without
duplication of:
(a) the Fixed Rate Principal Carry-Forward
Amount for such Payment Date,
(b) the principal portion of all scheduled
monthly payments on the Mortgage Loans in
the Fixed Rate Pool due on or prior to the
related Due Date during the related Due
Period, to the extent actually received by
the Servicer on or prior to the related
Remittance Date or to the extent advanced by
the Servicer on or prior to the related
Remittance Date and the principal portion of
any Prepayments made by the respective
Mortgagors during the related Remittance
Period,
(c) the Loan Balance of each Mortgage Loan in
the Fixed Rate Pool that either was
repurchased by the Seller or an Originator
or purchased by the Servicer on the related
Remittance Date,
(d) any Substitution Amounts delivered by the
Seller or an Originator on the related
Remittance Date in connection with a
substitution of a Mortgage Loan in the
Fixed Rate Pool (to the extent such
Substitution Amounts relate to principal),
(e) all Net Liquidation Proceeds actually
collected by the Servicer with respect to
the Mortgage Loans in the Fixed Rate Pool
during the related Remittance Period (to the
extent such Net Liquidation Proceeds relate
to principal),
(f) the amount of the excess, if any, of (i) the
Fixed Rate Subordination Deficit for such
Payment Date over (ii) the Adjustable Rate
Subordinated Amount for such Payment Date,
(g) the proceeds received by the Indenture
Trustee with respect to any liquidation of
the Fixed Rate Mortgage Loans, as set forth
in Article V hereof (to the extent such
proceeds related to principal),
(h) any moneys released from the Pre-Funding
Account as a prepayment of the Fixed Rate
Notes on the Payment Date which immediately
follows the end of the Funding Period; and
(i) the amount of any Subordination Increase Amount with
respect to the Fixed Rate Pool for such Payment
Date, to the extent of any
11
<PAGE>
Fixed Rate Net Monthly Excess Cashflow available for
such purpose;
over
(ii) the amount of any Subordination Reduction Amount with
respect to the Fixed Rate Pool for such Payment Date.
"Fixed Rate Principal Remittance Amount": As of any Remittance Date,
the sum, without duplication, of (i) the scheduled principal due on or prior to
the Due Date occurring during the related Due Period with respect to Mortgage
Loans in the Fixed Rate Pool to the extent collected by the Servicer during the
related Remittance Period, (ii) Prepayments collected in the related Remittance
Period and relating to principal on the Fixed Rate Mortgage Loans, (iii) the
Loan Balance of each Mortgage Loan in the Fixed Rate Pool that either was
repurchased by an Originator or by the Seller or purchased by the Servicer on
such Remittance Date, to the extent such Loan Balance was actually deposited in
the Principal and Interest Account, (iv) any Substitution Amounts delivered by
the Seller in connection with a substitution of a Mortgage Loan in the Fixed
Rate Pool to the extent such Substitution Amounts relate to principal, (v) all
Net Liquidation Proceeds actually collected by the Servicer with respect to
Mortgage Loans in the Fixed Rate Pool during the related Remittance Period (to
the extent such Liquidation Proceeds related to principal), (vi) all Delinquency
Advances relating to principal made by the Servicer on such Remittance Date with
respect to the Fixed Rate Pool and (vii) the amount of any investment losses
required to be deposited by the Seller or the Servicer pursuant to Sections
3.6(e) or 4.8(b).
"Fixed Rate Projected Net Monthly Excess Cashflow": As of any date of
calculation, Fixed Rate Net Monthly Excess Cashflow (other than any
Subordination Reduction Amount included therein), as calculated pursuant to
Section 3.5(f)(iii) hereof on the Payment Date immediately preceding such date
of calculation.
"Fixed Rate Reimbursement Amount": As of any Payment Date, the sum of
(x)(i) all Insured Payments relating to the Fixed Rate Notes previously received
by the Indenture Trustee and not previously repaid to the Note Insurer pursuant
to Section 3.5(f)(ii)(B) hereof plus (ii) interest accrued on each such Insured
Payment not previously repaid calculated at the Late Payment Rate from the date
the Indenture Trustee received the related Insured Payment to, but not
including, such Payment Date and (y)(i) any amounts then due and owing to the
Note Insurer relating to the Fixed Rate Notes under the Insurance Agreement plus
(ii) interest on such amounts at the Late Payment Rate. The Note Insurer shall
notify the Indenture Trustee and the Seller of the amount of any Fixed Rate
Reimbursement Amount.
"Fixed Rate Residual Net Monthly Excess Cashflow": With respect to any
Payment Date, the Fixed Rate Net Monthly Excess Cashflow for such Payment Date,
if any, remaining after making all of the applications described in Section
3.5(f)(i), (ii), (iii) and (iv) hereof.
"Fixed Rate Specified Subordinated Amount": Means (a) for any Payment
Date occurring during the period commencing on the Closing Date and ending on
the later of (i) the date on which principal equal to one-half of the Fixed Rate
Maximum Collateral Amount has been received and (ii) the 30th Payment Date
following the Closing Date, the greater of (A) the Fixed Rate Amortized
Subordinated Amount Requirement and (B) two (2) times the excess, if any, of (x)
one-half of the aggregate Loan Balances of all Mortgage Loans in the Fixed Rate
Pool which are 90 or more days Delinquent (including REO Properties and Mortgage
Loans in foreclosure) over (y) five times the Fixed Rate Projected Net Monthly
Excess Cashflow as of such Payment Date; and (b) for any Payment Date occurring
after the end of the period in clause (a) above, the greatest of (i) the lesser
of (A) the Fixed Rate Amortized Subordinated Amount Requirement and (B) 2.00%
times the current Fixed Rate Note Principal Balance, (ii) two (2) times the
excess of (A) one-half of the aggregate Loan Balances of all Mortgage Loans in
the Fixed Rate Pool which are 90 or more days Delinquent (including REO
Properties and Mortgage Loans in foreclosure) over (B) three times the Fixed
Rate Projected Net Monthly Excess Cashflow as of such Payment Date and (iii) an
amount equal to 0.50% of the Fixed Rate Maximum Collateral Amount; provided,
however, notwithstanding the above, in the event that any Insured Payment is
made by the Note Insurer with respect to the Fixed Rate
12
<PAGE>
Notes, the amount described in this clause (b) shall remain equal to the Fixed
Rate Amortized Subordinated Amount Requirement. The Fixed Rate Specified
Subordinated Amount may be reduced or eliminated by the Note Insurer in its sole
discretion. Prior to any such reduction or elimination, the Servicer and the
Note Insurer shall give written notice to the Rating Agencies.
"Fixed Rate Subordinated Amount": As of any Payment Date, the
difference, if any, between (x) the sum of (i) the aggregate Loan Balances of
the Mortgage Loans in the Fixed Rate Pool as of the close of business on the
last day of the related Remittance Period and (ii) any amount on deposit in the
Pre-Funding Account relating to the Fixed Rate Pool less any Pre-Funding Account
Earnings relating to the Fixed Rate Pool at such time and (y) the Fixed Rate
Note Principal Balance as of such Payment Date (after taking into account the
payment of the Fixed Rate Monthly Payment Amount (except for any portion thereof
related to an Insured Payment) on such Payment Date).
"Fixed Rate Subordination Deficit": With respect to any Payment Date,
the amount, if any, by which (x) the Fixed Rate Note Principal Balance, after
taking into account the payment of the Fixed Rate Monthly Payment Amount on such
Payment Date (except any payment to be made as to principal from the proceeds of
the Fixed Rate Note Insurance Policy), exceeds the sum of (y) the aggregate Loan
Balance of the Mortgage Loans in the Fixed Rate Pool as of the close of business
on the last day of the preceding Remittance Period after taking into account
payments of scheduled principal on such Mortgage Loans due on the Due Date in
the calendar month in which such Payment Date occurs and (z) the portion of the
Pre-Funded Amount relating to the Adjustable Rate Notes; provided that for the
purpose of calculating Loan Balances to determine if an Fixed Rate Subordination
Deficit exists, the aggregate amount of the principal component of all
unreimbursed Delinquency Advances relating to the Fixed Rate Pool shall be
deducted from the related actual Loan Balances.
"Fixed Rate Total Available Funds": As defined in Section 3.3(a)(ii)
hereof.
"Fixed Rate Total Available Funds Shortfall": As defined in clause (y)
of Section 3.3(b) hereof.
"Fixed Rate Total Monthly Excess Cashflow": As defined in Section
3.5(f)(ii) hereof.
"Fixed Rate Total Monthly Excess Spread": With respect to any Payment
Date, the difference between (i) the Fixed Rate Interest Remittance Amount for
such Remittance Period and (ii) the sum of (x) the interest due on the Fixed
Rate Notes on such Payment Date, (y) the Fees and Expenses relating to the Fixed
Rate Pool, if any, for such Payment Date and (z) the Servicing Fee relating to
the Fixed Rate Pool for such Payment Date.
"Formula Note Rate": The rate determined by clause (x) of the
definition of "Adjustable Rate Note Rate."
"Funding Period": The period commencing on the Closing Date and ending
on June 30, 1998.
"Highest Lawful Rate": As defined in Section 6.14.
"Indemnification Agreement": The Indemnification Agreement dated as of
June 10, 1998, among the Note Insurer, the Seller, the Issuer and the
Underwriter.
"Indenture": As applicable, the Adjustable Rate Indenture and the Fixed
Rate Indenture.
"Indenture Trustee": The Chase Manhattan Bank located on the date of
execution of this Agreement at 450 West 33rd Street, New York, New York 10001,
not in its individual capacity but solely as Indenture Trustee under the
Indenture, and any successor thereunder.
13
<PAGE>
"Indenture Trustee Fee": The amount payable monthly to the Indenture
Trustee on each Payment Date, in an amount equal to the product of (x)
one-twelfth of the Indenture Trustee Fee Rate and (y) the sum of (1) the
Adjustable Rate Note Principal Balance immediately prior to such Payment Date
and (2) the Fixed Rate Note Principal Balance immediately prior to such Payment
Date.
"Indenture Trustee Fee Rate": 0.02% per annum.
"Initial Adjustable Rate Specified Subordinated Amount": $0.
"Initial Certification": The initial certification in the form set
forth as Exhibit C hereto and delivered by the Custodian, on behalf of the
Indenture Trustee, to the Seller on the Closing Date pursuant to Section 2.6
hereof.
"Initial Fixed Rate Specified Subordinated Amount": $0.
"Initial Mortgage Loans": The Mortgage Loans to be sold to the Issuer
by the Seller on the Closing Date.
"Insurance Agreement": The Insurance and Indemnity Agreement dated as
of June 1, 1998, among the Seller, the Servicer, the Issuer and the Note
Insurer, 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.
"Insured Payment": For any Mortgage Loan Pool and Payment Date is the
sum of (i) the amount by which the related Current Interest (net of any related
Prepayment Interest Shortfalls and Relief Act Shortfalls) exceeds the Total
Available Funds (after any deduction for the related Fees and Expenses) for such
Mortgage Loan Pool and any Net Monthly Excess Spread available from the other
Mortgage Loan Pool to cover such shortfall as of such Payment Date, (ii) the
amount of the excess, if any, of (A) the Subordination Deficit for such Payment
Date with respect to the related Mortgage Loan Pool over (B) the Subordinated
Amount for such Payment Date with respect to the other Mortgage Loan Pool, (iii)
any unpaid Preference Amount with respect to such Mortgage Loan Pool and (iv) as
to the Final Payment Date for each Series of Notes, an amount sufficient after
the application of the related Total Available Funds, to reduce the Note
Principal Balance for such Series of Notes to zero and to pay all accrued and
unpaid interest thereon.
"Insured Payment Amount": For any Mortgage Loan Pool and (a) any
Payment Date, other than the Final Payment Date the sum of (i) the related
Current Interest (net of any Prepayment Interest Shortfalls and Relief Act
Shortfalls) and (ii) the amount of the excess, if any, of (A) the Subordination
Deficit for such Payment Date with respect to the related Mortgage Loan Pool
over (B) the Subordinated Amount for such Payment Date with respect to the other
Mortgage Loan Pool and (b) as to the Final Payment Date for each Series of
Notes, an amount sufficient after the application of Total Available Funds on
such Payment Date, to reduce the Note Principal Balance for such Series of Notes
to zero and to pay all accrued and unpaid interest (net of any Prepayment
Interest Shortfalls and Relief Act Shortfalls) thereon.
"Interest Accrual Period": With respect to the Adjustable Rate Notes
and any Payment Date, the period commencing on the immediately preceding Payment
Date (or in the case of the first Payment Date, the Closing Date) and ending on
the day immediately preceding the current Payment Date. With respect to the
Fixed Rate Notes and any Payment Date, the calendar month immediately preceding
such Payment Date. A "calendar month" shall be deemed to be 30 days. All
calculations of interest on the Adjustable Rate Notes will be made on the basis
of the actual number of days elapsed in the related Interest Accrual Period and
in a year of 360 days and all calculations of interest on the Fixed Rate Notes
will be made on the basis of a 360- day year assumed to consist of twelve 30-day
months.
14
<PAGE>
"Interest Carry Forward Amount": With respect to any Series of Notes
and any Payment Date, the sum of (x) the amount, if any, by which (i) the
Current Interest for such Series as of the immediately preceding Payment Date
exceeded (ii) the amount of the actual payments of interest made to the Owners
of such Series of Notes on such immediately preceding Payment Date and (y)
interest on such amount, calculated at the related Note Rate for such Series of
Notes for the number of days in the related Interest Accrual Period..
"Issuer" or "Trust": First Alliance Mortgage Loan Trust 1998-2, a
Delaware business trust.
"Late Payment Rate": As defined in the Insurance Agreement.
"LIBOR": With respect to any Interest Accrual Period for the Adjustable
Rate Notes, the rate determined by the Indenture Trustee on the related
Adjustable Rate Interest Determination Date on the basis of the offered rates of
the Reference Banks for one-month U.S. dollar deposits, as such rates appear on
Telerate Page 3750, as of 11:00 a.m. (London time) on such Adjustable Rate
Interest Determination Date. On each Adjustable Rate Interest Determination
Date, LIBOR for the related Interest Accrual Period will be established by the
Indenture Trustee as follows:
(i) If on such Adjustable Rate Interest Determination Date two or
more Reference Banks provide such offered quotations, LIBOR
for the related Interest Accrual Period shall be the
arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 0.0625%).
(ii) If on such Adjustable Rate Interest Determination Date fewer
than two Reference Banks provide such offered quotations,
LIBOR for the related Interest Accrual Period shall be the
higher of (i) LIBOR as determined on the previous Adjustable
Rate Interest Determination Date and (ii) the Reserve Interest
Rate.
"Liquidated Loan": As defined in Section 4.13(b) hereof. A Mortgage
Loan which is purchased from the Trust pursuant to Section 2.4, 2.6 or 4.10
hereof is not a "Liquidated Loan".
"Liquidation Expenses": Expenses which are incurred by the Servicer in
connection with the liquidation of any defaulted Mortgage Loan, such expenses,
including, without limitation, legal fees and expenses, and any unreimbursed
Servicing Advances expended by the Servicer pursuant to Sections 4.9(c) and 4.13
with respect to the related Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated Loan, as of any
date of determination, any amounts (including the proceeds of any Insurance
Policy) recovered by the Servicer in connection with such Liquidated Loan,
whether through Indenture Trustee's sale, foreclosure sale or otherwise.
"Loan Balance": With respect to a Mortgage Loan, the principal balance
thereof on the CutOff Date, less any Principal Remittance Amounts relating to
such Mortgage Loan included in previous Monthly Remittance Amounts that were
received by the Servicer or any Sub-Servicer whether or not delivered to the
Indenture Trustee, provided, that the Loan Balance for any Mortgage Loan which
has become a Liquidated Loan shall be zero as of the first day of the Remittance
Period following the Remittance 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 Remittance Date pursuant to Section 2.4, 2.6 or 4.10 hereof, an
amount equal to the Loan Balance of such Mortgage Loan as of the date of
purchase, plus one month's interest on the outstanding Loan Balance thereof as
of the beginning of the preceding Remittance Period computed at the then
applicable Coupon Rate less the Servicing Fee Rate, if any, together with,
without duplication, the aggregate amount of (i) all delinquent interest, all
Delinquency Advances and Servicing Advances theretofore made with respect to
such Mortgage Loan and not subsequently recovered from the related Mortgage Loan
and (ii) the interest portion of
15
<PAGE>
any Delinquency Advances which the Servicer or any Sub-Servicer has theretofore
failed to remit with respect to such Mortgage Loan.
"Loan-to-Value Ratio": The percentage equal to the Original Principal
Amount of the related Mortgage Note divided by the Appraised Value of the
related Property.
"London Business Day": A day on which banks are open for dealing in
foreign currency and exchange in London and New York City.
"Monthly Exception Report": The monthly report delivered by the
Servicer to the Indenture Trustee on each Remittance Date pursuant to Section
4.8(d)(ii). Each Monthly Exception Report shall cover the immediately preceding
Remittance Period and shall consist of, for each Mortgage Loan Pool and in the
aggregate, (i) an activity report of the Mortgage Loans setting forth the Loan
Balance of Mortgage Loans as of the first day of the related Remittance Period,
scheduled payments due, Prepayments, Liquidated Loan balances, and the resulting
Loan Balance of the Mortgage Loans as of the last day of the related Remittance
Period and (ii) separate reports of (a) payoffs, Curtailments, foreclosures and
bankruptcies, such reports to provide the payment details for each Mortgage Loan
covering the immediately preceding Remittance Period and any Prepayments not
previously reported from a prior Remittance Period, and (b) Prepayments and
delinquencies, such reports to reflect the current status of each Mortgage Loan
with payment details as of the last day of the related Remittance Period.
"Monthly Payment Amount": As applicable, the Adjustable Rate Monthly
Payment Amount or the Fixed Rate Monthly Payment Amount.
"Monthly Remittance Amount": As applicable, the Adjustable Rate Monthly
Remittance Amount or the Fixed Rate Monthly Remittance Amount.
"Monthly Servicing Report": As defined in Section 4.26.
"Moody's": Moody's Investors Service, Inc., and any successor thereto.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple interest in real property securing a
Mortgage Note.
"Mortgage Loan Pool": Collectively, the Adjustable Rate Pool and the
Fixed Rate Pool, or, if the context requires, either the Adjustable Rate Pool or
the Fixed Rate Pool.
"Mortgage Loans": Such of the mortgage loans (including Initial
Mortgage Loans and Subsequent Mortgage Loans) transferred and assigned to the
Trust pursuant to Section 2.5(a) hereof, together with any Qualified Replacement
Mortgages 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 Schedule of Mortgage Loans. The term "Mortgage
Loan" includes any Mortgage Loan which is Delinquent, which relates to a
foreclosure or which relates to a Property which is REO Property prior to such
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 Seller, in fact was not transferred and assigned to
the Trust for any reason whatsoever shall nevertheless be considered a "Mortgage
Loan" for all purposes of this Agreement.
"Mortgage Note": The Mortgage Note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgagor": The obligor on a Mortgage Note.
"Net Liquidation Proceeds": As to any Liquidated Loan,
Liquidation Proceeds net of, without duplication, Liquidation Expenses and
unreimbursed Servicing Advances, unreimbursed
16
<PAGE>
Delinquency Advances and accrued and unpaid Servicing Fees through the date of
liquidation relating to such Liquidated Loan. In no event shall Net Liquidation
Proceeds with respect to any Liquidated Loan be less than zero.
"Note": Any one of the Adjustable Rate Notes or the Fixed Rate Notes.
"Note Insurance Policies": The Adjustable Rate Note Insurance Policy
and the Fixed Rate Note Insurance Policy.
"Note Insurer": Financial Security Assurance Inc. or any successor
thereto, as issuer of the Note Insurance Policies.
"Note Insurer Default": The existence and continuance of any of the
following:
(a) the Note Insurer fails to make a payment required under a Note
Insurance Policy in accordance with its terms; or
(b) the Note Insurer shall have (i) filed a petition or commenced any
case or proceeding under any provision or chapter of the United States
Bankruptcy Code, the New York State Insurance Law or any other similar federal
or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) made a general assignment for the benefit of its creditors
or (iii) had an order for relief entered against it under the United States
Bankruptcy Code, the New York State Insurance Law or any other similar federal
or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization that is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or any other competent regulatory authority shall have entered a final
and nonappealable order, judgement or decree (i) appointing a custodian,
trustee, agent or receiver for the Note Insurer or for all or any material
portion of its property or (ii) authorizing the taking of possession by a
custodian, trustee, agent or receiver of the Note Insurer of all or any material
portion of its property.
"Officer's Certificate": A certificate signed by any Authorized Officer
of any Person delivering such certificate and delivered to the Indenture
Trustee.
"Operative Documents": Collectively, this Agreement, the Note Insurance
Policies, the Notes, the Insurance Agreement, the Underwriting Agreement, the
Custodial Agreement, the Trust Agreement, the Indenture, any Sub-Servicing
Agreement, the Registration Statement and the Indemnification Agreement.
"Original Adjustable Rate Note Principal Balance": $30,000,000.
"Original Adjustable Rate Pre-Funded Amount": $3,417,634.90.
"Original Aggregate Adjustable Rate Loan Balance": $26,582,365.10.
"Original Aggregate Fixed Rate Loan Balance": $56,038,610.90.
"Original Aggregate Loan Balance": The aggregate Loan Balances of all
Mortgage Loans as of the Cut-Off Date, i.e., $82,620,976.00.
"Original Fixed Rate Note Principal Balance": $70,000,000.
"Original Fixed Rate Pre-Funded Amount": $13,961,389.10.
17
<PAGE>
"Original Principal Amount": With respect to each Mortgage Note, the
principal amount of such Mortgage Note on the date of origination thereof.
"Originator": The Seller and any entity from which the Seller acquires
Mortgage Loans.
"Owner": The Person in whose name a Note is registered in the Register,
to the extent described in the Indenture.
"Owner Trustee Fee": As defined in the Trust Agreement.
"Paid-in-Full Mortgage Loan": With respect to any Payment Date, a
Mortgage Loan on which the entire obligation of the related Mortgagor has been
satisfied and the lien on the property may be removed during the related
Remittance Period.
"Payment Date": Any date on which the Indenture Trustee is required to
make distributions to the Owners, which shall be the 20th day of each month, or
if such day is not a Business Day, the next succeeding Business Day, commencing
in the month following the Closing Date.
"Percentage Interest": As to any Series of Notes, that percentage,
expressed as a fraction, the numerator of which is the Note Principal Balance
set forth on such Note as of the Cut-Off Date and the denominator of which is
the Original Note Principal Balance of all Notes of such Series as of the
Cut-Off Date. With respect to the Certificates, the portion evidenced thereby,
expressed as a percentage, as stated on the face of such Certificate, all of
which shall total 100% with respect to the Certificates.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Policy Payments Account": As defined in Section 7.02(b) hereof.
"Pool Delinquency Rate": With respect to any Remittance Period, the
fraction, expressed as a percentage, equal to (x) the aggregate principal
balances of all Mortgage Loans in a Mortgage Loan Pool 90 or more days
Delinquent (including foreclosures and REO Properties) as of the close of
business on the last day of such Remittance Period over (y) the Pool Principal
Balance of such Mortgage Loan Pool as of the close of business on the last day
of such Remittance Period.
"Pool Principal Balance": With respect to any date of determination
thereof, the principal balances of the Mortgage Loans in a Mortgage Loan Pool as
of such date of determination.
"Pool Rolling Three Month Delinquency Rate": As of any Payment Date and
for either Mortgage Loan Pool, the fraction, expressed as a percentage, equal to
the average of the Pool Delinquency Rates for such Mortgage Loan Pool for each
of the three (or one and two, in the case of the first and second Payment Dates)
immediately preceding Remittance Periods.
"Preference Amount": With respect to a Series of Notes, means, any
amounts of related Current Interest and principal included in previous
distributions to the Owners of such Notes which are recovered from such Owners
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 and which have not theretofore been repaid
to such Owners.
"Preference Claim": As defined in Section 7.02(d) hereof.
"Pre-Funded Amount": With respect to any Determination Date, the amount
remaining on deposit in the Pre-Funding Account.
18
<PAGE>
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 3.2(b) hereof and maintained by the Indenture Trustee.
"Pre-Funding Account Earnings": With respect to the initial Payment
Date, the actual investment earnings earned during the period from the Closing
Date through June 30, 1998 (inclusive) on the Pre-Funding Account during such
period as calculated by the Trustee pursuant to Section 2.8(d) hereof.
"Premium Letter": As defined in the Insurance Agreement.
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and interest thereon received by the Servicer
prior to the scheduled due date for such installment, intended by the Mortgagor
as an early payment thereof and not as a Prepayment with respect to such
Mortgage Loan.
"Prepayment": A Curtailment or a payment causing a Mortgage Loan to
become a Paid-in- Full Mortgage Loan.
"Prepayment Interest Shortfall": With respect to any Payment Date, the
aggregate shortfall, if any, in collections of interest resulting from
Prepayments on the Mortgage Loans during the preceding Remittance Period.
"Preservation Expenses": Expenditures made by the 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, property restoration or preservation.
"Principal and Interest Account": Collectively, each principal and
interest account created by the Servicer pursuant to Section 4.8(a) hereof, or
pursuant to any Sub-Servicing Agreement.
"Principal Remittance Amount": As applicable, the Adjustable Rate
Principal Remittance Amount or the Fixed Rate Principal Remittance Amount.
"Property": The underlying property securing a Mortgage Loan.
"Prospectus": The Seller's Prospectus dated March 10, 1998.
"Prospectus Supplement": The First Alliance Mortgage Loan Trust 1998-2
Prospectus Supplement dated June 10, 1998 to the Prospectus.
"Qualified Replacement Mortgage": A Mortgage Loan substituted for
another pursuant to Section 2.4 or 2.6 hereof, which (i) bears an adjustable
rate of interest if the Mortgage Loans to be substituted for is in the
Adjustable Rate Pool or a fixed rate of interest if the Mortgage Loan to be
substituted for is in that Fixed Rate Pool , (ii) has a Coupon Rate at least
equal to the Coupon Rate of the Mortgage Loan being replaced (which in the case
of a Mortgage Loan in the Adjustable Rate Pool shall mean a Mortgage Loan having
the same interest rate index, a margin over such index and a maximum interest
rate at least equal to those applicable to the Mortgage Loan being replaced),
(iii) is of the same or better property type and the same or better occupancy
status as the replaced Mortgage Loan, (iv) shall be of the same or better credit
quality classification (determined in accordance with the Originators' credit
underwriting guidelines) as the Mortgage Loan being replaced, (v) shall mature
no later than June 1, 2028, (vi) has a Combined Loan-to- Value Ratio as of the
Cut-Off Date, no higher than the Combined Loan-to-Value Ratio of the replaced
Mortgage Loan at such time, (vii) 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, (viii) is of the same lien
status or better lien status (ix) is not Delinquent, (x) meets the
representations and warranties set out in Section 2.3 hereof and (xi) is a valid
adjustable rate Mortgage Loan if the Mortgage Loan being substituted for is an
Adjustable Rate Mortgage Loan or a valid fixed rate Mortgage Loan if the
Mortgage Loan being substituted for is a Fixed Rate Mortgage Loan. In the event
that one or more mortgage
19
<PAGE>
loans are proposed to be substituted for one or more mortgage loans, the Note
Insurer may allow the foregoing tests to be met on a weighted average basis or
other aggregate basis acceptable to the Note Insurer, as evidenced by a written
approval delivered to the Indenture Trustee by the Note Insurer, except that the
requirement of clause (vi) hereof must be satisfied as to each Qualified
Replacement Mortgage.
"Rating Agencies": 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.
"Redemption Date": With respect to the Adjustable Rate Pool, the first
Payment Date on which the outstanding aggregate Loan Balance of the Adjustable
Rate Mortgage Loans has declined to $3,000,000 or less, and with respect to the
Fixed Rate Pool, the first Payment Date on which the outstanding aggregate Loan
Balance of the Fixed Rate Mortgage Loans has declined to $7,000,000 or less.
"Reference Banks": Bankers Trust Company, Barclay's Bank PLC and
National Westminster Bank PLC; provided that if any of the foregoing banks are
not suitable to serve as a Reference Bank, then any leading banks selected by
the Indenture 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 the Telerate Page 3750 on the relevant Adjustable Rate Interest Determination
Date and (iv) which have been designated as such by the Indenture Trustee.
"Register": The register maintained by the Indenture Trustee in
accordance with Section 2.3 of the Indenture, in which the names of the Owners
are set forth.
"Registrar": The Indenture Trustee, acting in its capacity as Indenture
Trustee appointed pursuant to the Indenture, or any duly appointed and eligible
successor thereto.
"Registration Statement": The Registration Statement filed by the
Seller with the Securities and Exchange Commission (Registration Statement
Number 333-44585), including all amendments thereto and including the Prospectus
and Prospectus Supplement constituting a part thereof.
"Reimbursement Amount": An Adjustable Rate Reimbursement Amount or a
Fixed Rate Reimbursement Amount.
"Relief Act Shortfalls:" With respect to any Due Period, for any
Mortgage Loans as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended Due Period as a result of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended, the amount, if any,
by which (i) interest collectible on such Mortgage Loans during the most
recently ended Due Period is less than (ii) the sum of (a) one month's interest
on the Loan Balance of such Mortgage Loans at a rate equal to the related Note
Rate plus (b) the Servicing Fee and the Fees and Expenses for the related
Remittance Period.
"Remittance Date": Any date on which the Servicer is required to remit
moneys on deposit in the Principal and Interest Account to the Note Account,
which shall be the day two Business Days prior to the related Payment Date.
"Remittance Period": The period (inclusive) beginning on the first day
of the calendar month immediately preceding the month in which a Remittance Date
occurs and ending on the last day of such immediately preceding calendar month.
"REO Property": A Property acquired by the Servicer or any Sub-Servicer
on behalf of the Trust through foreclosure or deed-in-lieu of foreclosure in
connection with a defaulted Mortgage Loan.
20
<PAGE>
"Replacement Cut-Off Date": With respect to any Qualified Replacement
Mortgage, the first day of the calendar month in which such Qualified
Replacement Mortgage is conveyed to the Trust.
"Request for Release": The request for release in the form set forth as
Exhibit F hereto.
"Reserve Interest Rate": With respect to any Adjustable Rate Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 0.0625%) of the one-month U.S. dollar lending rates which New
York City banks selected by the Indenture Trustee are quoting on the relevant
Adjustable Rate Interest Determination Date to the principal London offices of
leading banks in the London interbank market or (ii) in the event that the
Indenture Trustee can determine no such arithmetic mean, the lowest one-month
U.S. dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on such Adjustable Rate Interest Determination Date to
leading European banks.
"Schedule of Mortgage Loans": The Schedule of Mortgage Loans with
respect to the Mortgage Loans listing each Mortgage Loan to be conveyed to a
Mortgage Loan Pool on the Closing Date. Such Schedule of Mortgage Loans shall
identify each Mortgage Loan by the Servicer's loan number and address (including
the state) of the Property and shall set forth as to each Mortgage Loan the lien
status, the Loan-to-Value Ratio, the Loan Balance as of the Cut-Off Date, the
Coupon Rate, the index, the margin, the current scheduled monthly payment of
principal and interest and the maturity of the related Mortgage Note, the
property type, occupancy status, Appraised Value and the Originator of the
Mortgage Loan, all as delivered to the Indenture Trustee in physical and
computer readable form and delivered to the Note Insurer in physical form.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": First Alliance Mortgage Company, a California corporation,
and its permitted successors and assigns.
"Series": Each of the Issuer's series of Notes issued pursuant to the
Adjustable Rate Indenture and the Fixed Rate Indenture.
"Servicer": First Alliance Mortgage Company, a California corporation,
and its permitted successors and assigns.
"Servicer Affiliate": A Person (i) controlling, controlled by or under
common control with the Servicer and (ii) which is qualified to service
residential mortgage loans.
"Servicing Advance": As defined in Section 4.9(c) and Section 4.13
hereof.
"Servicing Certificate": A certificate completed by and executed by an
Authorized Officer of the Indenture Trustee as attached hereto in the form of
Exhibit E.
"Servicing Fee": As to any Payment Date, the product of (x) one-twelfth
of the Servicing Fee Rate and (y) the aggregate Loan Balances of the Mortgage
Loans as of the opening of business on the first day of the related Remittance
Period. Such Servicing Fee is retained by the Servicer pursuant to Sections
4.8(c)(i) and 4.15 hereof.
"Servicing Fee Rate": 0.50% per annum.
"Six Month LIBOR Loans": Mortgage Loans whose interest rates adjust
semi-annually based on the London interbank offered rate for six-month United
States Dollar deposits in the London Market and as published in The Wall Street
Journal.
21
<PAGE>
"Specified Subordinated Amount": As applicable, the Adjustable Rate
Specified Subordinated Amount or the Fixed Rate Specified Subordinated Amount.
"Standard & Poor's": Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, and any successor thereto.
"Subordinated Amount": As applicable, the Adjustable Rate Subordinated
Amount or the Fixed Rate Subordinated Amount.
"Subordination Deficiency Amount": With respect to any Mortgage Loan
Pool and Payment Date, the excess, if any, of (i) the related Specified
Subordinated Amount applicable to such Payment Date over (ii) the related
Subordinated Amount applicable to such Payment Date prior to taking into account
the payment of any related Subordination Increase Amount on such Payment Date.
"Subordination Increase Amount": With respect to any Payment Date, the
lesser of (i) the related Subordination Deficiency Amount as of such Payment
Date (after taking into account the payment of the related Monthly Payment
Amount on such Payment Date (except for any related Subordination Increase
Amount)) and (ii) the aggregate amount of Net Monthly Excess Cashflow to be
allocated to such Mortgage Loan Pool pursuant to either Section 3.5(b)(iii)(A)
or Section 3.5(f)(iii)(A) on such Payment Date.
"Subordination Reduction Amount": With respect to any Mortgage Loan
Pool Payment Date, an amount equal to the lesser of (x) the Excess Subordinated
Amount for such Mortgage Loan Pool for such Payment Date and (y) the Principal
Remittance Amount for such Mortgage Loan Pool for the related Remittance Period.
"Subsequent Cut-Off Date": The beginning of business on the date
specified in the Subsequent Transfer Agreement with respect to the Subsequent
Mortgage Loans which are transferred and assigned to the Trust pursuant to the
Subsequent Transfer Agreement.
"Subsequent Mortgage Loans": The Mortgage Loans sold to the Issuer
pursuant to Section 2.8 hereof, which shall be listed on the Schedules of
Mortgage Loans attached to the Subsequent Transfer Agreement.
"Subsequent Transfer Agreement": The Subsequent Transfer Agreement
dated as of the Subsequent Transfer Date executed by the Indenture Trustee and
the Seller substantially in the form of Exhibit G hereto, by which Subsequent
Mortgage Loans are sold and assigned to the Trust.
"Subsequent Transfer Date": June 30, 1998.
"Sub-Servicer": Any Person with whom the Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
4.3 hereof in respect of the qualification of a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the Servicer
and any Sub-Servicer relating to servicing and/or administration of certain
Mortgage Loans as permitted by Section 4.3.
"Substitution Amount": In connection with the delivery of any Qualified
Replacement Mortgage, if the outstanding principal amount of such Qualified
Replacement Mortgage as of the applicable Replacement Cut-Off Date is less than
the Loan Balance of the Mortgage Loan being replaced as of such Replacement
Cut-Off Date, an amount equal to such difference together with accrued and
unpaid interest on such amount calculated at the Coupon Rate (net of the
Servicing Fee Rate) of the Mortgage Loan being replaced.
22
<PAGE>
"Telerate Page 3750": The display designated as page "3750" on the Dow
Jones Telerate Capital Markets Report (or such other page as may replace page
3750 on that report for the purpose of displaying London interbank offered rates
of major banks).
"Termination Price": As defined in Section 5.2(a) hereof.
"Total Monthly Excess Spread": As applicable, the Adjustable Rate Total
Monthly Excess Spread or the Fixed Rate Total Monthly Excess Spread.
"Trust" or "Issuer": First Alliance Mortgage Loan Trust 1998-2, a
Delaware business trust.
"Trust Agreement": The Trust Agreement dated as of June 1, 1998 between
the Seller and the Owner Trustee.
"Trust Estate": As defined in the Indentures.
"Underwriter": Wheat First Securities Corp., doing business as First
Union Capital Markets, a division of Wheat First Securities Corp.
"Underwriting Agreement": The Underwriting Agreement dated as of June
10, 1998 between the Underwriter and the Seller.
Section 1.2. Use of Words and Phrases. "Herein", "hereby", "hereunder",
"hereof", "hereinbefore", "hereinafter" and other equivalent words refer to this
Agreement as a whole and not solely to the particular section of this Agreement
in which any such word is used. The definitions set forth in Section 1.1 hereof
include both the singular and the plural. Whenever used in this Agreement, any
pronoun shall be deemed to include both singular and plural and to cover all
genders.
Section 1.3. Captions; Table of Contents. The captions or headings in
this Agreement and the Table of Contents are for convenience only and in no way
define, limit or describe the scope and intent of any provisions of this
Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLER AND THE SERVICER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS
Section 2.1. Representations and Warranties of the Seller. The Seller
hereby represents, warrants and covenants to the Indenture Trustee, the Owner
Trustee, the Issuer, the Note Insurer and to the Owners as of the Closing Date
that:
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California
and is in good standing as a foreign corporation in each jurisdiction
in which the nature of its business, or the properties owned or leased
by it, make such qualification necessary. The Seller has all requisite
corporate power and authority to own and operate its properties, to
carry out its business as presently conducted and as proposed to be
conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which it is a party by the Seller and its
performance and compliance with the terms of this Agreement and of 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 violate the Seller's Articles
23
<PAGE>
of Incorporation or Bylaws or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or
other instrument to which the Seller is a party or by which the Seller
is bound, or 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.
(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 hereof and 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 governmental agency, which might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Seller or its properties or might have
consequences that would materially and adversely affect its performance
hereunder or under the other Operative Documents to which it is a
party.
(e) No action, suit, proceeding or investigation is pending
or, to the best of the Seller's knowledge, threatened against the
Seller which, individually or in the aggregate, might have consequences
that would prohibit the Seller from entering into this Agreement or any
other Operative Document to which it is a party or that would
materially and adversely affect the condition (financial or otherwise)
or operations of the Seller or its properties or might have
consequences that would materially and adversely affect the validity or
enforceability of Mortgage Loans or the Seller's performance hereunder
or under the other Operative Documents to which it is a party.
(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
attributed to the Seller 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 Seller or omit to
state a material fact required to be stated therein or necessary in
order to make the statements contained therein with respect to the
Seller not misleading. With respect to matters other than those
referred to in the immediately preceding sentence, to the best of the
Seller's knowledge and belief, 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 required to be stated
therein or necessary to make the statements contained therein not
misleading.
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, 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
Notes 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
Closing Date, 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
24
<PAGE>
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.
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Seller.
(j) The Seller received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the
Mortgage Loans.
(k) The Seller did not sell any interest in any Mortgage Loan
with any intent to hinder, delay or defraud any of its creditors.
(l) The Seller is solvent and the Seller will not be rendered
insolvent as a result of the sale of the Mortgage Loans.
(m) On the Closing Date, the Issuer will have good title to
each Mortgage Loan and such other items comprising the corpus of the
Trust Estate free and clear of any lien.
(n) There has been no material adverse change in any
information submitted by the Seller to the Note Insurer.
(o) To the best knowledge of the Seller, no event has occurred
which would allow any purchaser of the Notes not to be required to
purchase the Notes on the Closing Date.
(p) To the best knowledge of the Seller, no document
(including any information provided in electronic form) submitted by or
on behalf of the Seller to the Note Insurer contains any untrue or
misleading statement of a material fact or fails to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading.
(q) To the best knowledge of the Seller, no material adverse
change affecting any security for the Notes has occurred prior to
delivery of and payment for the Notes.
(r) The Seller is not in default under any agreement involving
financial obligations or on any outstanding obligation which would
materially adversely impact the financial condition or operations of
the Seller or legal documents associated with the transaction
contemplated in this Agreement.
It is understood and agreed that the representations and warranties set
forth in this Section 2.1 shall survive delivery of the Mortgage Loans to the
Issuer.
Section 2.2. Representations and Warranties of the Servicer. The
Servicer hereby represents, warrants and covenants to the Issuer, the Owner
Trustee, the Indenture Trustee, the Note Insurer and to the Owners as of the
Closing Date that:
(a) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. The Servicer is in compliance with the laws of each state
in which any 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. The Servicer has all requisite corporate power
and authority to own and operate its properties, to carry out its
business as presently conducted and as proposed to be conducted and to
enter into and discharge its obligations under this Agreement and the
other Operative Documents to which it is a party. The Servicer has
equity of at least $20,000,000, as determined in accordance with
generally accepted accounting principles.
25
<PAGE>
(b) The execution and delivery of this Agreement by
the Servicer 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 Servicer and will not violate the Servicer's Articles of
Incorporation or Bylaws or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or
other instrument to which the Servicer is a party or by which the
Servicer is bound or violate any statute or any order, rule or
regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Servicer or any of its properties.
(c) This Agreement and the other Operative Documents
to which the 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 Servicer, enforceable
against it in accordance with the terms hereof and thereof, except as
the enforcement hereof and 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 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 might have
consequences that would materially and adversely affect the condition
(financial or otherwise) or operations of the 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 Servicer is a party.
(e) No action, suit, proceeding or investigation is
pending or, to the best of the Servicer's knowledge, threatened against
the Servicer which, individually or in the aggregate, might have
consequences that would prohibit its entering into this Agreement
or any other Operative Document to which it is a party or that would
materially and adversely affect the condition (financial or otherwise)
or operations of the Servicer or its properties or might have
consequences that would materially and adversely affect the validity or
the enforceability of the Mortgage Loans or the Servicer's performance
hereunder or under the other Operative Documents to which the Servicer
is a party.
(f) No certificate of an officer, statement furnished
in writing or report delivered pursuant to the terms hereof by the
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 Servicer or matters or activities for
which the Servicer is responsible in accordance with the Operative
Documents or which are attributed to the 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
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 Servicer not misleading. With respect to matters other than those
referred to in the immediately preceding sentence, to the best of the
Servicer's knowledge and belief, the Registration Statement does 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 contained therein not misleading.
(h) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, 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 Servicer makes no such representation or
warranty), that are necessary or advisable in connection with the
execution and delivery by the Servicer of the Operative Documents
26
<PAGE>
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 Servicer
and the performance by the Servicer of its obligations under this
Agreement and such of the other Operative Documents to which it is a
party.
(i) The collection practices used by the Servicer
with respect to the Mortgage Loans directly serviced by it have been,
and are in all material respects, legal, proper, prudent and customary
in the mortgage loan servicing business.
(j) The transactions contemplated by this Agreement
are in the ordinary course of business of the Servicer.
(k) There are no Sub-Servicers as of the Closing
Date.
(l) The Servicer covenants that it will terminate any
Sub-Servicer within ninety (90) days after being directed by the Note
Insurer to do so.
(m) There has been no material adverse change in any
information submitted by the Servicer to the Note Insurer.
(n) To the best knowledge of the Servicer, no event
has occurred which would allow any purchaser of the Notes not to be
required to purchase the Notes on the Closing Date.
(o) To the best knowledge of the Servicer, no
document (including any information provided in electronic form)
submitted by or on behalf of the Servicer to the Note Insurer contains
any untrue or misleading statement of a material fact or fails to state
a material fact required to be stated therein or necessary in order to
make the statements therein not misleading.
(p) To the best knowledge of the Servicer, no
material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(q) The Servicer is not in default under any
agreement involving financial obligations or on any outstanding
obligation which would materially and adversely impact the financial
condition or operations of the Servicer or legal documents associated
with the transaction contemplated in this Agreement.
It is understood and agreed that the representations and warranties set
forth in this Section 2.2 shall survive delivery of the Mortgage Loans to the
Issuer.
Upon discovery by any of the Originators, the Servicer, the Seller, the
Issuer, the Custodian, any Sub-Servicer, the Note Insurer, the Owner Trustee or
the Indenture Trustee of a breach of any of the representations and warranties
set forth in this Section 2.2 or in Section 2.1 hereof which materially and
adversely affects the interests of the Owners or of the Note Insurer, without
regard to any limitation set forth in such representation or warranty concerning
the knowledge of the party making such representation or warranty as to the
facts stated therein, the party discovering such breach shall give prompt
written notice to the other parties hereto and the Note Insurer. Within 30 days
of its discovery or its receipt of notice of breach, the breaching party shall
cure such breach in all material respects and, if such breaching party is the
Servicer and upon the Servicer's continued failure to cure such breach, the
Servicer may be removed by the Indenture Trustee or the Note Insurer pursuant to
Section 4.20 hereof; provided, however, that if the Servicer can demonstrate to
the reasonable satisfaction of the Note Insurer that it is diligently pursuing
remedial action, then the cure period may be extended with the written approval
of the Note Insurer.
27
<PAGE>
Section 2.3. Representations and Warranties of the Seller with Respect
to the Mortgage Loans.
(a) The Seller makes the following representations and warranties as to
the Mortgage Loans on which the Note Insurer relies in issuing the Note
Insurance Policies. Such representations and warranties speak as of the Closing
Date (with respect to the Initial Mortgage Loans) and as of the respective
Subsequent Cut-Off Date (with respect to the Subsequent Mortgage Loans) but
shall survive the sale, transfer, and assignment of the related Mortgage Loans
to the Issuer:
(i) The information with respect to each Initial Mortgage
Loan and Subsequent Mortgage Loan set forth in the related Schedule of
Mortgage Loans is true and correct as of the CutOff Date (or in the
case of the Subsequent Mortgage Loans, as of the related Subsequent
Cut-Off Date); the Original Aggregate Loan Balance in the Trust Estate
as of the Cut-Off Date is $82,620,976.00 (the "Original Aggregate
Adjustable Rate Loan Balance as of the Cut-Off Date is $26,582,365.10
and the Original Aggregate Fixed Rate Loan Balance as of the Cut-Off
Date is $56,038,610.90).
(ii) All of the original or certified documentation set
forth in Section 2.5 (including all material documents related thereto)
with respect to each Initial Mortgage Loan has been or will be
delivered to the Indenture Trustee on the Closing Date (or in the case
of the Subsequent Mortgage Loans, as of the related Subsequent Transfer
Date) or as otherwise provided in Section 2.5;
(iii) Each Mortgage Loan is being serviced by the Servicer
or a Servicer Affiliate;
(iv) The Mortgage Note related to each Initial Mortgage
Loan in the Adjustable Rate Pool bears a current Coupon Rate of at
least 6.490% per annum and the Mortgage Note relating to each Mortgage
Loan in the Fixed Rate Pool bears a current Coupon Rate of at least
7.250% per annum;
(v) No more than 4.23% of the Initial Mortgage Loans in
the Adjustable Rate Pool were 30-59 days Delinquent; and, of the
Initial Mortgage Loans in the Fixed Rate Pool, no more than
4.10% were 30-59 days Delinquent, 0.19% were 60-89 days Delinquent, and
0.24% were 90 or more days Delinquent;
(vi) As of the Cut-Off Date, no more than 1.57% of the
Original Aggregate Adjustable Rate Loan Balance is secured by
Properties located within any single zip code area, and no more than
0.80% of the Original Aggregate Fixed Rate Loan Balance is secured by
Properties located within any single zip code area;
(vii) 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 Registration Statement;
(viii) As of the Cut-Off Date, no more than 17.09% and 10.12%
of the Original Aggregate Adjustable Rate Loan Balance and the Original
Aggregate Fixed Rate Loan Balance, respectively, is secured by
condominiums, townhouses, or planned unit developments;
(ix) As of the Cut-Off Date, no more than 5.80% and 4.57%
of the Original Aggregate Loan Balance and the Original Aggregate Fixed
Rate Loan Balance, respectively, is secured by investor-owned
Properties;
(x) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus;
(xi) All of the Mortgage Loans are actuarial loans;
28
<PAGE>
(xii) All of the Adjustable Rate Mortgage Loans are First
Mortgage Loans, and 99.84% of the Fixed Rate Mortgage Loans are First
Mortgage Loans subject only to the exceptions to title set forth in the
title insurance policy, with respect to the related Mortgage Loan,
which exceptions are generally acceptable to mortgage lending
companies, as applicable, 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.
(xiii) As of the Cut-Off Date, substantially all of the
Adjustable Rate Mortgage Loans had interest rates which were not fully
indexed;
(xiv) The gross margin range for Six Month LIBOR Loans is
3.990% to 8.990% and, the gross margin for all Six Month LIBOR Loans
when added to the current index, creates the fully- indexed range;
(xv) No Mortgage Loan has a remaining term in excess of 360
months;
(xvi) With respect to each Mortgage Loan in the Adjustable
Rate Pool, each Mortgagor's debt-to-income ratio will qualify for the
related Originator's underwriting guidelines for a similar credit grade
borrower when the related Mortgage Loan is at a rate equal to the
applicable initial Coupon Rate plus 2%;
(xvii) There is no proceeding pending or to the best of the
Seller's knowledge threatened for the total or partial condemnation of
any Property. No Property is damaged by waste, 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 the Mortgage Loans or the use for which the premises
were intended and each Property is free of material damage and is in
good repair;
(xviii) Each Mortgage Loan complies, and at all times has
complied in all material respects with all applicable federal and state
laws and regulations including without limitation the Truth-in-Lending
Act, as amended;
(xix) Each Mortgage Loan is secured by a Property having an
appraised value of less than $417,440.00;
(xx) The first Due Date of each Mortgage Loan is no later
than July 1, 1998; and
(xxi) On the Closing Date with respect to each Initial
Mortgage Loan and on each Subsequent Transfer Date with respect to each
Subsequent Mortgage Loan, the Issuer will have good title to each
Mortgage Loan transferred on such date free and clear of all liens,
encumbrances, mortgages or rights of others.
(xxii) The Seller and any Originator complied with all
applicable federal and state laws and regulations in connection with
the origination of the Mortgage Loan;
(xxiii) No more than 41% and 31% of the Initial Mortgage Loans
in the Adjustable Rate Pool and the Fixed Rate Pool, respectively, were
originated on an "alternative documentation" basis;
(xxiv) No fraud, error, omission, misrepresentation or
negligence with respect to the origination of a Mortgage Loan has taken
place on the part of any person, including, without limitation, the
Mortgagor, the Originator, the Seller, any appraiser or any other party
involved in the origination of the Mortgage Loan;
29
<PAGE>
(xxv) Each Property consists of a single parcel of
residential real property that is separately assessed for tax purposes
and that is owned by the related Mortgagor in fee simple absolute, and
each Property is improved by a one- to four-family residential
dwelling, which does not include cooperatives or mobile homes and does
not constitute other than real property under state law. No Property is
a manufactured housing unit.
(xxvi) Each Mortgage Note will provide for a schedule of
substantially equal Monthly Payments which are, if timely paid,
sufficient to fully amortize the principal balance of such Mortgage
Note on or before its maturity date (except that 0.87% of the Mortgage
Loans in the Fixed Rate Pool contain "balloon" payment provisions);
(xxvii) The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, nor will the operation of any of the terms of the Mortgage Note
or the Mortgage, or the exercise of any right thereunder, render either
the Mortgage Note or the Mortgage unenforceable in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission,
set-off, counterclaim or defense has been asserted with respect
thereto;
(xxviii) To the best of the Seller's knowledge, there is no
mechanics' lien or claim for work, labor or material affecting any
Property which is or may be a lien prior to, or equal with, the lien of
such Mortgage except those which are insured against by the title
insurance policy referred to in Section 2.3(a)(xxix) below;
(xxix) With respect to each Mortgage Loan, a lender's title
insurance policy or a written commitment therefor, issued in standard
American Land Title Association or California Land Title Association
form, or other form acceptable in a particular jurisdiction, by a title
insurance company authorized to transact business in the state in which
the related Property is situated, together with a condominium
endorsement, if applicable, in an amount at least equal to the original
principal balance of such Mortgage Loan insuring the mortgagee's
interest under the related Mortgage Loan as the holder of a valid first
mortgage lien of record on the real property described in the Mortgage,
subject only to exceptions of the character referred to in Section
2.3(a)(xii) above, was effective on the date of the origination of such
Mortgage Loan, and, as of the Cut-Off Date, such commitment, if
applicable, will be valid and thereafter the policy issued, pursuant to
such commitment shall continue in full force and effect. The Seller is
the sole named insured of such mortgage title insurance policy, the
assignment to the Issuer of the Seller's interest in such mortgage
title insurance policy would not require the consent of or notification
to the insurer, and such mortgage title insurance policy is in full
force and effect and will be in full force and effect and inure to the
benefit of the Issuer on the Closing Date. No claims have been made
under such mortgage title insurance policy and no prior holder of the
related Mortgage, including (without limitation) the Seller, has done,
by act or omission, anything that would impair the coverage of such
mortgage title insurance policy;
(xxx) The improvements upon each Property are covered by a
valid and existing hazard insurance policy with a generally acceptable
carrier that provides for fire and extended coverage representing
generally acceptable coverage against casualty to such improvements
and, in any event, coverage not less than the least of (A) the
outstanding principal balance of the related Mortgage, (B) the minimum
amount required to compensate for damage or loss on a replacement cost
basis, and (C) the full insurable value of such Property. Each
individual insurance policy is the valid and binding obligation of the
insurer and contains a standard mortgage clause naming the Seller, its
successors and assigns as mortgagee. All premiums thereon have been
paid. The related Mortgage obligates the Mortgagor thereunder to
maintain all such insurance at the Mortgagor's cost and expense, and
upon the Mortgagor's failure to do so, authorizes the holder of the
Mortgage to obtain and maintain such insurance at the Mortgagor's cost
and expense and to seek reimbursement therefor from the Mortgagor;
30
<PAGE>
(xxxi) If any 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 Federal Insurance
Administration is in effect with respect to such 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, (B) the minimum amount required to compensate
for damage or loss on a replacement cost basis, and (C) the maximum
amount of insurance that is available under the Flood Disaster
Protection Act of 1973, as amended;
(xxxii) Each Mortgage and Mortgage Note 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 all parties to each Mortgage Loan
had full legal capacity to execute all Mortgage Loan documents and
convey the estate therein purported to be conveyed, and such Mortgage
and Mortgage Note have been duly and properly executed by such parties;
(xxxiii) The Seller has caused or will cause to be performed
any and all acts required to be performed to preserve the rights and
remedies of the Issuer and its successors and assigns in any insurance
policies applicable to the Mortgage Loans including, without
limitation, any necessary notifications of insurers, assignments of
policies or interests therein, and establisments of co-insured, joint
loss payee and mortgagee rights in favor of the Issuer;
(xxxiv) No instrument of release or waiver has been executed
in connection with the Mortgage Loan, and no Mortgagor has been
released, in whole or in part;
(xxxv) The proceeds of the Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to
make future advances thereunder.
(xxxvi) There is no obligation on the part of the Seller or
any other party to make payments in addition to those made by the
Mortgagor;
(xxxvii) 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 Issuer or its successors or assigns to the trustee under the deed
of trust, except in connection with a trustee's sale after default by
the Mortgagor;
(xxxviii) The Mortgage contains a customary provision for the
acceleration of the payment of the unpaid principal balance of the
Mortgage Loan in the event the related Property is sold or further
encumbered without the prior consent of the mortgagee thereunder;
(xxxix) The Mortgage Note does not permit or obligate any
person to make future advances to the Mortgagor at the option of the
Mortgagor;
(xl) The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the Property of the
benefits of the security, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure. There is no homestead or other exemption
available to the Mortgagor which would materially interfere with the
right to sell the Property at a trustee's sale or the right to
foreclose the Mortgage;
(xli) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the related Mortgage Note
and no event which, with the passage of time or with notice
31
<PAGE>
and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration; and neither the
Seller nor any servicer has waived any default, breach, violation or
event of acceleration;
(xlii) All parties to the Mortgage Note and the Mortgage had
legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage have been duly and properly executed by such
parties;
(xliii) All amounts received on and after the Cut-Off Date
with respect to the Mortgage Loans have been deposited into the
Principal and Interest Account and are, as of the Closing Date, in the
Principal and Interest Account. All amounts received prior to the
Cut-Off Date but representing payments that the Mortgagor is obligated
to make after the Cut-Off Date have been deposited into the Principal
and Interest Account and are, as of the Closing Date, in the Principal
and Interest Account;
(xliv) The Mortgage Loans were not selected by the Seller on
any basis intended to adversely affect the Issuer, the Owners, the Note
Issuer or any of their successors and assigns;
(xlv) A full appraisal was performed in connection with
each Property;
(xlvi) To the best of the Seller's knowledge, no Property was
in violation of any state or federal environmental law or regulation
and no hazardous material substance or waste is present at any
Property;
(xlvii) None of the Mortgage Loans are subject to any
bankruptcy plan;
(xlviii) No duplicate original Mortgage Note was executed
by any Mortgagor; and
(xlix) No more than 70.05% and 65.33% of the Initial Mortgage
Loans in the Adjustable Rate Pool and the Fixed Rate Pool,
respectively, are subject to the Home Ownership and Equity Protection
Act of 1994 (the "Home Protection Act"). With respect to each Initial
Mortgage Loan subject to the Home Protection Act, each such Mortgage
Loan has been originated and serviced in compliance with the provisions
thereof.
(b) Upon the discovery by the Issuer, the Seller, the Servicer, the
Custodian, the Note Insurer, the Owner Trustee or the Indenture Trustee of a
breach of any of the representations and warranties made herein in respect of
any Mortgage Loan, without regard to any limitation set forth in such
representation or warranty concerning the knowledge of the Seller or any related
Originator as to the facts stated therein, which materially and adversely
affects the interests of the Owners or of the Note Insurer in such Mortgage Loan
the party discovering such breach shall give prompt written notice to the other
parties hereto and the Note Insurer, as their interests may appear. The Servicer
shall promptly notify the related Originator of such breach and request that
such Originator cure such breach or take the actions described in Section 2.4(b)
hereof within the time periods required thereby, and if such Originator does not
cure such breach in all material respects, the Seller shall cure such breach or
take such actions. Except as set forth in Section 2.4, the obligations of the
Seller or Servicer, as the case may be, shall be limited to the remedies for
cure set forth in Section 2.4 with respect to any Mortgage Loan as to which such
a breach has occurred and is continuing; the remedies set forth in Section 2.4
shall constitute the sole remedy with respect to such breach available to the
Owners, the Indenture Trustee and the Note Insurer.
The Seller acknowledges that a breach of any representation or warranty
(x) relating to marketability of title sufficient to transfer unencumbered title
to a Mortgage Loan and (y) relating to enforceability of the Mortgage Loan
against the related Mortgagor or Property is a priori the breach of a
representation or warranty which "materially and adversely affects the interests
of the Owners or of the Note Insurer" in such Mortgage Loan.
32
<PAGE>
Section 2.4. Covenants of the Seller to Take Certain Actions with
Respect to the Mortgage Loans In Certain Situations.
(a) With the provisos and limitations as to remedies set forth in this
Section 2.4, upon the discovery by any Originator, the Seller, the Issuer, the
Servicer, the Note Insurer, any Sub-Servicer, the Owner Trustee, the Custodian
or the Indenture Trustee that the representations and warranties set forth in
Section 2.3 of this Agreement were untrue in any material respect as of the
Closing Date (or in the case of the Subsequent Mortgage Loans, the Subsequent
Transfer Date), and that such breach of the representations and warranties
materially and adversely affects the interests of the Owners or of the Note
Insurer, the party discovering such breach shall give prompt written notice to
the other parties hereto and to the Note Insurer.
(b) Upon the earliest to occur of the Seller's discovery, its receipt
of notice of breach from any one of the other parties hereto or from the Note
Insurer or such time as a breach of any representation and warranty materially
and adversely affects the interests of the Owners or of the Note Insurer as set
forth above, the Seller hereby covenants and warrants that it shall promptly
cure such breach in all material respects or it shall (or shall cause an
affiliate of the Seller to or an Originator to), subject to the further
requirements of this paragraph, on the second Remittance Date next succeeding
such discovery, receipt of notice or such other time (i) substitute in lieu of
each Mortgage Loan which has given rise to the requirement for action by the
Seller a Qualified Replacement Mortgage and deliver the Substitution Amount
applicable thereto, together with the aggregate amount of all Delinquency
Advances and Servicing Advances theretofore made with respect to such Mortgage
Loan, to the Servicer for deposit in the Principal and Interest 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 Servicer
for deposit in the Principal and Interest Account. It is understood and agreed
that the obligation of the Seller to cure the defect, or substitute for or
purchase any Mortgage Loan as to which a representation or warranty is untrue in
any material respect and has not been remedied shall constitute the sole remedy
available to the Owners, the Indenture Trustee and the Note Insurer; provided,
however, that notwithstanding the foregoing, the Seller agrees to indemnify and
hold harmless the Issuer, the Note Issuer, the Indenture Trustee and each of the
officers and directors of each such entity, in the event of any loss, claim,
penalty, fine and any related costs suffered by any of such entities arising
from a breach by the Seller of its representations and warranties in Section
2.3(b)(xlix).
(c) In the event that any Qualified Replacement Mortgage is delivered
by an Originator or by the Seller to the Trust pursuant to this Section 2.4 or
Section 2.6 hereof, the related Originator and the Seller shall be obligated to
take the actions described in Section 2.4(b) with respect to such Qualified
Replacement Mortgage upon the discovery by any of the Owners, the Seller, the
Issuer, the Servicer, the Note Insurer, any Sub-Servicer, the Owner Trustee, the
Custodian or the Indenture Trustee that any of the representations and
warranties set forth in Section 2.3 above are untrue in any material respect on
the date such Qualified Replacement Mortgage is conveyed to the Trust such that
the interests of the Owners or the Note Insurer in the related Qualified
Replacement Mortgage are materially and adversely affected; provided, however,
that for the purposes of this subsection (c) the representations and warranties
in Section 2.3 above referring to items "as of the Cut-Off Date" or "as of the
Closing Date" shall be deemed to refer to such items as of the date such
Qualified Replacement Mortgage is conveyed to the Trust.
(d) It is understood and agreed that the covenants set forth in this
Section 2.4 shall survive delivery of the respective Mortgage Loans (including
Qualified Replacement Mortgages) to the Issuer.
(e) The Indenture 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 repurchase or substitution of any
Mortgage Loan pursuant to this section or the eligibility of any Mortgage Loan
for purposes of this Agreement.
Section 2.5. Conveyance of the Mortgage Loans. (a) The Seller,
concurrently with the execution and delivery hereof, hereby transfers, assigns,
sets over and otherwise conveys without recourse, to the Issuer, all right,
title and interest of the Seller in and to each Initial Mortgage Loan listed on
each Schedule of Mortgage Loans delivered by the Seller on the Closing Date, all
right, title and interest in and
33
<PAGE>
to principal and interest (including prepaid interest) due on each such Mortgage
Loan after the Cut-Off Date (other than payments of principal and interest due
on or before the Cut-Off Date) and all its right, title and interest in and to
all Insurance Policies; provided, however, that the Seller reserves and retains
all its right, title and interest in and to principal (including Prepayments)
collected and principal and interest due on each Initial Mortgage Loan on or
prior to the Cut-Off Date. The transfer by the Seller of the Initial Mortgage
Loans set forth on the Schedules of Mortgage Loans and the Subsequent Mortgage
Loans is absolute and is intended by the Owners and all parties hereto to be
treated as a sale by the Seller. Pursuant to the Indenture, the Issuer will
pledge the Trust Estate to the Indenture Trustee to be held on behalf of the
Owners of the Notes.
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
Issuer and that the Mortgage Loans not be part of the Seller's estate in the
event of an insolvency. In the event that any such conveyance or a conveyance
pursuant to Section 2.8 and any Subsequent Transfer Agreement is deemed to be a
loan, the parties intend that the Seller shall be deemed to have granted to the
Issuer a security interest of first priority in all of the Seller's right, title
and interest in the Mortgage, Mortgage Note and the File, and that this
Agreement shall constitute a security agreement under applicable law.
In connection with the sale, transfer, assignment, and conveyance, from
the Seller to the Issuer, the Seller has filed, in the appropriate office or
offices in the States of California and Delaware, a UCC-1 financing statement
executed by the Seller as debtor, naming the Issuer as secured party and listing
the Mortgage Loans (both Initial Mortgage Loans and Subsequent Mortgage Loans)
and the other property described above as collateral. The characterization of
the Seller as a debtor and the Issuer as the 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 Seller's entire right, title and interest in the Mortgage Loans
and the related Files to the Issuer. In connection with such filing, the Seller
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 Issuer's and the Owners' interests in the
Mortgage Loans and the related Files.
In connection with the pledge of the Adjustable Rate Pool by the Issuer
to the Indenture Trustee, on behalf of the Owners of the Adjustable Rate Notes,
the Issuer has filed, in the appropriate office or offices in the State of
Delaware, a UCC-1 Financing Statement executed by the Issuer as debtor, naming
the Indenture Trustee, on behalf of the Owners of the Adjustable Rate Notes, as
the secured party and listing the Adjustable Rate Mortgage Loans (both Initial
Mortgage Loans and Subsequent Mortgage Loans) and the other property described
above as collateral. In connection with such filing, the Issuer 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 Indenture Trustee's interest in the Trust
Estate on behalf of the Owners of the Adjustable Rate Notes.
In connection with the pledge of the Fixed Rate Pool by the Issuer to
the Indenture Trustee, on behalf of the Owners of the Fixed Rate Notes, the
Issuer has filed, in the appropriate office or offices in the State of Delaware,
a UCC-1 Financing Statement executed by the Issuer as debtor, naming the
Indenture Trustee, on behalf of the Owners of the Fixed Rate Notes, as the
secured party and listing the Fixed Rate Mortgage Loans (both Initial Mortgage
Loans and Subsequent Mortgage Loans) and the other property described above as
collateral. In connection with such filing, the Issuer 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 Indenture Trustee's interest in the Trust Estate on
behalf of the Owners of the Fixed Rate Notes.
(b) In connection with the transfer and assignment of the Mortgage
Loans, the Seller agrees to:
34
<PAGE>
(i) cause to be delivered, on or prior to the Closing Date (except as
otherwise stated below) without recourse to the Custodian, on behalf of the
Indenture Trustee, on the Closing Date with respect to each Initial Mortgage
Loan listed on the Schedule of Mortgage Loans or on each Subsequent Transfer
Date with respect to each Subsequent Mortgage Loan:
(a) the original Mortgage Notes or certified
copies thereof, endorsed without recourse by the related
Originator, "Pay to the order of __________________
____________, without recourse" or, if such Mortgage Notes
relate to Adjustable Rate Mortgage Loans "Pay to the order of
The Chase Manhattan Bank, as Indenture Trustee for the First
Alliance Adjustable Rate Mortgage Loan Asset Backed Notes,
Series 1998-2A, without recourse", and if such Mortgage Notes
relate to Fixed Rate Mortgage Loans, "Pay to the order of The
Chase Manhattan Bank, as Indenture Trustee for the First
Alliance Fixed Rate Mortgage Loans Asset Backed Notes, Series
1998-2F, without recourse". In the event that the Mortgage
Loan was acquired by the related Originator in a merger, the
endorsement must be by the "(related Originator), successor by
merger to (name of predecessor)"; and in the event that the
Mortgage Loan was acquired or originated by the related
Originator while doing business under another name, the
endorsement must be by the "(related Originator), formerly
known as (previous name)";
(b) originals of all intervening assignments,
showing a complete chain of assignment from origination to the
related Originator, if any, including warehousing assignments,
with evidence of recording thereon (or, if an original
intervening assignment has not been returned from the
recording office, a certified copy thereof, the original to be
delivered to the Custodian, on behalf of the Indenture Trustee
forthwith after return);
(c) originals of all assumption and modification
agreements, if any (or, if an original assumption and/or
modification agreement has not been returned from the
recording office, a certified copy thereof, the original to be
delivered to the Custodian, on behalf of the Indenture Trustee
forthwith after return);
(d) either (A) the original Mortgage with
evidence of recording thereon or a certified copy of the
Mortgage as recorded, or (B) if the original Mortgage has not
yet been returned from the recording office, a certified copy
of the Mortgage, together with a receipt from the recording
office or from a title insurance company or a certificate of
an Authorized Person of the related Originator indicating that
such Mortgage has been delivered for recording;
(e) the original assignment of Mortgage for each
Adjustable Rate Mortgage Loan conveying the Mortgage to "The
Chase Manhattan Bank, as Indenture Trustee of the First
Alliance Adjustable Rate Mortgage Loan Asset Backed Notes,
Series 1998-2A," and the original assignment of Mortgage for
each Mortgage Loan conveying the Mortgage to "The Chase
Manhattan Bank, as Indenture Trustee of the First Alliance
Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F"
which assignment shall be in form and substance acceptable for
recording in the state or other jurisdiction where the
mortgaged property is located and, within 75 Business Days
following the Closing Date, with respect to the Initial
Mortgage Loans, or within 75 Business Days of each Subsequent
Transfer Date with respect to the Subsequent Mortgage Loans, a
recorded assignment of each such Mortgage; provided that in
the event that the Mortgage Loan was acquired by the related
Originator in a merger, the assignment of Mortgage must be by
the "(related Originator), successor by merger to (name of
predecessor)"; and in the event that the Mortgage Loan was
acquired or originated by the related Originator while doing
business under another name, the assignment of Mortgage must
be by the "(related Originator), formerly known as (previous
name)" (subject to the foregoing, and where permitted under
the applicable laws of the jurisdiction where the mortgaged
property is located, the assignments of Mortgage
35
<PAGE>
may be made by blanket assignments for Mortgage Loans covering
mortgaged properties situated within the same county or other
permitted governmental subdivision); and
(f) evidence of title insurance with respect to
the mortgaged property in the form of a binder or commitment.
(ii) except with respect to Mortgage Loans covered
by opinions of counsel delivered in the manner set forth below
("Assignment Opinions"), cause, as soon as possible but no more than 75
Business Days following the Closing Date, with respect to the Initial
Mortgage Loans, or within 75 Business Days of each Subsequent Transfer
Date with respect to the Subsequent Mortgage Loans, the Originators to
deliver to the Custodian, on behalf of the Indenture Trustee, copies of
all Mortgage assignments submitted for recording, together with a list
of (x) all Mortgages for which no Mortgage assignment has yet been
submitted for recording by the related Originator (y) reasons why the
related Originator has not yet submitted such Mortgage assignments for
recording; provided, however, that with respect to Mortgage Loans
relating to Properties located in the states of Arizona, California,
Colorado, District of Columbia, Georgia, Idaho, Illinois, Maryland,
Massachusetts, Ohio, Oregon, Pennsylvania, Virginia and Washington, an
Originator shall not be required to record an assignment of a Mortgage
if the Seller furnishes to the Indenture Trustee and the Note Insurer,
on or before the Closing Date with respect to the Initial Mortgage
Loans, or on each Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans, at the Seller's expense, the Assignment
Opinions for the relevant jurisdictions which opine that recording is
not necessary to perfect the rights of the Indenture Trustee in the
related Mortgage (in form satisfactory to the Note Insurer, Moody's and
Standard & Poor's); provided further, however, notwithstanding the
delivery of any legal opinions, each assignment of mortgage shall be
recorded upon the earliest to occur of: (i) the instructions by the
Note Insurer to so record such assignments (such instructions shall be
given by the Note Insurer using reasonable discretion) or (ii) the
occurrence of an Event of Servicing Termination. With respect to any
Mortgage assignment set forth on the aforementioned list which has not
been submitted for recording for a reason other than a lack of original
recording information or with respect to Mortgages not covered by the
Assignment Opinions, the Custodian, on behalf of the Indenture Trustee
shall make an immediate demand on the Seller to cause such Mortgage
assignments to be prepared and shall inform the Note Insurer of the
Seller's failure to cause such Mortgage assignments to be prepared.
Thereafter, the Custodian and the Indenture Trustee shall cooperate in
executing any documents prepared by the Note Insurer and submitted to
the Custodian and the Indenture Trustee in connection with this
provision. Following the expiration of the 75- Business Day period
following the Closing Date with respect to the Initial Mortgage Loans,
or within 75 Business Days of each Subsequent Transfer Date with
respect to the Subsequent Mortgage Loans and except with respect to
Mortgages covered by the Assignment Opinions, the Seller shall cause to
be prepared a Mortgage assignment for any Mortgage for which original
recording information is subsequently received by the related
Originator and shall promptly deliver a copy of such Mortgage
assignment to the Custodian, on behalf of the Indenture Trustee.
All recording required pursuant to this Section 2.5 shall be
accomplished at the expense of the Originators or of the Seller. Notwithstanding
anything to the contrary contained in this Section 2.5, 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 Seller shall be deemed to have satisfied its obligations hereunder
upon delivery to the Custodian, on behalf of the Indenture 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.
Copies of all Mortgage assignments received by the Custodian, on behalf
of the Indenture Trustee shall be kept in the related File.
(c) In the case of Mortgage Loans which have been prepaid in full on or
after the Cut-Off Date and prior to the Closing Date, the Seller, in lieu of the
foregoing, will deliver within 15
36
<PAGE>
Business Days after the Closing Date to the Indenture Trustee a certification of
an Authorized Officer in the form set forth in Exhibit B.
(d) The Seller shall transfer, assign, set over and otherwise convey
without recourse, to the Issuer all right, title and interest of the Seller in
and to any Qualified Replacement Mortgage delivered to the Custodian, on behalf
of the Indenture Trustee, on behalf of the Issuer by the Seller pursuant to
Section 2.4 or Section 2.6 hereof and all its right, title and interest to
principal and interest due on such Qualified Replacement Mortgage after the
applicable Replacement Cut-Off Date; provided, however, that the Seller shall
reserve and retain all right, title and interest in and to payments of principal
and interest due on such Qualified Replacement Mortgage on and prior to the
applicable Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the lien of the related
Indenture in connection with the conveyance of a Qualified Replacement Mortgage
therefor, the Custodian, on behalf of the Indenture Trustee will transfer,
assign, set over and otherwise convey without recourse, on the Seller's order,
all of its right, title and interest in and to such released Mortgage Loan and
all the Issuer's right, title and interest to principal and interest due on such
released Mortgage Loan after the applicable Replacement Cut-Off Date; provided,
however, that the Issuer shall reserve and retain all right, title and interest
in and to payments of principal and interest due on such released Mortgage Loan
on and prior to the applicable Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Issuer, the Seller agrees to cause to be delivered
to the Custodian, on behalf of the Indenture Trustee, the items described in
Section 2.5(b) on the date of such transfer and assignment or if a later
delivery time is permitted by Section 2.5(b) then no later than such later
delivery time.
(g) As to each Mortgage Loan released from a Mortgage Loan Pool in
connection with the conveyance of a Qualified Replacement Mortgage the
Custodian, on behalf of the Indenture Trustee, shall deliver on the date of
conveyance of such Qualified Replacement Mortgage, and on the order of the
Seller (i) the original Mortgage Note, or the certified copy, relating thereto,
endorsed without recourse, to the Seller and (ii) such other documents as
constituted the File with respect thereto.
(h) If a Mortgage assignment is lost during the process of recording,
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 each such assignment to be duly recorded.
Section 2.6. Acceptance by Indenture Trustee; Certain Substitutions of
Mortgage Loans; Certification by Indenture Trustee.
(a) The Indenture Trustee agrees to cause the Custodian to execute and
deliver to the Seller, the Issuer, the Servicer and the Note Insurer on the
Closing Date an Initial Certification in the form annexed hereto as Exhibit C to
the effect that, as to each Mortgage Loan listed in the Schedule of Mortgage
Loans (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to it pursuant to
this Agreement with respect to such Mortgage Loan are in its possession, (ii)
such documents have been reviewed by it and appear regular on their face and
relate to such Mortgage Loan and (iii) based on its examination and only as to
the foregoing documents, the information set forth on the Schedule of Mortgage
Loans as to loan number and address accurately reflects information set forth in
the File. Neither the Indenture Trustee nor the Custodian, on behalf of the
Indenture Trustee, shall be under any duty or obligation to inspect, review or
examine said documents, instruments, certificates or other papers to determine
that the same are genuine, enforceable or appropriate for the represented
purpose or that they have actually been recorded or that they are other than
what they purport to be on their face. Within 90 days of the Closing Date (or,
with respect to any document delivered after the Closing Date, within 45 days of
receipt thereof and with respect to any Subsequent Mortgage Loan or Qualified
Replacement Mortgage, within 45 days after the assignment thereof) the Indenture
Trustee shall cause the Custodian to deliver to the Issuer, the Seller, Note
37
<PAGE>
Insurer and the Servicer a Final Certification in the form annexed hereto as
Exhibit D evidencing the completeness of the Files, with any applicable
exceptions noted thereon.
(b) If in the process of reviewing the Files and preparing the
certifications referred to above the Custodian, on behalf of the Indenture
Trustee, finds any document or documents constituting a part of a File which is
not properly executed, has not been received within the specified period or is
unrelated to the Mortgage Loans identified in the related Schedules of Mortgage
Loans, or that any Mortgage Loan does not conform as to loan number and address
as set forth in the related Schedules of Mortgage Loans, the Custodian, on
behalf of the Indenture Trustee shall promptly notify the Seller and the Note
Insurer. The Seller shall use reasonable efforts to cure any such defect within
60 days from the date on which the Seller was notified of such defect, and if
the Seller does not cure such defect in all material respects during such
period, the Seller will (or will cause the related Originator or an affiliate of
the Seller to) on the next succeeding Remittance Date (i) substitute in lieu of
such Mortgage Loan a Qualified Replacement Mortgage and deliver the Substitution
Amount applicable thereto to the Servicer for deposit in the Principal and
Interest 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 Servicer for deposit in the Principal and Interest Account.
Section 2.7. Cooperation Procedures. (a) The Seller shall, in
connection with the delivery of each Qualified Replacement Mortgage to the
Custodian, on behalf of the Indenture Trustee, provide the Indenture Trustee
with the information set forth in the Schedule of Mortgage Loans with respect to
such Qualified Replacement Mortgage.
(b) The Seller, the Issuer, the Servicer and the Indenture Trustee
covenant to provide each other with all data and information required to be
provided by them hereunder at the times required hereunder, and additionally
covenant reasonably to cooperate with each other in providing any additional
information required to be obtained by any of them in connection with their
respective duties hereunder.
(c) The Servicer shall maintain such accurate and complete accounts,
records and computer systems pertaining to each File as shall enable it and the
Indenture Trustee to comply with this Agreement. In performing its recordkeeping
duties the Servicer shall act in accordance with the servicing standards set
forth in this Agreement. The Servicer shall conduct, or cause to be conducted,
periodic audits of its accounts, records and computer systems as set forth in
Sections 4.16 and 4.17 hereof. The Servicer shall promptly report to the
Indenture Trustee any failure on its part to maintain its accounts, records and
computer systems as herein provided and promptly take appropriate action to
remedy any such failure.
(d) The Seller further confirms to the Indenture Trustee that it has
caused the portions of the electronic ledger relating to the Mortgage Loans to
be clearly and unambiguously marked to indicate that such Mortgage Loans have
been sold, transferred, assigned and conveyed to the Issuer and constitute part
of the Trust Estate in accordance with the terms of the trust created hereunder
and that the Seller will treat the transaction contemplated by such sale,
transfer, assignment and conveyance as a sale for accounting purposes.
Section 2.8. Conveyance of the Subsequent Mortgage Loans. (a) Subject
to the satisfaction of the conditions set forth in Section 2.5 and paragraphs
(b), (c) and (d) below (based on the Custodian's review of such conditions) in
consideration of the Indenture Trustee's delivery on the relevant Subsequent
Transfer Dates to or upon the order of the Seller of all or a portion of the
balance of funds in the Pre-Funding Account, the Seller shall on any Subsequent
Transfer Date sell, transfer, assign, set over and otherwise convey without
recourse, to the Indenture Trustee, all of the Seller's right, title and
interest in and to principal and interest (including prepaid interest) due on
each Subsequent Mortgage Loan after the Subsequent Cut-Off Date (other than
payments of principal and interest due on or before the relevant Subsequent
Cut-Off Date), which Subsequent Mortgage Loans shall have been approved by the
Note Insurer, and the Seller is causing to be delivered to the Custodian on
behalf of the Indenture Trustee herewith (and all substitutions therefor as
provided by Sections 2.4 and 2.6) together with the related Subsequent Mortgage
Loan documents and the Seller's interest in any Property which secured a
Subsequent Mortgage Loan but
38
<PAGE>
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 and 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 Subsequent 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).
The transfer by the Seller of the Subsequent Mortgage Loans set forth
on the related Schedule of Mortgage Loans to the Issuer shall be absolute and
shall be intended by the Owners and all parties hereto to be treated as a sale
by the Seller to the Issuer. Any Subsequent Mortgage Loan so transferred will be
included in one (and only one) of the Adjustable Rate Pool or the Fixed Rate
Pool. The amount released from the Pre-Funding Account shall be one hundred
percent (100%) of the aggregate principal balances of the Subsequent Mortgage
Loans so transferred. Upon the transfer by the Seller of the Subsequent Mortgage
Loans hereunder, such Subsequent Mortgage Loans (and all principal and interest
due thereon subsequent to the Subsequent Cut-Off Date) and all other rights and
interests with respect to such Subsequent Mortgage Loans transferred pursuant to
a Subsequent Transfer Agreement shall be deemed for all purposes hereunder to be
part of the Trust Estate. The Seller hereby covenants and agrees to use its best
efforts to ensure that a sufficient amount of Subsequent Mortgage Loans will be
transferred to the Issuer during the Funding Period to reduce the Pre-Funded
Amount to less than $100,000 for each Mortgage Loan Pool.
(b) The obligation of the Indenture Trustee to accept the transfer of
the Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Seller shall have provided the Indenture
Trustee and the Note Insurer with an Addition Notice and shall
have provided any information reasonably requested by any of
the foregoing with respect to the Subsequent Mortgage Loans;
(ii) the Seller shall have delivered to the Indenture
Trustee a duly executed Subsequent Transfer Agreement
(including an acceptance by the Indenture Trustee) in
substantially the form of Exhibit G, which shall include a
Schedule of Mortgage Loans, listing the Subsequent Mortgage
Loans and any other exhibits listed thereon;
(iii) the Seller shall have deposited in the Principal
and Interest Account all principal collected and interest due
in respect of such Subsequent Mortgage Loans on or after the
related Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, the Seller is
not insolvent, nor will it be made insolvent by such transfer,
nor is it aware of any pending insolvency;
(v) the Funding Period shall not have ended;
(vi) the Seller shall have delivered to the Indenture
Trustee and the Note Insurer an Officer's Certificate
confirming the satisfaction of each condition precedent
specified in items (i) through (v) of this paragraph (b) and
paragraphs (c) and (d) below and in the related Subsequent
Transfer Agreement;
(vii) the Seller shall have delivered to the Indenture
Trustee, the Rating Agencies and the Note Insurer opinions of
counsel with respect to the transfer of the Subsequent
Mortgage Loans substantially in the form of the opinions of
counsel delivered to the Note Insurer and the Indenture
Trustee on the Closing Date with respect to the Initial
Mortgage Loans (bankruptcy, corporate and tax); and
39
<PAGE>
(viii) the Note Insurer retains the right to adjust the
loss coverage requirements, including, but not limited to the
related Specified Subordinated Amount, if a final Mortgage
Loan Pool differs materially from the Initial Mortgage Loans
in such Mortgage Loan Pool. Prior to any such adjustment, the
Note Insurer shall give written notice to the Rating Agencies.
(c) The obligation of the Issuer to purchase Subsequent Mortgage Loans
on a Subsequent Transfer Date for inclusion in the Adjustable Rate Pool is
subject to the following requirements: (i) such Subsequent Mortgage Loan may not
be 30 or more days contractually delinquent as of the related Subsequent Cut-Off
Date; (ii) the remaining term to maturity of such Subsequent Mortgage Loan may
not exceed 30 years; (iii) such Subsequent Mortgage Loan will have a
Loan-to-Value Ratio of not more than 85%; (iv) the Note Insurer shall have given
its consent to the inclusion of such Subsequent Mortgage Loan and (v) following
the purchase of such Subsequent Mortgage Loans by the Issuer, the Mortgage Loans
in the Adjustable Rate Pool (including the Subsequent Mortgage Loans included in
such Mortgage Loan Pool) (a) will have a weighted average coupon rate of at
least 8.74%; (b) will have a weighted average Loan-to-Value Ratio of not more
than 62.68%; and (c) will have an average current loan balance not greater than
$110,263 and not more than 10% of the Mortgage Loans in the Adjustable Rate Pool
may have a principal balance in excess of $200,000, (d) will satisfy the
representations and warranties set forth in Section 2.3 hereof and (e) have a
first due date no later than September 1, 1998.
(d) The obligation of the Issuer to purchase Subsequent Mortgage Loans
on a Subsequent Transfer Date for inclusion in the Fixed Rate Pool is subject to
the following requirements: (i) such Subsequent Mortgage Loan may not be 30 or
more days contractually delinquent as of the related Subsequent Cut-Off Date;
(ii) the remaining term to maturity of such Subsequent Mortgage Loan may not
exceed 30 years; (iii) such Subsequent Mortgage Loan will have a Combined
Loan-to-Value Ratio of not more than 80%; and (iv) the Note Insurer shall have
given its consent to the inclusion of such Subsequent Mortgage Loan and (v)
following the purchase of such Subsequent Mortgage Loans by the Issuer, the
Mortgage Loans in the Fixed Rate Pool (including the Subsequent Mortgage Loans
included in such Mortgage Loan Pool) (a) will have a weighted average coupon
rate of at least 9.68%; (b) will have a weighted average Combined Loan-to-Value
Ratio of not more than 56.47%; and (c) will have an average current loan balance
not greater than $76,295 and not more than 10% of the Mortgage Loans in the
Fixed Rate Pool may have a principal balance in excess of $200,000, (d) will
satisfy the representations and warranties set forth in Section 2.3 hereof and
(e) have a first due date no later than September 1, 1998.
(e) In connection with each Subsequent Transfer Date and on the Payment
Date occurring in July 1998, the Indenture Trustee shall determine: (i) the
amount and correct dispositions of the Adjustable Rate Capitalized Interest
Requirement, Fixed Rate Capitalized Interest Requirement, Pre-Funding Account
Earnings and the Pre-Funded Amount (and the portion of such amounts allocable to
the Adjustable Rate Pool and the Fixed Rate Pool) and (ii) any other necessary
matters in connection with the administration of the Pre-Funding Account and of
the Capitalized Interest Account. In the event that any amounts are released as
a result of an error in calculation to the Owners or the Seller from the
Pre-Funding Account or from the Capitalized Interest Account, such Owners or the
Seller shall immediately repay such amounts to the Trustee.
Section 2.9. Books and Records.
The sale of each Mortgage Loan shall be reflected in the Seller's
balance sheets and other financial statements as a sale of assets by the Seller
under generally accepted accounting principles.
40
<PAGE>
ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 3.1. Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee shall demand payment or delivery of all
money and other property payable to or receivable by the Indenture Trustee
pursuant to this Agreement, including (a) all payments due on the Mortgage Loans
in accordance with the respective terms and conditions of such Mortgage Loans
and required to be paid over to the Indenture Trustee by the Servicer or by any
Sub-Servicer and (b) Insured Payments. The Indenture Trustee shall hold all such
money and property received by it as part of the Trust Estate and shall apply it
as provided in this Agreement.
Section 3.2. Establishment of Accounts. (a) The Seller shall cause to
be established, and the Indenture Trustee shall maintain, at the Corporate Trust
Office, an Adjustable Rate Note Account, a Fixed Rate Note Account and an
Available Funds Cap Carry-Forward Amount Account each to be held by the
Indenture Trustee so long as the Indenture Trustee qualifies as a Designated
Depository Institution and if the Indenture Trustee does not so qualify, then by
any Designated Depository Institution in the name of the Indenture Trustee for
the benefit of the Owners of the Notes and the Note Insurer, as their interests
may appear.
(b) The Seller shall cause to be established, and the Indenture Trustee
shall maintain, at the corporate trust office of the Indenture Trustee, a
Pre-Funding Account and a Capitalized Interest Account to be held by the
Indenture Trustee in the name of the Indenture Trustee for the benefit of the
Owners of the Notes and the Note Insurer, as their interests may appear.
Section 3.3. The Note Insurance Policies. (a) On the Business Day prior
to each Payment Date the Indenture Trustee shall determine with respect to the
immediately following Payment Date:
(i) the amount on deposit in the Adjustable Rate Note Account
on such Payment Date and available to be distributed to the Owners of
the Adjustable Rate Notes on such Payment Date (disregarding the sum of
(x) the amount of any Insured Payments and (y) the amount of any
expected investment earnings) and equal to the sum of (A) such amount
excluding the amount of any Adjustable Rate Total Monthly Excess
Cashflow included in such amount plus (B) any amount of Adjustable Rate
Total Monthly Excess Cashflow to be applied on such Payment Date. The
amount described in clause (A) of the preceding sentence with respect
to each Payment Date is the "Adjustable Rate Available Funds"; the sum
of the amounts described in clauses (A) and (B) of the preceding
sentence with respect to each Payment Date is the "Adjustable Rate
Total Available Funds."
(ii) the amount on deposit in the Fixed Rate Note Account on
such Payment Date and available to be distributed to the Owners of the
Fixed Rate Notes on such Payment Date (disregarding the sum of (x) the
amount of any Insured Payments and (y) the amount of any expected
investment earnings) and equal to the sum of (A) such amount excluding
the amount of any Fixed Rate Total Monthly Excess Cashflow included in
such amount plus (B) any amount of Fixed Rate Total Monthly Excess
Cashflow to be applied on such Payment Date. The amount described in
clause (A) of the preceding sentence with respect to each Payment Date
is the "Fixed Rate Available Funds"; the sum of the amounts described
in clauses (A) and (B) of the preceding sentence with respect to each
Payment Date is the "Fixed Rate Total Available Funds."
(b) If (i) the Adjustable Rate Current Interest for any Payment Date
exceeds the Adjustable Rate Total Available Funds for such Payment Date after
deducting amounts payable therefrom, if any, for the Adjustable Rate Premium
Amount and the Indenture Trustee Fee relating to the Adjustable Rate Pool due on
such Payment Date and any amounts available pursuant to Section 3.5(f)(ii)(B)
and/or (ii) an Adjustable Rate Subordination Deficit in excess of the Fixed Rate
Subordinated Amount exists for such Payment Date (any such event being a
"Adjustable Rate Total Available Funds Shortfall"), the Indenture
41
<PAGE>
Trustee shall complete a Notice in the form of Exhibit A to the Adjustable Rate
Note Insurance Policy and submit such notice to the Note Insurer no later than
12:00 noon New York City time on the Business Day preceding such Payment Date as
a claim for an Insured Payment in an amount equal to such Adjustable Rate Total
Available Funds Shortfall. Similarly, if (x) the Fixed Rate Current Interest for
any Payment Date exceeds the Fixed Rate Total Available Funds for such Payment
Date after deducting amounts payable therefrom, if any, for the Fixed Rate
Premium Amount and the Indenture Trustee Fee relating to the Fixed Rate Pool due
on such Payment Date and any amounts available pursuant to Section 3.5(b)(ii)(B)
and/or (y) a Fixed Rate Subordination Deficit in excess of the Adjustable Rate
Subordinated Amount exists for such Payment Date (any such event being an "Fixed
Rate Total Available Funds Shortfall"), the Indenture Trustee shall complete a
Notice in the form of Exhibit A to the Fixed Rate Note Insurance Policy and
submit such notice to the Note Insurer no later than 12:00 noon New York City
time on the Business Day preceding such Payment Date as a claim for an Insured
Payment in an amount equal to such Fixed Rate Total Available Funds Shortfall.
(c) The Note Insurer shall forward to the Indenture Trustee Insured
Payments at such time and in the manner specified in the related Note Insurance
Policy. Upon receipt of Insured Payments from the Note Insurer on behalf of
Owners, the Indenture Trustee shall deposit such Insured Payments in the Policy
Payments Account and shall distribute such Insured Payments, or the proceeds
thereof, in accordance with Sections 3.5(b)(iv) and 3.5(f)(iv) to the Owners of
the related Series of Notes.
(d) The Indenture Trustee shall (i) receive Insured Payments as
attorney-in-fact of each Owner of the Series of Notes receiving any Insured
Payment from the Note Insurer and (ii) disburse such Insured Payment to the
Owners of such Series of Notes as set forth in Sections 3.5(b)(iv) and
3.5(f)(iv). Insured Payments disbursed by the Indenture Trustee from proceeds of
a Note Insurance Policy shall not be considered payment by the Trust nor shall
such payments discharge the obligation of the Trust with respect to the Notes,
and the Note Insurer shall be entitled to receive the Reimbursement Amount
pursuant to Sections 3.5(b)(ii)(B) and 3.5(f)(ii)(B) hereof. Each Owner of Notes
by its acceptance thereof recognizes that to the extent the Note Insurer makes
Insured Payments, either directly or indirectly (as by paying through the
Indenture Trustee), to the Owners of such Notes the Note Insurer will be
entitled to receive the Reimbursement Amount pursuant to Sections 3.5(b)(ii)(D)
or (E) and 3.5(f)(ii)(B) hereof.
(e) On the Final Payment Date for a Series of Notes, the Indenture
Trustee shall make a claim against the related Note Insurance Policy in an
amount sufficient after the application of related Total Available Funds for
such Payment Date to reduce the Note Principal Balance of such Series of Notes
to zero and to pay any accrued interest on the Notes.
Section 3.4 Pre-Funding Account and Capitalized Interest Account
(a) On the Closing Date, the Seller will deposit, on behalf of the
Owners of the Notes, in the Pre-Funding Account the Original Pre-Funded Amount,
from the proceeds of the sale of the Notes.
(b) On the Subsequent Transfer Date, the Seller shall instruct the
Indenture Trustee to withdraw from the Pre-Funding Account an amount equal to
100% of the aggregate Loan Balances of the Subsequent Mortgage Loans sold to the
Issuer on such Subsequent Transfer Date and pay such amount to or upon the order
of the Seller upon satisfaction of the conditions set forth in Sections 2.5 and
2.8 hereof with respect to such transfer; in connection with such instructions
the Seller shall additionally inform the Indenture Trustee whether such
Subsequent Mortgage Loans are being transferred to the Adjustable Rate Pool or
the Fixed Rate Pool. In no event shall the Seller be permitted to instruct the
Indenture Trustee to release with respect to Subsequent Mortgage Loans from the
Pre-Funding Account to the Adjustable Rate Note Account an amount in excess of
the Original Adjustable Rate Pre-Funded Amount or from the Fixed Rate Note
Account an amount in excess of the Original Fixed Rate Pre-Funded Amount.
(c) On or before the July 1998 Payment Date, the Indenture Trustee
shall withdraw from the Pre-Funding Account the amount (exclusive of any related
Pre-Funding Account Earnings still on deposit
42
<PAGE>
therein) remaining in the Pre-Funding Account and deposit such amount to the
related Note Account, for the benefit of the Owners of the related Series of
Notes.
(d) On or before the July 1998 Payment Date, the Indenture Trustee
shall transfer from the Pre-Funding Account to the Capitalized Interest Account,
the Pre-Funding Account Earnings, if any, applicable to such Payment Date.
(e) On or before the July 1998 Payment Date the Trustee shall transfer
from the Capitalized Interest Account to the related Note Account, the
Adjustable Rate Capitalized Interest Requirement and the Fixed Rate Capitalized
Interest Requirement for such Payment Date.
(f) On all amounts, if any, remaining in the Capitalized Interest
Account shall be transferred to the Seller on the July 1998 Payment Date.
Thereafter, the Capitalized Interest Account shall be closed.
Section 3.5. Flow of Funds. (a) The Indenture Trustee shall deposit to
the Adjustable Rate Note Account, without duplication, upon receipt, any Insured
Payments relating to the Adjustable Rate Notes, the proceeds of any liquidation
of the assets of the Adjustable Rate Pool, the Adjustable Rate Monthly
Remittance Amount remitted by the Servicer or any Sub-Servicer, together with
any Substitution Amounts and any Loan Purchase Price amounts relating to the
Adjustable Rate Pool received by the Indenture Trustee.
(b) With respect to the Adjustable Rate Note Account, on each Payment
Date, the Indenture Trustee shall make the following allocations, disbursements
and transfers from amounts deposited therein pursuant to subsection (a), 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 Payment Date from amounts then on deposit in
the Adjustable Rate Note Account (A) to the Indenture Trustee,
the portion of the Indenture Trustee Fee and to the Owner
Trustee, the portion of the Owner Trustee Fee relating to the
Adjustable Rate Pool and (B) to the Note Insurer, from amounts
then on deposit in the Adjustable Rate Note Account, the
Adjustable Rate Premium Amount for such Payment Date;
(ii) second, on each Payment Date, the Indenture Trustee shall
allocate an amount equal to the sum of (x) the Adjustable Rate
Total Monthly Excess Spread with respect to such Payment
Date plus (y) any Subordination Reduction Amount with respect
to the Adjustable Rate Pool on such Payment Date (such sum
being the "Adjustable Rate Total Monthly Excess Cashflow" with
respect to such Payment Date) in the following order of
priority:
(A) first, such Adjustable Rate Total Monthly Excess
Cashflow shall be allocated to the payment of the
Adjustable Rate Monthly Payment Amount pursuant to
clause (iv) below on such Payment Date in an amount
equal to the difference, if any, between (x) the
Adjustable Rate Monthly Payment Amount (calculated
only with respect to clause (y) of the definition of
Adjustable Rate Principal Payment Amount and without
any Subordination Increase Amount relating to the
Adjustable Rate Pool) for such Payment Date and (y)
the Adjustable Rate Available Funds for such Payment
Date (the amount of such difference being the
"Adjustable Rate Available Funds Shortfall"); and
(B) second, such Adjustable Rate Total Monthly Excess
Cashflow shall be allocated to the payment of the
Fixed Rate Current Interest pursuant to clause
(f)(iv)(B) below;
(C) third, such Adjustable Rate Total Monthly Excess
Cashflow shall be allocated to the payment of the
Fixed Rate Available Funds Shortfall pursuant to
clause (f)(ii)(A) below;
43
<PAGE>
(D) fourth, such Adjustable Rate Total Monthly Excess
Cashflow shall be allocated to the payment of
Adjustable Rate Reimbursement Amount pursuant to
clause (b)(iv)(A)(I) below; and
(E) fifth, any portion of the Adjustable Rate Total
Monthly Excess Cashflow remaining after the
allocations described in clause (A), (B), (C) and (D)
above shall be allocated to the Note Insurer in
respect of amounts owed on account of any Fixed Rate
Reimbursement Amount pursuant to clause (f)(iv)(A)(I)
below.
(iii) third, the amount, if any, of the Adjustable Rate Total Monthly
Excess Cashflow on a Payment Date remaining after the allocations
described in clause (ii) above is the "Adjustable Rate Net
Monthly Excess Cashflow" for such Payment Date; such Adjustable
Rate Net Monthly Excess Cashflow is required to be allocated in
the following order of priority:
(A) first, such Adjustable Rate Net Monthly Excess
Cashflow shall be used to reduce to zero, through the
allocation of a Subordination Increase Amount
relating to the Adjustable Rate Pool to the payment
of the Adjustable Rate Monthly Payment Amount
pursuant to clause (iv)(C) below, any Subordination
Deficiency Amount relating to the Adjustable Rate
Pool as of such Payment Date;
(B) second, an amount equal to the lesser of (i) any
portion of the Adjustable Rate Net Monthly Excess
Cashflow remaining after the applications described
in clause (A) above and (ii) the excess of (a) the
Available Funds Cap Carry-Forward Amount for such
Payment Date over (b) the amount then on deposit in
the Available Funds Cap Carry-Forward Amount Account
shall be allocated to the Available Funds Cap
Carry-Forward Amount Account; and
(C) third, any Adjustable Rate Net Monthly Excess
Cashflow remaining after the applications described
in clauses (A) and (B) above shall be allocated to
the Servicer pursuant to clause (iv)(A)(II) below to
the extent of any unreimbursed Delinquency Advances,
unreimbursed Servicing Advances and accrued and
unpaid Servicing Fees relating to the Adjustable Rate
Pool, in each case as certified to the Indenture
Trustee by the Servicer to be owing to it as of such
Payment Date;
(iv) fourth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above under
Section 3.3 hereof and the prior clauses of this Section 3.5(b),
from amounts (including any related Insured Payment which shall
be paid only to the Owners of the Adjustable Rate Notes) then on
deposit in the Adjustable Rate Note Account, the Indenture
Trustee shall:
(A) distribute (I) to the Note Insurer the amounts
described in clause (ii)(D) above and clause (ii)(E)
of Section 3.5(f) below and (II) to the Servicer the
amounts described in clause (iii)(C) above;
(B) retain in the Adjustable Rate Note Account, the
Adjustable Rate Current Interest for such Payment
Date (including the proceeds of any Insured Payments
relating to interest on the Adjustable Rate Notes
made by the Note Insurer);
(C) retain in the Adjustable Rate Note Account, the
Adjustable Rate Principal Payment Amount for such
Payment Date (including the proceeds of any Insured
Payments relating to principal on the Adjustable Rate
Notes made by the Note Insurer);
(D) distribute to the Available Funds Cap Carry-Forward
Amount the amount described in clause (iii)(B) above;
44
<PAGE>
(E) distribute to the Indenture Trustee, for the
reimbursement of expenses of the Indenture Trustee
not reimbursed pursuant to clause (b)(i) above which
expenses were incurred in connection with its duties
and obligations hereunder; and
(v) fifth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above under
Section 3.3 hereof and the prior clauses of this Section
3.5(b), from amounts remaining on deposit in the Adjustable
Rate Note Account, the Indenture Trustee shall distribute to
the Certificate Distribution Account, the Adjustable Rate
Residual Net Monthly Excess Cashflow, if any, for such Payment
Date.
(c) On each Payment Date the Indenture Trustee shall distribute to the
Owners the amount, if any, then on deposit in the Available Funds Cap
Carry-Forward Amount Account.
(d) Notwithstanding clause (b)(iv) above, the aggregate amounts
distributed on all Payment Dates to the Owners of the Adjustable Rate Notes on
account of principal shall not exceed the Original Adjustable Rate Note
Principal Balance.
(e) The Indenture Trustee shall deposit to the Fixed Rate Note Account,
without duplication, upon receipt, any Insured Payments relating to the Fixed
Rate Notes, the proceeds of any liquidation of the assets of the Fixed Rate
Pool, the Fixed Rate Monthly Remittance Amount remitted by the Servicer or any
Sub-Servicer, together with any Substitution Amounts and any Loan Purchase Price
amounts relating to the Fixed Rate Pool received by the Indenture Trustee.
(f) With respect to the Fixed Rate Note Account, on each Payment Date,
the Indenture Trustee shall make the following allocations, disbursements and
transfers from amounts deposited therein pursuant to subsection (e), 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 Payment Date from amounts then on deposit in
the Fixed Rate Note Account (A) to the Indenture Trustee, the
portion of the Indenture Trustee Fee and to the Owner Trustee,
the portion of the Owner Trustee Fee relating to the Fixed
Rate Pool and (B) to the Note Insurer, from amounts then on
deposit in the Fixed Rate Note Account, the Fixed Rate Premium
Amount for such Payment Date;
(ii) second, on each Payment Date, the Indenture Trustee shall
allocate an amount equal to the sum of (x) the Fixed Rate
Total Monthly Excess Spread with respect to such Payment Date
plus (y) any Subordination Reduction Amount with respect to
the Fixed Rate Pool on such Payment Date (such sum being the
"Fixed Rate Total Monthly Excess Cashflow" with respect to
such Payment Date) in the following order of priority:
(A) first, such Fixed Rate Total Monthly Excess
Cashflow shall be allocated to the payment of the
Fixed Rate Monthly Payment Amount pursuant to clause
(iv) below on such Payment Date in an amount equal to
the difference, if any, between (x) the Fixed Rate
Monthly Payment Amount (calculated only with respect
to clause (y) of the definition of Fixed Rate
Principal Payment Amount and without any
Subordination Increase Amount relating to the Fixed
Rate Pool) for such Payment Date and (y) the Fixed
Rate Available Funds for such Payment Date (the
amount of such difference being the "Fixed Rate
Available Funds Shortfall");
(B) second, such Fixed Rate Total Monthly Excess Cashflow
shall be allocated to the payment of the Adjustable
Rate Current Interest pursuant to clause (b)(iv)(B)
above;
45
<PAGE>
(C) third, such Fixed Rate Total Monthly Excess Cashflow
shall be allocated to the payment of the Adjustable
Rate Available Funds Shortfall pursuant to clause
(b)(ii)(A) above;
(D) fourth, such Fixed Rate Total Monthly Excess Cashflow
shall be allocated to the payment of Fixed Rate
Reimbursement Amount pursuant to clause (f)(iv)(A)(I)
below; and
(E) fifth, any portion of the Fixed Rate Total Monthly
Excess Cashflow remaining after the allocations
described in clause (A), (B), (C) and (D) above shall
be allocated to the Note Insurer in respect of
amounts owed on account of any Adjustable Rate
Reimbursement Amount pursuant to clause (b)(iv)(A)(I)
above.
(iii) third, the amount, if any, of the Fixed Rate Total Monthly Excess
Cashflow on a Payment Date remaining after the allocations
described in clause (ii) above is the "Fixed Rate Net Monthly
Excess Cashflow" for such Payment Date; such Fixed Rate Net
Monthly Excess Cashflow is required to be allocated in the
following order of priority:
(A) first, such Fixed Rate Net Monthly Excess Cashflow
shall be used to reduce to zero, through the
allocation of a Subordination Increase Amount
relating to the Fixed Rate Pool to the payment of the
Fixed Rate Monthly Payment Amount pursuant to clause
(iv)(C) below, any Subordination Deficiency Amount
relating to the Fixed Rate Pool as of such Payment
Date;
(B) second, any Fixed Rate Net Monthly Excess Cashflow
remaining after the applications described in clause
(A) above shall be allocated to the Servicer pursuant
to clause (iv)(A)(II) below to the extent of any
unreimbursed Delinquency Advances, unreimbursed
Servicing Advances and accrued and unpaid Servicing
Fees relating to the Fixed Rate Pool, in each case as
certified to the Indenture Trustee by the Servicer to
be owing to it as of such Payment Date;
(iv) fourth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above under
Section 3.3 hereof and the prior clauses of this Section 3.5(f),
from amounts (including any related Insured Payment which shall
be paid only to the Owners of the Fixed Rate Notes) then on
deposit in the Fixed Rate Note Account, the Indenture Trustee
shall:
(A) distribute (I) to the Note Insurer the amounts
described in clause (ii)(D) above and clause (ii)(E)
of Section 3.5(b) above and (II) to the Servicer the
amounts described in clause (iii)(B) above;
(B) retain in the Fixed Rate Note Account, the Fixed Rate
Current Interest for such Payment Date (including the
proceeds of any Insured Payments relating to interest
on the Fixed Rate Notes made by the Note Insurer);
(C) retain in the Fixed Rate Note Account, the Fixed Rate
Principal Payment Amount for such Payment Date
(including the proceeds of any Insured Payments
relating to principal on the Fixed Rate Notes made by
the Note Insurer);
(D) distribute to the Indenture Trustee, for the
reimbursement of expenses of the Indenture Trustee
not reimbursed pursuant to clause (f)(i) above which
expenses were incurred in connection with its duties
and obligations hereunder; and
(v) fifth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above under
Section 3.3 hereof and the prior clauses of this Section 3.5(f),
from amounts remaining on deposit in the Fixed Rate Note Account,
the Indenture
46
<PAGE>
Trustee shall distribute to the Certificate Distribution Account, the
Fixed Rate Residual Net Monthly Excess Cashflow, if any, for such
Payment Date.
(g) Notwithstanding clause (f)(iv) above, the aggregate amounts
distributed on all Payment Dates to the Owners of the Fixed Rate Notes on
account of principal shall not exceed the Original Fixed Rate Note Principal
Balance.
Section 3.6. Investment of Accounts. (a) So long as no event described
in Sections 4.20(a) or (b) hereof shall have occurred and be continuing, and
consistent with any requirements of the Code, all or a portion of the Accounts
held by the Indenture Trustee shall be invested and reinvested by the Indenture
Trustee for the benefit of the Owners and the Note Insurer, as their interests
may appear, directed in writing by the Servicer on the Closing Date and from
time to time thereafter, in one or more Eligible Investments bearing interest or
sold at a discount. During the continuance of an event described in Sections
4.20(a) or (b) hereof and following any removal of the Servicer, the Note
Insurer shall direct such investments. No investment in any Account shall mature
later than the second Business Day preceding the next Payment Date.
(b) If any amounts are needed for disbursement from any Account held by
the Indenture Trustee and sufficient uninvested funds are not available to make
such disbursement, the Indenture 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 the terms of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Account held
by the Indenture Trustee resulting from any loss on any Eligible Investment
included therein.
(d) The Indenture Trustee shall hold funds in the Accounts held by the
Indenture Trustee uninvested upon the occurrence of either of the following
events:
(i) the Servicer or the Note Insurer, as the case may
be, shall have failed to give investment directions to the Indenture
Trustee within ten days after receipt of a written request for such
directions from the Indenture Trustee; or
(ii) the Servicer or the Note Insurer, as the case
may be, shall have failed to give investment directions to the
Indenture Trustee with respect to any investment by the Indenture
Trustee that shall mature during the ten-day period described in clause
(i).
(e) For purposes of investment, the Indenture Trustee shall aggregate
all amounts on deposit in each Account. All income or other gain from
investments in any Account shall be deposited in such Account immediately on
receipt, and any loss resulting from such investments shall be charged to the
Seller, and upon request by the Indenture Trustee, the Seller shall reimburse
the Trust Estate for such losses.
(f) Each institution at which the Note Account is maintained shall
invest the funds therein in Eligible Investments, which shall mature not later
than the Business Day next preceding the related Payment Date (except that if
such Eligible Investment is an obligation of the institution that maintains such
account, then such Eligible Investment shall mature not later than such Payment
Date) and, in each case, shall not be sold or disposed of prior to its maturity.
All such Eligible Investments shall be made in the name of
the Indenture Trustee, for the benefit of the Owners and the Note Insurer. All
income and gain (net of any losses) realized from any such investment of funds
on deposit in the Note Account shall be for the benefit of the Servicer as
servicing compensation and shall be remitted to it monthly as provided herein.
The amount of any realized losses in the Note Account incurred in any such
account in respect of any such investments shall promptly be deposited by the
Servicer in the Note Account or paid to the Indenture Trustee as applicable. The
Indenture Trustee in its fiduciary capacity shall not be liable for the amount
of any loss incurred in respect of any investment or lack of investment of funds
held in the Note Account and made in accordance with this Section 3.6(f).
47
<PAGE>
(g) The Servicer shall give notice to the Indenture Trustee, the
Seller, the Issuer, each Rating Agency, and the Note Insurer of any proposed
change of the location of the Note Account not later than 30 days and not more
than 45 days prior to any change thereof.
Section 3.7. Eligible Investments. The following are Eligible
Investments:
(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States fully and unconditionally
guaranteed, the timely payment or the guarantee of which constitutes a full
faith and credit obligation of the United States.
(b) Federal funds, Notes of deposit, time and demand 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 by Moody's.
(c) Investment agreements approved by the Note Insurer provided:
1. The agreement is with a bank or insurance company
which has an unsecured, uninsured and unguaranteed obligation (or
claims-paying ability) rated Aa2 or better by Moody's and AA or better
by Standard & Poor's,
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),
3. The agreement is not subordinated to any
other obligations of such insurance company or bank,
4. The same guaranteed interest rate will be paid on
any future deposits made pursuant to such agreement, and
5. The Indenture Trustee and the Note Insurer receive
an opinion of counsel that such agreement is an enforceable obligation
of such insurance company or bank.
(d) Commercial paper (having original maturities of not more than 365
days) rated A-1 or better by Standard & Poor's and P-1 or better by Moody's.
(e) Investments in no load money market funds rated AAAm or AAAm-G by
Standard & Poor's and Aaa by Moody's.
(f) Investments approved in writing by the Note Insurer and acceptable
to Moody's and Standard & Poor's.
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par.
Section 3.8. Reports by Indenture Trustee. (a) On each Payment Date the
Indenture Trustee shall provide to each Owner, the Owner Trustee, the Servicer,
the Note Insurer, the Underwriter, the Servicer, Standard & Poor's and Moody's a
written report (based solely upon the information contained in the Monthly
Servicing Report) in substantially the form set forth as Exhibit E hereto, as
such form may be revised by the Indenture Trustee, the Servicer, Moody's and
Standard & Poor's from time to time, but in every case setting forth the
information requested on Exhibit E hereto and the following information:
48
<PAGE>
(i) the amount of the distribution with respect to
each Series of Notes and the Certificates;
(ii) the amount of such distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments or Prepaid Installments of principal included therein and
any Subordination Increase Amounts with respect to the related Mortgage
Loan Pool;
(iii) the amount of such distributions allocable to
interest;
(iv) the Note Principal Balance for each Series of
Notes as of such Payment Date together with the principal amount of
such Notes (based on a Note in an original principal amount of $1,000)
then outstanding, in each case after giving effect to any payment of
principal on such Payment Date;
(v) the amount of any Insured Payment included for
each Series of Notes in the amounts distributed with respect to such
Series of Notes on such Payment Date;
(vi) information to the extent and in the form
furnished by the Seller pursuant to Section 6049(d)(7)(C) of the Code
and the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(vii) the total of any Substitution Amounts and any
Loan Purchase Price amounts included in such distribution;
(viii) the amount of any Subordination Reduction
Amount for a Mortgage Loan Pool;
(ix) the amounts, if any, of any Realized Losses for
a Mortgage Loan Pool for the related Remittance Period and the
cumulative amount of Realized Losses for a Mortgage Loan Pool since the
Closing Date;
(x) for the related Remittance Period and
cumulatively since the Closing Date, the number and aggregate Loan
Balance of Mortgage Loans in such Mortgage Loan Pool bought back by the
Servicer or the Seller pursuant to Sections 2.4, 2.6 and 4.10
(identified separately for each such section);
(xi) the amount of any Available Funds Cap
Carry-Forward Amount; and
(xii) identify any loans purchased by the Servicer
pursuant to Section 4.10.
Items (i) through (iii) above shall be presented on the basis of a Note
having a $1,000 denomination. In addition, by January 31 of each calendar year
following any year during which the Notes are outstanding, the Indenture Trustee
shall furnish a report to each Owner of record at any time during each calendar
year as to the aggregate of amounts reported pursuant to (i), (ii) and (iii)
with respect to the Notes for such calendar year.
(b) In addition, on each Payment Date the Indenture Trustee will
distribute to each Owner, the Owner Trustee, the Note Insurer, the Underwriter,
the Servicer, the Seller, Standard & Poor's and Moody's, together with the
information described in Subsection (a) preceding, the following information
with respect to each Mortgage Loan Pool as of the last day of the related
Remittance Period, which is hereby required to be prepared by the Servicer and
furnished to the Indenture Trustee for such purpose on or prior to the related
Remittance Date:
49
<PAGE>
(i) the total number of Mortgage Loans in each
Mortgage Loan Pool and the aggregate Loan Balances thereof, and the
percentage (based on the aggregate Loan Balances of the Mortgage Loans
in such Mortgage Loan Pool) (a) 30-59 days Delinquent, (b) 60-89 days
Delinquent and (c) 90 or more days Delinquent;
(ii) the number and aggregate Loan Balances of all
Mortgage Loans in each Mortgage Loan Pool and percentage (based on the
aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan
Pool) in foreclosure proceedings (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing
clause (i));
(iii) the number, aggregate Loan Balances of all
Mortgage Loans in each Mortgage Loan Pool and percentage (based on the
aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan
Pool) relating to Mortgagors in bankruptcy proceedings (and whether any
such Mortgage Loans are also included in any of the statistics
described in the foregoing clause (i));
(iv) the number, aggregate Loan Balances of all
Mortgage Loans in each Mortgage Loan Pool and percentage (based on the
aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan
Pool) relating to REO Properties (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing
clause (i));
(v) the aggregate Loan Balance of all Mortgage Loans
in each Mortgage Loan Pool, after giving effect to any payment of
principal on such Payment Date; and
(vi) the book value of any REO Property in each
Mortgage Loan Pool.
Section 3.9. Additional Reports by Indenture Trustee. (a) The Indenture
Trustee shall report to the Owner Trustee, the Seller, the Servicer, Standard &
Poor's, Moody's and the Note Insurer with respect to the amount then held in
each Account (including investment earnings accrued or scheduled to accrue) held
by the Indenture Trustee and the identity of the investments included therein,
as the Seller, the Servicer or the Note Insurer may from time to time request.
(b) Not later than 20 days after each Payment Date, the Indenture
Trustee shall forward to the Seller, the Servicer and the Note Insurer a
statement, setting forth the status of the Note Account as of the close of
business on the last Business Day of the related Remittance Period showing, for
the period covered by such statement, the aggregate of deposits into and
withdrawals from the Note Account.
ARTICLE IV
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS
Section 4.1. Servicer and Sub-Servicers. (a) Acting directly or through
one or more Sub-Servicers as provided in Section 4.3, the Servicer, as servicer,
shall service and administer the Mortgage Loans in accordance with this
Agreement and with reasonable care, and using that degree of skill and attention
that the Servicer exercises with respect to comparable mortgage loans that it
services for itself or others, 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.
(b) The duties of the Servicer shall include collecting and posting of
all payments, responding to inquiries of Mortgagors or by federal, state or
local government authorities with respect to the Mortgage Loans, investigating
delinquencies, reporting tax information to Mortgagors in accordance with its
customary practices and accounting for collections, furnishing monthly and
annual statements to the Indenture Trustee with respect to distributions, paying
Compensating Interest and making Delinquency Advances and Servicing Advances
pursuant hereto. The Servicer shall follow its customary standards, policies and
procedures in performing its duties as Servicer. The Servicer shall cooperate
with the Indenture
50
<PAGE>
Trustee and furnish to the Indenture Trustee with reasonable promptness
information in its possession as may be necessary or appropriate to enable the
Indenture Trustee to perform its tax reporting duties hereunder. The Indenture
Trustee shall furnish the Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder.
(c) Without limiting the generality of the foregoing, the Servicer (i)
shall continue, and is hereby authorized and empowered by the Indenture Trustee,
to execute and deliver, on behalf of itself, the Owners, the Issuer and the
Indenture Trustee or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Mortgage Loans and with respect to
the related Properties; (ii) may consent to any modification of the terms of any
Mortgage Note not expressly prohibited hereby if the effect of any such
modification will not be to affect materially and adversely the security
afforded by the related Property, the timing of receipt of any payments required
hereby or the interests of the Note Insurer.
(d) With the consent of the Note Insurer, the 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 Servicer from any of its obligations under this Agreement. Such
Sub-Servicer shall have all the rights and powers of the Servicer with respect
to such Mortgage Loans under this Agreement.
(e) Without limiting the generality of the foregoing, but subject to
Sections 4.13 and 4.14, the 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 Indenture Trustee to execute and deliver, on
behalf of itself, the Owners, the Issuer and the Indenture 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 Properties, (ii) to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect
ownership of any Property on behalf of the Indenture Trustee and (iii) to hold
title to any Property upon such foreclosure or deed in lieu of foreclosure on
behalf of the Indenture Trustee; provided, however, that Section 4.14(a) shall
constitute a power of attorney from the Issuer and the Indenture Trustee to the
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). Subject to Sections 4.13
and 4.14, the Indenture Trustee shall execute a power of attorney to the
Servicer and any Sub-Servicer and furnish them with any other documents as the
Servicer or such Sub-Servicer shall reasonably request to enable the Servicer
and such Sub-Servicer to carry out their respective servicing and administrative
duties hereunder.
(f) The Servicer shall give prompt notice to the Indenture Trustee, the
Issuer and the Note Insurer of any action, of which the Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.
() Servicing Advances incurred by the 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 Property shall be recoverable by the Servicer or such Sub-Servicer to the
extent described in Section 4.9(c) and in Sections 3.5(b)(iii)(C) and
3.5(f)(iii)(B) hereof.
Section 4.2. Collection of Certain Mortgage Loan Payments. (a) The
Servicer shall, to the extent such procedures shall be consistent with this
Agreement and the terms and provisions of any applicable Insurance Policies
follow such collection procedures as it follows from time to time with respect
to mortgage loans in its servicing portfolio that are comparable to the Mortgage
Loans; provided that the Servicer shall always at least follow collection
procedures that are consistent with or better than standard industry practices.
Consistent with the foregoing, the Servicer may in its discretion (i) waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Mortgage Loans, (ii) if a
Mortgagor is in default or about to be in default because of a Mortgagor's
financial condition, arrange with the Mortgagor a schedule for the payment of
delinquent payments due on the related Mortgage Loan; provided,
51
<PAGE>
however, the Servicer shall not reschedule the payment of delinquent payments
more than one time in any twelve (12) consecutive months with respect to any
Mortgagor or (iii) modify payments of monthly principal and interest on any
Mortgage Loan becoming subject to the terms of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended, in accordance with the Servicer's general
policies of the comparable mortgage loans subject to such Act.
(b) The Servicer shall hold in escrow on behalf of the related
Mortgagor all Prepaid Installments received by it, and shall apply such Prepaid
Installments as directed by such Mortgagor and as set forth in the related
Mortgage Note.
Section 4.3. Sub-Servicing Agreements Between Servicer and
Sub-Servicers. The Servicer may enter into Sub-Servicing Agreements for any
servicing and administration of Mortgage Loans with any institution which is
acceptable to the Note Insurer and which is in compliance with the laws of each
state necessary to enable it to perform its obligations under such Sub-Servicing
Agreement and (x) has (i) been designated an approved seller-servicer by FHLMC
or Fannie Mae for Mortgage Loans and (ii) has equity of at least $5,000,000, as
determined in accordance with generally accepted accounting principles or (y) is
a Servicer Affiliate. The Servicer shall give notice to the Note Insurer, the
Rating Agencies and the Indenture Trustee of the appointment of any Sub-Servicer
and shall furnish to the Note Insurer and the Indenture Trustee a copy of such
Sub-Servicing Agreement. For purposes of this Agreement, the Servicer shall be
deemed to have received payments on Mortgage Loans when any Sub-Servicer has
received such payments. Any such Sub-Servicing Agreement shall be consistent
with and not violate the provisions of this Agreement.
Section 4.4. Successor Sub-Servicers. With the consent of the Note
Insurer, the Servicer may terminate any Sub-Servicing Agreement in accordance
with the terms and conditions of such Sub-Servicing Agreement and either itself
directly service the related Mortgage Loans or enter into a Sub- Servicing
Agreement with a successor Sub-Servicer that qualifies under Section 4.3.
Section 4.5. Liability of Servicer. The 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 Servicer and a Sub-Servicer or otherwise, and the
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 Servicer shall be entitled to enter into any agreement with a Sub-Servicer
for indemnification of the Servicer by such Sub-Servicer and nothing contained
in such Sub-Servicing Agreement shall be deemed to limit or modify this
Agreement. The Trust shall not indemnify the Servicer for any losses due to the
Servicer's negligence.
Section 4.6. No Contractual Relationship Between Sub-Servicer and
Indenture 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 Servicer alone and the
Note Insurer, the Indenture 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 4.7.
Section 4.7. Assumption or Termination of Sub-Servicing Agreement by
Indenture Trustee. In connection with the assumption of the responsibilities,
duties and liabilities and of the authority, power and rights of the Servicer
hereunder by the Indenture Trustee pursuant to Section 4.20, it is understood
and agreed that the Servicer's rights and obligations under any Sub-Servicing
Agreement then in force between the Servicer and a Sub-Servicer may be assumed
or terminated by the Indenture Trustee at the Note Insurer's option without the
payment of a fee notwithstanding any contrary provision in any Sub-Servicing
Agreement.
The Servicer shall, upon reasonable request of the Indenture Trustee,
but at the expense of the Servicer, deliver to the assuming party documents and
records relating to each Sub-Servicing Agreement
52
<PAGE>
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.
Section 4.8. Principal and Interest Account.
(a) The Servicer shall establish in the name of the Trust for the
benefit of the Owners of each Series of the Notes and the Note Insurer and
maintain at one or more Designated Depository Institutions the Principal and
Interest Account. The funds held in the Principal and Interest Account shall not
be commingled with any other funds.
Subject to Subsection (c) below, the Servicer and any Sub-Servicer
shall deposit all receipts related to the Mortgage Loans into the Principal and
Interest Account on a daily basis (but no later than the first Business Day
after receipt).
Subject to Subsection (c) below on the Closing Date, the Seller and/or
the Servicer shall deposit into the Principal and Interest Account all receipts
related to the related Mortgage Loans received after the Cut-Off Date.
(b) Any investment of funds in the Principal and Interest Account shall
mature or be withdrawable at par on or prior to the immediately succeeding
Remittance Date. All funds in the Principal and Interest Account may only be
held (i) uninvested, up to the limits insured by the FDIC or (ii) invested in
Eligible Investments. The Principal and Interest Account shall be held in trust
in the name of the Trust and for the benefit of the Owners of the Notes. Any
investment earnings on funds held in the Principal and Interest Account shall be
for the account of the Servicer and may only be withdrawn from the Principal and
Interest Account by the Servicer on the second Business Day of the month for the
investment earnings for the previous calendar month. The Servicer shall withdraw
from the Principal and Interest Account, on the second Business Day of the
month, investment earnings for the previous calendar month. The Servicer shall
deposit into the Principal and Interest Account the amount of all losses on
investment of funds in the Principal and Interest Account. Any references herein
to amounts on deposit in the Principal and Interest Account shall refer to
amounts net of investment earnings.
(c) The Servicer shall deposit to the Principal and Interest Account
all principal and interest collections on the Mortgage Loans received after the
Cut-Off Date, including any Prepayments and Net Liquidation Proceeds, all Loan
Purchase Prices and Substitution Amounts received or paid by the Servicer with
respect to the Mortgage Loans, other recoveries or amounts related to the
Mortgage Loans received by the Servicer, Compensating Interest and Delinquency
Advances together with any amounts which are reimbursable from the Principal and
Interest Account but net of (i) the Servicing Fee with respect to each Mortgage
Loan and other servicing compensation to the Servicer as permitted by Section
4.15 hereof, (ii) principal (including Prepayments) due on the related Mortgage
Loans on or prior to the Cut-Off Date, (iii) interest due on the related
Mortgage Loans on or prior to the Cut-Off Date and (iv) Net Liquidation Proceeds
to the extent such Net Liquidation Proceeds exceed the Loan Balance of the
related Mortgage Loan.
(d) (i) The Servicer may make withdrawals from the Principal and
Interest Account only for the following purposes:
(A) to effect the timely remittance to the Indenture
Trustee of the Monthly Remittance Amounts due on the
Remittance Date;
(B) to reimburse itself pursuant to Section 4.9(a) hereof
for unrecovered Delinquency Advances and Servicing
Advances;
(C) to withdraw investment earnings on amounts on
deposit in the Principal and Interest Account;
53
<PAGE>
(D) to withdraw amounts that have been deposited to the
Principal and Interest Account in error; and
(E) to clear and terminate the Principal and Interest
Account following the termination of the Trust
pursuant to Article V hereof.
(ii) On the Determination Date of each month, commencing in July 1998,
the Servicer shall send to the Indenture Trustee the Monthly Exception Report
detailing the payments on the Mortgage Loans during the prior Remittance Period
and certifying the amounts and purpose of withdrawals permitted pursuant to (d)
above from the Principal and Interest Account. Such report shall contain the
specified data, as described in Section 4.26 hereof, and shall be in the form
and have the specifications as may be agreed to between the Servicer, the Note
Insurer and the Indenture Trustee from time to time.
(iii) On each Remittance Date, commencing in July 1998 the Servicer
shall remit to the Indenture Trustee by wire transfer, or otherwise make funds
available in immediately available funds for deposit to the Adjustable Rate Note
Account, the Adjustable Rate Interest Remittance Amount for such Remittance Date
and the Adjustable Rate Principal Remittance Amount for such Remittance Date.
(iv) On each Remittance Date, commencing in July 1998 the Servicer
shall remit to the Indenture Trustee by wire transfer, or otherwise make funds
available in immediately available funds for deposit to the Fixed Rate Note
Account, the Fixed Rate Interest Remittance Amount for such Remittance Date and
the Fixed Rate Principal Remittance Amount for such Remittance Date.
Section 4.9. Delinquency Advances, Compensating Interest and Servicing
Advances. (a) The Servicer is required, not later than each Remittance Date, to
deposit into the Principal and Interest Account an amount equal to the sum of
(i) the interest due (net of the Servicing Fees due) but not collected as of the
last day of the related Remittance Period and (ii) scheduled principal due, but
not collected as of the last day of the related Remittance Period, with respect
to Delinquent Mortgage Loans during the related Due Period but only if, in its
good faith business judgment, the Servicer reasonably believes that such amount
will ultimately be recovered from the related Mortgage Loan. Such amounts are
"Delinquency Advances".
The Servicer shall be permitted to fund its payment of Delinquency
Advances on any Remittance Date and to reimburse itself for any Delinquency
Advances paid from the Servicer's own funds, from collections on any Mortgage
Loan in the same Mortgage Loan Group deposited to the Principal and Interest
Account subsequent to the related Due Period and shall deposit into the
Principal and Interest Account with respect thereto (i) collections from the
Mortgagor whose Delinquency gave rise to the shortfall which resulted in such
Delinquency Advance, (ii) on the Remittance Date in July 1998, interest accrued
on each Subsequent Mortgage Loan transferred to the Issuer during the Funding
Period and (iii) Net Liquidation Proceeds recovered on account of the related
Mortgage Loan to the extent of the amount of aggregate Delinquency Advances
related thereto. If not thereto recovered from the related Mortgagor or the
related Net Liquidation Proceeds, Delinquency Advances shall be recoverable
pursuant to Section 3.5(b)(iii)(C) or 3.5(f)(iii)(B).
(b) On or prior to each Remittance Date, the Servicer shall deposit in
the Principal and Interest Account with respect to any Paid-in-Full Mortgage
Loan during the related Remittance Period out of its own funds without any right
of reimbursement therefor an amount equal to the difference between (x) 30 days'
interest at such Mortgage Loan's Coupon Rate (less the Servicing Fee Rate) on
the Loan Balance of such Mortgage Loan as of the first day of the related
Remittance Period and (y) to the extent not previously advanced, the interest
(less the Servicing Fee) paid by the Mortgagor with respect to the Mortgage Loan
during such Remittance Period (any such amount paid by the Servicer,
"Compensating Interest"). The Servicer shall in no event be required to pay
Compensating Interest with respect to any Remittance Period in an amount in
excess of the aggregate Servicing Fee received by the Servicer with respect to
all Mortgage Loans for such Remittance Period. Further, the Servicer is not
obligated to cover shortfalls in collections in interest due to Curtailments.
Prepayment Interest Shortfalls resulting from partial prepayments will not be
offset by the Servicing Fee or otherwise.
54
<PAGE>
(c) The Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, the cost of (i) Preservation Expenses, (ii) any enforcement or
judicial proceedings, including foreclosures, and (iii) the management and
liquidation of REO Property, but is only required to pay such costs and expenses
to the extent the Servicer reasonably believes such costs and expenses will
increase Net Liquidation Proceeds on the related Mortgage Loan. Each such amount
so paid will constitute a "Servicing Advance". The Servicer may recover
Servicing Advances (x) from the Mortgagors to the extent permitted by the
Mortgage Loans, from Liquidation Proceeds realized upon the liquidation of the
related Mortgage Loan, and (y) as provided in Section 3.5(b)(iii)(C) or
3.5(f)(iii)(B) hereof. In no case may the Servicer recover Servicing Advances
from principal and interest payments on any Mortgage Loan or from any amounts
relating to any other Mortgage Loan except as provided pursuant to Section
3.5(b)(iii)(C) or 3.5(f)(iii)(B) hereof.
Section 4.10. Purchase of Mortgage Loans. The Servicer may, but is not
obligated 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
Servicer or by any Sub-Servicer pursuant to Section 4.13; provided, that after
the amount of such purchases exceeds 3% of the sum of the Adjustable Rate
Maximum Collateral Amount and the Fixed Rate Maximum Collateral Amount the
Servicer shall either (x) purchase only the Mortgage Loan that is the greatest
number of days Delinquent or (y) obtain the consent of the Note Insurer prior to
such purchase. Any such Loan so purchased shall be purchased by the Servicer not
later than the related Remittance Date at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be deposited in the Principal
and Interest Account.
Section 4.11. Maintenance of Insurance. (a) The Servicer shall cause to
be maintained with respect to each Mortgage Loan a hazard insurance policy with
a generally acceptable carrier that provides for fire and extended coverage, and
which provides for a recovery by the Servicer on behalf of the Trust of
insurance proceeds relating to such Mortgage Loan in an amount not less than the
least of (i) the outstanding principal balance of the Mortgage Loan, (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis and (iii) the full insurable value of the premises.
(b) If the Mortgage Loan at the time of origination relates to a
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Servicer will cause to be
maintained with respect thereto a flood insurance policy in a form meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable carrier in an amount representing coverage, and
which provides for a recovery by the Servicer on behalf of the Trust of
insurance proceeds relating to such Mortgage Loan of not less than the least of
(i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum
amount required to compensate for damage or loss on a replacement cost basis and
(iii) the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973. The Servicer shall indemnify the Trust and the Note
Insurer out of the Servicer's own funds for any loss to the Trust and the Note
Insurer resulting from the Servicer's failure to maintain the insurance required
by this Section.
(c) In the event that the Servicer shall obtain and maintain a blanket
policy insuring against fire, flood and hazards of extended coverage on all of
the Mortgage Loans, then, to the extent such policy names the Servicer as loss
payee and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance and otherwise complies with
the requirements of this Section 4.11, the Servicer shall be deemed conclusively
to have satisfied its obligations with respect to fire and hazard insurance
coverage under this Section 4.11, it being understood and agreed that such
blanket policy may contain a deductible clause, in which case the Servicer
shall, in the event that there shall not have been maintained on the related
Property a policy complying with the preceding paragraphs of this Section 4.11,
and there shall have been a loss which would have been covered by such policy,
deposit in the Principal and Interest Account from the Servicer's own funds the
difference, if any, between the amount that would have been payable under a
policy complying with the preceding paragraphs of this Section 4.11 and the
amount paid under such blanket policy. Upon the request of the Indenture Trustee
or the Note Insurer,
55
<PAGE>
the Servicer shall cause to be delivered to the Indenture Trustee or the Note
Insurer a certified true copy of such policy.
Section 4.12. Due-on-Sale Clauses; Assumption and Substitution
Agreements. When a Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall, to the extent it has 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 Mortgage Note; provided, however, that the Servicer shall not
exercise any such right if (i) the "due-on-sale" clause, in the reasonable
belief of the Servicer, is not enforceable under applicable law or (ii) the
Servicer reasonably believes that to permit an assumption of the Mortgage Loan
would not materially and adversely affect the interest of the Owners or of the
Note Insurer. In such event, the Servicer shall enter into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
Mortgage Note and, unless prohibited by applicable law or the related Mortgage
Loan documents, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the 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 Mortgage Note; provided, however, that to
the extent any such substitution of liability agreement would be delivered by
the Servicer outside of its usual procedures for mortgage loans held in its own
portfolio the Servicer shall, prior to executing and delivering such agreement,
obtain the prior written consent of the Note Insurer. The Mortgage Loan, as
assumed, shall conform in all respects to the requirements, representations and
warranties of this Agreement. The Servicer shall notify the Indenture Trustee
that any such assumption or substitution agreement has been completed by
forwarding to the Indenture Trustee the original copy of such assumption or
substitution agreement, which copy shall be added by the Indenture 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 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. Any fee collected by
the 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 Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 4.13. Realization Upon Defaulted Mortgage Loans. (a) The
Servicer shall foreclose upon or otherwise comparably effect the ownership on
behalf of the Trust of Properties relating to defaulted Mortgage Loans as to
which no satisfactory arrangements can be made for collection of Delinquent
payments and which the Servicer has not purchased pursuant to Section 4.10. In
connection with such foreclosure or other conversion, the Servicer shall
exercise such of the rights and powers vested in it hereunder, and use the same
degree of care and skill in its exercise or use as prudent mortgage lenders
would exercise or use under the circumstances in the conduct of their own
affairs, including, but not limited to, advancing funds for the payment of taxes
and insurance premiums. Any amounts so advanced shall constitute "Servicing
Advances" within the meaning of Section 4.9(c) hereof. The Servicer shall sell
any REO Property within 35 months of its acquisition by the Trust, unless the
Servicer obtains for the Indenture Trustee and the Note Insurer an opinion of
counsel experienced in federal income tax matters and reasonably acceptable to
the Note Insurer, addressed to the Indenture Trustee, the Note Insurer and the
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 the Trust.
56
<PAGE>
Pursuant to its efforts to sell such REO Property, the
Servicer shall either itself or through an agent selected by the Servicer
protect and conserve such REO Property in the same manner and to such extent as
is customary in the locality where such REO Property is located and may,
incident to its conservation and protection of the interests of the Owners, rent
the same, or any part thereof, as the Servicer deems to be in the best interest
of the Owners for the period prior to the sale of such REO Property. The
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 a Property in determining whether to foreclose upon or otherwise
comparably convert the ownership of such Property.
(b) The Servicer shall determine, with respect to each defaulted
Mortgage Loan, when it has recovered, whether through Indenture Trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall
become a "Liquidated Loan".
Section 4.14. Indenture Trustee to Cooperate; Release of Files. (a)
Upon the payment in full of any Mortgage Loan (including the repurchase of any
Mortgage Loan or any liquidation of such Mortgage Loan through foreclosure or
otherwise) or the receipt by the Servicer of a notification that payment in full
will be escrowed in a manner customary for such purposes, the Servicer shall
deliver to the Indenture Trustee a Request for Release. Upon receipt of such
Request for Release, the Custodian, on behalf of the Indenture Trustee, shall
promptly release the related File, in trust to (i) the Servicer, (ii) an escrow
agent or (iii) any employee, agent or attorney of the Indenture Trustee, in each
case pending its release by the Servicer, such escrow agent or such employee,
agent or attorney of the Indenture Trustee, as the case may be. Upon any such
payment in full or the receipt of such notification that such funds have been
placed in escrow, the Servicer is authorized to give, as attorney-in-fact for
the Indenture Trustee and the mortgagee under the Mortgage which secured the
Mortgage Note, an instrument of satisfaction (or assignment of Mortgage without
recourse) regarding the 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 Principal and Interest Account. In lieu of executing any such
satisfaction or assignment, as the case may be, the Servicer may prepare and
submit to the Indenture Trustee a satisfaction (or assignment without recourse,
if requested by the Person or Persons entitled thereto) in form for execution by
the Indenture Trustee with all requisite information completed by the Servicer;
in such event, the Indenture 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 Custodian, on behalf of the Indenture 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
Indenture Trustee), upon request of the Servicer and delivery to the Custodian
of a Request for Release, release the related File to the Servicer and shall
execute such documents as shall be necessary to the prosecution of any such
proceedings, including, without limitation, an assignment without recourse of
the related Mortgage to the Servicer; provided that there shall not be released
and unreturned at any one time more than 10% of the entire number of Files. The
Indenture Trustee shall complete in the name of the Indenture Trustee any
endorsement in blank on any Mortgage Note prior to releasing such Mortgage Note
to the Servicer. Such receipt shall obligate the Servicer to return the File to
the Custodian when the need therefor by the Servicer no longer exists unless the
Mortgage Loan shall be liquidated in which case, upon receipt of the liquidation
information, in physical or electronic form, the Request for Release shall be
released by the Indenture Trustee to the Servicer.
(c) The Servicer shall have the right to approve applications
of Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations
and (iii) removal, demolition or division of properties
57
<PAGE>
subject to Mortgages. No application for approval shall be considered by the
Servicer unless: (x) the provisions of the related Mortgage Note and Mortgage
have been complied with; (y) the Loan-to-Value Ratio or Combined Loan-to-Value
Ratio (which may, for this purpose, be determined at the time of any such action
in a manner reasonably acceptable to the Note Insurer) after any release does
not exceed the Loan-to-Value Ratio or Combined Loan-to-Value Ratio as of the
Cut-Off Date or Subsequent Cut-Off Date, as the case may be, and the Mortgagor's
debt-to-income ratio after any release does not exceed the debt-to-income ratio
as of the Cut-Off Date and in no event exceeds the maximum debt-to-income levels
under the related Originator's underwriting guidelines for a similar credit
grade borrower and (z) the lien priority of the related Mortgage is not
adversely affected. Upon receipt by the Indenture Trustee of an Officer's
Certificate executed on behalf of the 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 Indenture Trustee shall execute and deliver to the Servicer the consent or
partial release so requested by the Servicer. A proposed form of consent or
partial release, as the case may be, shall accompany any Officer's Certificate
delivered by the Servicer pursuant to this paragraph.
(d) No costs associated with the procedures described in this Section
4.14 shall be an expense of the Trust.
Section 4.15. Servicing Compensation. As compensation for its
activities hereunder, the Servicer shall be entitled to retain the amount of the
Servicing Fee with respect to each Mortgage Loan. Additional servicing
compensation in the form of prepayment charges, release fees, bad check charges,
assumption fees, late payment charges, prepayment penalties, any other
servicing-related fees, Net Liquidation Proceeds not required to be deposited in
the Principal and Interest Account pursuant to Section 4.8(c)(iv) and similar
items shall, to the extent collected from Mortgagors, be retained by the
Servicer.
Section 4.16. Annual Statement as to Compliance. (a) The Servicer, at
its own expense, will deliver to the Indenture Trustee, the Note Insurer,
Standard & Poor's and Moody's, on or before the last day of March of each year,
commencing in 1999, an Officer's Certificate stating, as to each signer thereof,
that (i) a review of the activities of the Servicer during such preceding
calendar year and of performance under this Agreement has been made under such
officers' supervision and (ii) to the best of such officers' knowledge, based on
such review, the 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 Servicer to remedy
such defaults.
(b) The Servicer shall deliver to the Issuer, the Indenture Trustee,
the Note Insurer, the Owners and the Rating Agencies, promptly after having
obtained knowledge thereof but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or lapse of time, or both, would become an Event
of Servicing Termination.
Section 4.17. Annual Independent Certified Public Accountants' Reports.
On or before the last day of March of each year, commencing in 1999, the
Servicer, at its own expense, shall cause to be delivered to the Indenture
Trustee, the Note Insurer, Standard & Poor's and Moody's a letter or letters of
a firm of independent, nationally- recognized certified public accountants
reasonably acceptable to the Note Insurer stating that such firm has, with
respect to the Servicer's overall servicing operations during the preceding
calendar year, examined such operations in accordance with the requirements of
the Uniform Single Audit Program for Mortgage Bankers, and in either case
stating such firm's conclusions relating thereto.
Section 4.18. Access to Certain Documentation and Information Regarding
the Mortgage Loans. The Servicer shall provide to the Indenture Trustee, the
Note Insurer, the FDIC and the supervisory agents and examiners of each of the
foregoing access to the documentation regarding the Mortgage Loans required by
applicable state and federal regulations, such access being afforded without
charge but only upon reasonable request and during normal business hours at the
offices of the Servicer designated by it.
58
<PAGE>
Upon any change in the format of the computer tape maintained by the
Servicer in respect of the Mortgage Loans, the Servicer shall deliver a copy of
such computer tape to the Indenture Trustee and in addition shall provide a copy
of such computer tape to the Indenture Trustee, and the Note Insurer at such
other times as the Indenture Trustee or the Note Insurer may reasonably request.
Section 4.19. Assignment of Agreement. The Servicer may not assign its
obligations under this Agreement, in whole or in part, unless it shall have
first obtained the written consent of the Indenture Trustee and the Note
Insurer, which such consent shall not be unreasonably withheld; provided,
however, that any assignee must meet the eligibility requirements set forth in
Section 4.21(f) hereof for a successor servicer. Notice of any such assignment
shall be given by the Servicer to the Indenture Trustee, the Issuer, the Note
Insurer and the Rating Agencies.
Section 4.20. Events of Servicing Termination. (a) The Indenture
Trustee (with the consent of the Note Insurer) or the Note Insurer (or the
Owners with the consent of the Note Insurer) may remove the Servicer (including
any successor entity serving as the Servicer) upon the occurrence of any of the
following events:
(i) The Servicer shall fail to deliver to the
Indenture Trustee any proceeds or required payment, which failure
continues unremedied for one Business Day following written notice to
an Authorized Officer of the Servicer from the Indenture Trustee or
from any Owner;
(ii) The Servicer shall (I) apply for or consent to
the appointment of a receiver, Indenture 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;
(iii) If without the application, approval or consent
of the 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 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 Indenture Trustee, receiver, liquidator, custodian or similar entity
with respect to the 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, if such proceeding is being contested by the
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;
(iv) The Servicer shall fail to perform any one or
more of its obligations hereunder (other than the obligations set out
in (i) above) and shall continue in default thereof for a period of
sixty (60) days after the earlier of (x) notice by the Indenture
Trustee or the Note Insurer of said failure or (y) actual knowledge of
an officer of the Servicer; provided, however, that if the Servicer can
demonstrate to the reasonable satisfaction of the Note Insurer that it
is diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Note Insurer; or
(v) The Servicer shall fail to cure any breach of any
of its representations and warranties set forth in Section 2.2 which
materially and adversely affects the interests of the Owners or Note
Insurer for a period of sixty (60) days after the Servicer's discovery
or receipt of notice thereof; provided, however, that if the Servicer
can demonstrate to the reasonable satisfaction of the
59
<PAGE>
Note Insurer that it is diligently pursuing remedial action, then the
cure period may be extended with the written approval of the Note
Insurer.
(b) The Note Insurer may remove the Servicer upon the occurrence of any
of the following events:
(i) either an Adjustable Rate Total Available Funds
Shortfall or a Fixed Rate Total Available Funds Shortfall;
(ii) the failure by the Servicer to make any
required Servicing Advance;
(iii) the failure by the Servicer to perform any one
or more of its obligations hereunder, which failure materially and
adversely affects the interests of the Note Insurer, and the
continuance of such failure for a period of 30 days or such longer
period as agreed to in writing by the Note Insurer.
(iv) the failure by the Servicer to make any required
Delinquency Advance or to pay any Compensating Interest;
(v) if on any Payment Date the Pool Rolling Three
Month Delinquency Rate for either Mortgage Loan Pool exceeds 7.0% for
either Mortgage Loan Pool;
(vi) the Annual Loss Percentage (Rolling Six Months)
for the prior six Remittance Periods exceeds 0.60% with respect to the
Fixed Rate Pool or 0.80% with respect to the Adjustable Rate Pool; or
(vii) the failure of the Servicer to satisfy either
the Adjustable Rate Cumulative Loss Test or the Fixed Rate Cumulative
Loss Test;
(viii) the existence and continuation of any "event
of default" as defined in the Insurance Agreement.
Upon the Indenture Trustee's determination that a required Delinquency
Advance or payment of Compensating Interest has not been made by the Servicer,
the Indenture Trustee shall so notify in writing an Authorized Officer of the
Servicer and the Note Insurer as soon as is reasonably practical.
(c) In the case of clauses (i), (ii), (iii) or (iv) of Subsection (b)
the Owners of Notes evidencing not less than 33 1/3% of the aggregate Note
Principal Balance of a Series of Notes (with the consent of the Note Insurer) by
notice then given in writing to the Servicer (and a copy to the Indenture
Trustee) may terminate all of the rights and obligations of the Servicer under
this Agreement; provided, however, that the responsibilities and duties of the
initial Servicer with respect to the repurchase of Mortgage Loans pursuant to
Section 2.4 shall not terminate. The Indenture Trustee shall mail a copy of any
notice given by it hereunder to the Rating Agencies. On and after the receipt by
the Servicer of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Notes or the Mortgage Loans or
otherwise, shall without further action pass to and be vested in the Indenture
Trustee (for this purpose, the term includes an affiliate thereof) or such
successor Servicer as may be appointed hereunder, and, without limitation, the
Indenture Trustee is hereby authorized and empowered (which authority and power
are coupled with an interest and are irrevocable) to execute and deliver, on
behalf of the predecessor Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice or
termination, whether to complete the transfer and endorsement of the Mortgage
Loans and related documents or otherwise. The predecessor Servicer shall
cooperate with the successor Servicer or the Indenture Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement including the transfer to the successor Servicer or to the
Indenture Trustee for administration by it of all cash accounts that shall at
the time be held by the predecessor Servicer for deposit or shall thereafter
60
<PAGE>
be received with respect to a Mortgage Loan. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with transferring the Files
to the successor Servicer and amending this Agreement to reflect such succession
as Servicer pursuant to this Section 4.20 shall be paid by the predecessor
Servicer upon presentation of reasonable documentation of such costs and
expenses.
(d) Notwithstanding the foregoing, in the event that one or more of the
events listed in Section 4.20(b)(i), (v), (vi) or (vii) occurs, the Note Insurer
and the Servicer agree that the Note Insurer shall comply with the provisions of
that certain letter dated the Closing Date from the Note Insurer to the Seller
prior to exercising its right to terminate the Servicer as provided herein.
Section 4.21. Resignation of Servicer and Appointment of Successor. (a)
Upon the Servicer's receipt of notice of termination pursuant to Section 4.20 or
the failure to receive the Servicer Extension Notice pursuant to Section 4.21(m)
or the Servicer's resignation in accordance with the terms of this Section 4.21,
the predecessor Servicer shall continue to perform its functions as Servicer
under this Agreement, in the case of termination, only until the date specified
in such termination notice or, if no such date is specified in a notice of
termination, until receipt of such notice and, in the case of a failure to
receive the Servicer Extension Notice, until the end of the current three month
time and, in the case of resignation, until the earlier of (x) the date 45 days
from the delivery to the Note Insurer and the Indenture Trustee of written
notice of such resignation (or written confirmation of such notice) in
accordance with the terms of this Agreement and (y) the date upon which the
predecessor Servicer shall become unable to act as Servicer, as specified in the
notice of resignation and accompanying opinion of counsel. All collections then
being held by the predecessor Servicer prior to its removal and any collections
received by the Servicer after removal or resignation shall be endorsed by it to
the Indenture Trustee and remitted directly and immediately to the Indenture
Trustee or the successor Servicer. In the event of the Servicer's resignation or
termination hereunder, the Indenture Trustee shall (at the direction of the Note
Insurer) appoint a successor Servicer and the successor Servicer shall accept
its appointment by a written assumption in form acceptable to the Indenture
Trustee and the Note Insurer, with copies to the Note Insurer and the Rating
Agencies. Pending such appointment, the Indenture Trustee shall act as the
Servicer hereunder.
(b) The Servicer shall not resign from the obligations and duties
hereby imposed on it, except (i) 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 Servicer so causing such a conflict being of a type and nature
carried on by the Servicer at the date of this Agreement or (ii) upon written
consent of the Note Insurer and the Indenture Trustee. Any such determination
permitting the resignation of the Servicer shall be evidenced by an opinion of
counsel to such effect which shall be delivered to the Indenture Trustee and the
Note Insurer.
(c) No removal or resignation of the Servicer shall become effective
until the Indenture Trustee or a successor Servicer shall have assumed the
Servicer's responsibilities and obligations in accordance with this Section.
(d) Upon removal or resignation of the Servicer, the Servicer also
shall promptly deliver or cause to be delivered to a successor Servicer or the
Indenture Trustee all the books and records (including, without limitation,
records kept in electronic form) that the 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
Servicer's possession.
(e) Any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Indenture Trustee and remitted
directly and immediately to the Indenture Trustee, or the successor Servicer.
(f) Upon removal or resignation of the Servicer, the Indenture Trustee
(x) shall appoint a successor Servicer in accordance with the instructions of
the Note Insurer, or if the Note Insurer fails to provide such instruction,
solicit bids for a successor Servicer as described below and (y) pending the
appointment of a successor Servicer shall serve as Servicer. The Indenture
Trustee shall, if the Note Insurer
61
<PAGE>
fails to instruct it as to the appointment of a Successor Servicer and if the
Indenture Trustee is unable to obtain a qualifying bid and is prevented by law
from acting as Servicer, (I) 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 Fannie Mae or FHLMC for second mortgage loans and having
equity of not less than $15,000,000 or such lower level as may be acceptable to
the Note Insurer as determined in accordance with generally accepted accounting
principles as the successor to the Servicer hereunder in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer
hereunder and (II) give notice thereof to the Note Insurer and Rating Agencies.
The compensation of any successor Servicer (including, without limitation, the
Indenture Trustee) so appointed shall be the Servicing Fee, together with the
other servicing compensation in the form of assumption fees, late payment
charges or otherwise as provided in Sections 4.8 and 4.15; provided, however,
that if the Indenture Trustee acts as successor Servicer, then the former
Servicer agrees to pay to the Indenture Trustee at such time that the Indenture
Trustee becomes such successor Servicer a set-up fee of fifteen dollars ($15.00)
for each Mortgage Loan then included in the Trust Estate. The Indenture Trustee
shall be obligated to serve as successor 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
former Servicer.
(g) In the event the Indenture Trustee solicits bids as provided above,
the Indenture Trustee shall solicit, by public announcement, bids from housing
and home finance institutions, banks and mortgage servicing institutions meeting
the qualifications set forth above. Such public announcement shall specify that
the successor Servicer shall be entitled to the full amount of the aggregate
Servicing Fees as servicing compensation, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Sections 4.8 and 4.15. Within thirty days after any such public
announcement, the Indenture 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 such servicing. The Indenture Trustee shall deduct from
any sum received by the Indenture Trustee from the successor to the 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 shall be paid by the Indenture Trustee to the Servicer at the time of
such sale.
(h) The Indenture Trustee and such successor 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 if such notification is not done by the Servicer as required by
subsection (j) below. The Servicer agrees to cooperate with the Indenture
Trustee and any successor Servicer in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Indenture Trustee or such successor Servicer, as applicable, all
documents and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder and shall promptly also transfer to the Indenture
Trustee or such successor Servicer, as applicable, all amounts which then have
been or should have been deposited in the Principal and Interest Account by the
Servicer or which are thereafter received with respect to the Mortgage Loans.
Neither the Indenture Trustee nor any other successor Servicer shall be held
liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivery, cash, documents or records to it
or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer.
(i) The Indenture Trustee or any other successor Servicer, upon
assuming the duties of Servicer hereunder, shall immediately make all
Delinquency Advances and pay all Compensating Interest which the Servicer has
theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Indenture Trustee is acting as successor Servicer, the
Indenture Trustee shall only be required to make Delinquency Advances (including
the Delinquency Advances described in this clause (i)) if, in the Indenture
Trustee's reasonable good faith judgment, such Delinquency Advances will
ultimately be recoverable from the Mortgage Loans.
62
<PAGE>
(j) The Servicer which is being removed or is resigning shall give
notice to the Mortgagors and to the Rating Agencies of the transfer of the
servicing to the successor Servicer.
(k) Upon appointment, the successor Servicer shall be the successor in
all respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities of the predecessor Servicer including,
but not limited to, the maintenance of the hazard insurance policy(ies), the
fidelity bond and an errors and omissions policy pursuant to Section 4.23 and
shall be entitled to the Monthly Servicing Fee and all of the rights granted to
the predecessor Servicer by the terms and provisions of this Agreement. The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Agreement prior to its
termination as Servicer (including, without limitation, any deductible under an
insurance policy) nor shall any successor Servicer be liable for any acts or
omissions of the predecessor Servicer or for any breach by such Servicer of any
of its representations or warranties contained herein or in any related document
or agreement.
(l) The Indenture Trustee shall give notice to the Note Insurer,
Moody's and Standard & Poor's and the Owners of the occurrence of any event
specified in Section 4.20 of which the Indenture Trustee has actual knowledge.
(m) The Servicer hereby covenants and agrees to act as servicer under
this Agreement for an initial term commencing on the Closing Date and expiring
on September 30, 1998 (the "Initial Term"). Thereafter, the Initial Term may be
extended for additional three-month terms, in the sole discretion of the Note
Insurer, by written notice (each, a "Servicer Extension Notice") of the Note
Insurer to the Servicer. Each such Servicer Extension Notice, if any, shall be
delivered by the Note Insurer to the other parties to this Agreement. The
Servicer hereby agrees that, as of the date hereof and upon its receipt of any
Servicer Extension Notice, the Servicer shall be bound for the duration of the
Initial Term and the term covered by any such Servicer Extension Notice to act
as the Servicer, subject to and in accordance with the other provisions of this
Agreement. The Servicer agrees that if, as of the tenth day prior to the last
day of any such servicing term, the Servicer shall not have received a Servicer
Extension Notice from the Note Insurer, the Servicer shall, within five days
thereafter, give written notice of such non-receipt to the Note Insurer and the
Indenture Trustee. The failure of the Note Insurer to deliver a Servicer
Extension Notice by the end of any such three-month term shall result in the
automatic termination of the Master Servicer.
Section 4.22. Waiver of Past Events of Servicing Termination. Subject
to the rights of the Note Insurer pursuant to Section 4.20 to terminate all of
the rights and obligations of the Servicer under this Agreement, the Owners of
at least 51% of the Note Principal Balance of a Series of Notes may (with the
consent of the Note Insurer), on behalf of all Owners of Notes, waive any
default by the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required deposits to or payments
from the Principal and Interest Account in accordance with this Agreement. Upon
any such waiver of a past default, such default shall cease to exist, and any
Event of Servicing Termination arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Section 4.23. Inspections by Note Insurer; Errors and Omissions
Insurance. (a) At any reasonable time and from time to time upon reasonable
notice, the Note Insurer, the Indenture Trustee, or any agents or
representatives thereof may inspect the Servicer's servicing operations and
discuss the servicing operations of the Servicer with any of its officers or
directors. The costs and expenses incurred by the Servicer or its agents or
representatives in connection with any such examinations or discussions shall be
paid by the Servicer.
(b) The Servicer agrees to maintain errors and omissions coverage and a
fidelity bond, each at least to the extent generally maintained by prudent
mortgage loan servicers having servicing portfolios of a similar size.
Section 4.24. Merger, Conversion, Consolidation or Succession to
Business of Servicer. Any corporation into which the Servicer may be merged or
converted or with which it may be consolidated,
63
<PAGE>
or corporation resulting from any merger, conversion or consolidation to which
the Servicer shall be a party or any corporation succeeding to all or
substantially all of the business of the Servicer shall, with the consent of the
Note Insurer, be the successor of the Servicer hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto provided that such corporation meets the qualifications set forth in
Section 4.21(f).
Section 4.25. Notices of Material Events. The Servicer shall give
prompt notice to the Note Insurer, the Indenture Trustee, the Issuer, the Owner
Trustee, Moody's and Standard & Poor's of the occurrence of any of the following
events:
(a) Any default or any fact or event which results, or which with
notice or the passage of time, or both, would result in the occurrence of a
default by the Seller, any Originator or the Servicer under any Operative
Document or would constitute a material breach of a representation, warranty or
covenant under any Operative Document;
(b) The submission of any claim or the initiation of any legal process,
litigation or administrative or judicial investigation against the Seller or the
Servicer in any federal, state or local court or before any governmental body or
agency or before any arbitration board or any such proceedings threatened by any
governmental agency, which, if adversely determined, would have a material
adverse effect upon any the Seller's or the Servicer's ability to perform its
obligations under any Operative Document;
(c) The commencement of any proceedings by or against the Seller or the
Servicer under any applicable bankruptcy, reorganization, liquidation,
insolvency or other similar law now or hereafter in effect or of any proceeding
in which a receiver, liquidator, Indenture Trustee or other similar official
shall have been, or may be, appointed or requested for the Seller or the
Servicer; and
(d) The receipt of notice from any agency or governmental body having
authority over the conduct of any of the Seller's or the Servicer's business
that the Seller or the Servicer is to cease and desist, or to undertake any
practice, program, procedure or policy employed by the Seller or the Servicer in
the conduct of the business of any of them, and such cessation or undertaking
will materially and adversely affect the conduct of the Seller's or the
Servicer's business or its ability to perform under the Operative Documents or
materially and adversely affect the financial affairs of the Seller or the
Servicer.
Section 4.26. Monthly Servicing Report and Servicing Certificate. (a)
The Servicer shall, not later than the related Determination Date, deliver to
the Indenture Trustee, the Rating Agencies and the Note Insurer a Monthly
Servicing Report relating to the Mortgage Loans in the Adjustable Rate Pool and
a Monthly Servicing Report relating to the Mortgage Loans in the Fixed Rate Pool
stating the following:
(i) As to the related Due Period, the Interest
Remittance Amount (in both cases specifying the (a) scheduled interest
collected; (b) Delinquency Advances relating to interest; and (c)
Compensating Interest paid) and the Principal Remittance Amount (in
both cases specifying the (1) scheduled principal collected; (2)
Delinquency Advance relating to Mortgage principal; (3) Prepayments;
(4) Loan Balance of Loans repurchased; (5) Substitution Amounts; and
(6) Net Liquidation Proceeds (related to principal));
(ii) With respect to the related Remittance Period,
the Servicing Fee payable to the Servicer;
(iii) With respect to the related Remittance Period,
the net scheduled principal and interest payments remitted by the
Servicer to the Principal and Interest Account;
(iv) The scheduled principal and interest payments
on the Mortgage Loans that were not made by the related Mortgagors as
of the last day of the related Remittance Period;
64
<PAGE>
(v) The number and aggregate Loan Balances
(computed in accordance with the terms of the Mortgage Loans) and the
percentage of the total number of Mortgage Loans and of the Loan
Balance which they represent of Mortgage Loans Delinquent, if any, (i)
30-59 days, (ii) 60-89 days and (iii) 90 days or more, respectively, as
of the last day of the related Remittance Period;
(vi) The number and aggregate Loan Balances of
Mortgage Loans, if any, in foreclosure and the book value (within the
meaning of 12 Code of Federal Regulations Section 571.13 or any
comparable provision) of any real estate acquired through foreclosure
or deed in lieu of foreclosure, including REO Properties as of the last
day of the related Remittance Period;
(vii) The Loan Balances (immediately prior to being
classified as Liquidated Mortgage Loans) of Liquidated Mortgage Loans
as of the last day of the related Remittance Period;
(viii) Liquidation Proceeds received during the
related Remittance Period;
(ix) The amount of any Liquidation Expenses being
deducted from Liquidation Proceeds or otherwise being charged to the
Principal and Interest Account with respect to such Determination Date;
(x) Liquidation Expenses incurred during the
related Remittance Period which are not being deducted from Liquidation
Proceeds or otherwise being charged to the Principal and Interest
Account with respect to such Determination Date;
(xi) Net Liquidation Proceeds as of the last day of
the related Remittance Period;
(xii) Insurance payments received from Insurance
Policies during the related Remittance Period;
(xiii) The number of Mortgage Loans and the aggregate
scheduled Loan Balances as of the last day of the Due Period relating
to the Payment Date;
(xiv) The Total Available Funds related to such
Mortgage Loan Pool and to the other Mortgage Loan Pool for each
Remittance Date;
(xv) The number and aggregate Loan Balances and Loan
Purchase Prices of Mortgage Loans required to be repurchased by the
Seller or purchased by the Servicer as of the Replacement Cut-Off Date
occurring during the Remittance Period preceding such Date;
(xvi) The number and aggregate Loan Balances of
Mortgage Loans (at the time they became Defaulted Mortgage Loans) which
are being carried as REO Properties;
(xvii) The amount of any Delinquency Advances made by
the Servicer during the related Remittance Period and any unreimbursed
Delinquency Advances as of such Payment Date;
(xviii) The weighted average Coupon Rates of the
Mortgage Loans;
(xix) The Monthly Exception Report;
(xx) The amount of any Substitution Amounts
delivered by the Seller;
(xxi) The number and aggregate Loan Balances of
Mortgage Loans, if any, in bankruptcy proceedings as of the last day of
related Remittance Period;
(xxii) The amount of unreimbursed Delinquency
Advances made by the Servicer;
65
<PAGE>
(xxiii) The amounts, if any, of the Realized Losses for
the related Remittance Period and the cumulative amount of Realized
Losses since the Closing Date.
(xxiv) The amount of unreimbursed Servicing Advances
made by the Servicer;
(xxv) Unpaid Servicing Fees;
(xxvi) The amount of Compensating Interest to be paid
by the Servicer during the related Remittance Period;
(xxvii) The weighted average net Coupon Rate of the
Mortgage Loans;
(xxviii) For the related Remittance Period and
cumulatively since the Closing Date, the number and aggregate Loan
Balance of Mortgage Loans bought back by the Servicer or the Seller
pursuant to Section 2.4, 2.6 and 4.10 hereof (identified separately for
each such section).
(xxix) Any other information reasonably requested by
the Note Insurer or the Indenture Trustee;
(xxx) the Annual Loss Percentage (Rolling Six Months)
for each Mortgage Loan Pool;
(xxxi) the Adjustable Rate Cumulative Loss Percentage
and the Fixed Rate Cumulative Loss Percentage; and
(xxxii) The aggregate actual Loan Balance as of the
last day of the Due Period relating to the Payment Date.
(b) On each Payment Date, the Indenture Trustee shall provide to the
Note Insurer, the Underwriter, the Seller, Standard & Poor's and Moody's a
written report in substantially the form set forth as Exhibit E hereto (the
"Servicing Certificate"), as such form may be revised by the Indenture Trustee,
the Servicer, Moody's and Standard & Poor's from time to time, but in every case
setting forth the information required under Section 3.8 hereof, based solely on
information contained in the Monthly Servicing Report.
Section 4.27. Indemnification by the Seller. The Seller agrees to
indemnify and hold the Indenture Trustee, the Note 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 Indenture Trustee, the Note Insurer and any Owner may sustain in any
way related to the failure of the Seller to perform its duties under this
Agreement. A party against whom a claim is brought shall immediately notify the
other parties and the Rating Agencies if a claim is made by a third party with
respect to this Agreement, and the Seller shall assume (with the consent of the
Note Insurer and the Indenture 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 Note Insurer, the Servicer, the Seller, the Indenture Trustee and/or
Owner in respect of such claim. In addition, the Servicer agrees to indemnify
the Owner Trustee pursuant to Article VIII of the Trust Agreement.
Section 4.29. Administration of the Issuer. The Servicer agrees to
perform the administrative duties of the Issuer hereunder and under the
Indenture.
Section 4.28. Indemnification by the Servicer. The Servicer agrees to
indemnify and hold the Indenture Trustee, the Note 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 Indenture Trustee, the Note Insurer and any Owner may sustain in any
way related to the failure of the Servicer to perform its duties and service the
Mortgage Loans in compliance with the terms of this
66
<PAGE>
Agreement. A party against whom a claim is brought shall immediately notify the
other parties and the Rating Agencies if a claim is made by a third party with
respect to this Agreement, and the Servicer shall assume (with the consent of
the Indenture 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
Note Insurer, the Servicer, the Indenture Trustee and/or Owner in respect of
such claim.
ARTICLE V
TERMINATION
Section 5.1. Termination. This Agreement will terminate upon notice to
the Indenture Trustee of either: (a) the later of (i) the satisfaction and
discharge of the Indenture pursuant to Section 4.1 of the Indenture or (ii) the
disposition of all funds with respect to the last Mortgage Loan and the
remittance of all funds due hereunder and the payment of all amounts due and
payable to the Indenture Trustee, the Owner Trustee, the Issuer, the Custodian
and the Note Insurer; or (b) the mutual consent of the Servicer, the Seller, the
Note Insurer and all Owners in writing.
Section 5.2. Termination Upon Option of Servicer. (a) On any Payment
Date on or after the Redemption Date for a Series of Notes, the Servicer shall
have the option to purchase all of the Mortgage Loans in the related Mortgage
Loan Pool by paying the related Termination Price to the Issuer and by providing
notice thereof to the Indenture Trustee, Owner Trustee and Note Insurer. The
Servicer may purchase the Mortgage Loans in a Mortgage Loan Pool at a price
equal to the sum of (i) the then outstanding Note Principal Balance of the Notes
relating to such Mortgage Loan Pool plus all accrued and unpaid interest thereon
(and, in the case of the Adjustable Rate Pool, any Available Funds Cap
Carry-Forward Amount), (ii) any related Fees and Expenses due and unpaid on such
date, (iii) the payment of all amounts owed to the Note Insurer and (iv) any
unreimbursed Delinquency Advances and Servicing Advances with respect to such
Mortgage Loan Pool (such amount, the "Termination Price"). In connection with
such purchase, the Servicer shall remit to the Indenture Trustee all amounts
then on deposit in the Principal and Interest Account for deposit to the related
Note Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. The proceeds from such sale will be distributed first,
to the payment of any outstanding Fees and Expenses with respect to such
Mortgage Loan Pool, second, to the Note Insurer, all amounts owed thereto,
third, to the Servicer for unreimbursed Servicing Advances and Delinquency
Advances with respect to the Mortgage Loan Pool, fourth, to the Owners of the
Notes relating to such Mortgage Loan Pool in an amount equal to the then
outstanding Note Principal Balance plus all accrued and unpaid interest thereon
(plus, in the case of the Adjustable Rate Pool, any Available Funds Cap
Carry-Forward Amount), fifth, to the Noteholders with respect to the other
Mortgage Loan Pool, the amount of any Subordination Deficit, if any, for such
other Mortgage Loan Pool and, sixth, to the holders of the Certificates, the
remainder. Provided, however, that no such termination shall occur unless the
Owners of the Note have received an amount equal to the then outstanding Note
Principal Balance plus all accrued and unpaid interest on the Notes.
(b) Promptly following any such purchase, the Indenture Trustee will
release the Files to the Servicer, or otherwise upon their order, in a manner
similar to that described in Section 4.14 hereof.
(c) If the Servicer does not exercise its option pursuant to this
Section 5.2 with respect to a Mortgage Loan Pool, then the Note Insurer may do
so on the same terms.
Section 5.3 Redemption of Notes. Upon any purchase described in Section
5.2 by either the Servicer or the Note Insurer, the Issuer shall use the
proceeds it receives to redeem the Notes, in whole and not in part, and
terminate the Indenture relating to such Mortgage Loan Pool. The Notes relating
to such Mortgage Loan Pool will be redeemed upon payment of the related
Termination Price, and the payment of the amount set forth in clause (i) of the
definition of related Termination Price set forth in Section 5.2 to the
67
<PAGE>
Owners of the Notes shall be in lieu of the payment otherwise required to be
made to the Owners on such Payment Date in respect of the Notes.
Section 5.4. Disposition of Proceeds. The Indenture Trustee shall, upon
receipt thereof, deposit the proceeds of any liquidation of a Mortgage Loan Pool
Estate pursuant to this Article V to the related Note Account; provided,
however, that any amounts representing Servicing Fees, unreimbursed Delinquency
Advances or unreimbursed Servicing Advances relating to such Mortgage Loan Pool
theretofore funded by the Servicer from the Servicer's own funds shall be paid
by the Indenture Trustee to the Servicer from the proceeds of the Trust Estate.
Section 5.5. Netting of Amounts. If any Person paying the Termination
Price would receive a portion of the amount so paid, such Person may net any
such amount against the Termination Price otherwise payable.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Acts of Owners. Except as otherwise specifically provided
herein, whenever Owner action, consent or approval is required under this
Agreement, such action, consent or approval shall be deemed to have been taken
or given on behalf of, and shall be binding upon, all Owners if the Owners of
the majority of the Percentage Interest of the Notes agree to take such action
or give such consent or approval.
Section 6.2 Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the Properties are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer at the Owners' expense on direction of the Owners of the majority of
the Percentage Interest of the Notes or the Note Insurer, but only when
accompanied by an opinion of counsel to the effect that such recordation
materially and beneficially affects the interests of the Owners or is necessary
for the administration or servicing of the Mortgage Loans.
Section 6.3 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 6.4 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 6.5 Severability. In case any provision in this Agreement or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 6.6. Benefits of Agreement. Nothing in this Agreement or in the
Notes, expressed or implied, shall give to any Person, other than the Owners,
the Note Insurer and the parties hereto and their successors hereunder, any
benefit or any legal or equitable right, remedy or claim under this Agreement.
Section 6.7. Legal Holidays. In any case where the date of any
Remittance Date, any Payment 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 Notes 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 Remittance Date, such Payment Date or
such
68
<PAGE>
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 6.8. Governing Law. 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 of commercial and financial law relevant to transactions of
the type contemplated herein, this Agreement and each Note shall be construed in
accordance with and governed by the laws of the State of New York applicable to
agreements made and to be performed therein, without regard to the conflicts of
law principles thereof.
Section 6.9. Counterparts. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 6.10. Amendment. (a) The Indenture Trustee, the Seller, the
Issuer and the Servicer, may at any time and from time to time, with the prior
approval of the Note Insurer but without the giving of notice to or the receipt
of the consent of the Owners, amend this Agreement for the purposes of (i)
curing any ambiguity; (ii) correcting or supplementing any provisions of this
Agreement which are inconsistent with any other provisions of this Agreement or
adding provisions to this Agreement which are not inconsistent with the
provisions of this Agreement; (iii) adding any other provisions with respect to
matters or questions arising under this Agreement; or (iv) for any other
purpose, provided that in the case of clause (iv), (A) prior to the
effectiveness of such amendment, the Seller delivers an opinion of counsel
acceptable to the Indenture Trustee and the Note Insurer that such amendment
will not adversely affect in any material respect the interest of the Owners and
the Note Insurer and (B) delivers a letter from each Rating Agency stating that
such amendment will not result in a withdrawal or reduction of the rating of the
Notes without regard to the Note Insurance Policies. Notwithstanding anything to
the contrary, no such amendment shall (a) change in any manner the amount of, or
delay the timing of, payments which are required to be distributed to any Owner
without the consent of the Owner of such Note, (b) change the percentages of
Percentage Interest which are required to consent to any such amendments,
without the consent of the Owners of all Notes affected then outstanding or (c)
which affects in any manner the terms or provisions of the Note Insurance
Policies.
(b) This Agreement may be amended from time to time by the Servicer,
the Seller, the Issuer and the Indenture Trustee with the consent of the Note
Insurer (which consent shall not be withheld if, in an opinion of counsel
addressed to the Indenture Trustee and the Note Insurer, failure to amend would
adversely affect the interests of the Owners) and the Owners of 66 2/3% of the
Notes for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Owners; provided, however, that no such amendment shall
be made that no such amendment shall reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Notes without the consent of the Owner of such Notes or
reduce the percentage for each Class the Owners of which are required to consent
to any such amendment without the consent of the Owners of 100% of the Notes.
(c) The Note Insurer, the Owners, Moody's and Standard & Poor's 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 6.11. Specification of Certain Tax Matters. Each Owner shall
provide the Indenture Trustee with a completed and executed From W-9 prior to
purchasing a Note. The Indenture Trustee shall comply with all requirements of
the Code, and applicable state and local law, with respect to the withholding
from any distributions made to any Owner of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith.
69
<PAGE>
Section 6.12. The Note Insurer. Any right conferred to the Note Insurer
shall be suspended during any period in which there exists a Note Insurer
Default. During any period of suspension the Note Insurer's rights hereunder
shall vest in the Owners of the Notes and shall be exercisable by the Owners of
at least a majority in Percentage Interest of the Notes then Outstanding. At
such time as the Notes are no longer outstanding hereunder and the Note Insurer
has been reimbursed for all Insured Payments to which it is entitled hereunder,
the Note Insurer's rights hereunder shall terminate.
Section 6.13. Third Party Rights. The Indenture Trustee, the Seller,
the Issuer, the Servicer, and the Owners agree that the Note Insurer shall be
deemed a third-party beneficiary of this Agreement as if it were a party hereto.
Section 6.14. Usury. The amount of interest payable or paid on any Note
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 Note exceeds the Highest
Lawful Rate, the Trust stipulates that such excess amount will be deemed to have
been paid to the Owner of such Note as a result of an error on the part of the
Indenture 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 Indenture 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 Note, if any, remaining unpaid. In addition, all sums paid or
agreed to be paid to the Indenture Trustee for the benefit of Owners of Notes
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 Notes.
Section 6.15. No Petition. The Indenture Trustee, the Seller and the
Servicer, by entering into this Agreement, and each Owner, by accepting a Note,
hereby covenant and agree that they will not at any time institute against the
Seller, the Servicer or the Issuer, or join in any institution against the
Seller, the Servicer or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, this Agreement or any of the Operative
Documents.
Section 6.16. Notices. All notices hereunder shall be given as follows,
until any superseding instructions are given to all other Persons listed below:
The Indenture Trustee: The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Diane Wallace, Structured
Finance Services
Tel: (212) 946-8583
Fax: (212) 946-8552
The Seller: First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Attention: Director, Secondary Marketing
Tel: (714) 224-8357
Fax: (714) 224-8366
70
<PAGE>
The Issuer: First Alliance Mortgage Loan Trust 1998-2
c/o Wilmington Trust Company, as Owner
Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Tel: (302) 651-8775
Fax: (302) 651-1576
The Servicer: First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Attention: Manager, Investor Reporting
Tel: (714) 224-8357
Fax: (714) 224-8366
The Note Insurer: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
First Alliance Mortgage Loan Trust 1998-2
Tel: (212) 339-3518
Fax: (212) 339-3529
Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: The Home Equity Monitoring
Department
Standard & Poor's: Standard & Poor's, A Division of The
McGraw-Hill Companies
25 Broadway
New York, New York 10004
Attention: Residential Mortgage
Surveillance Dept.
Underwriter: First Union Capital Markets,
a division of Wheat First Securities Corp.
One First Union Center
Charlotte, North Carolina 28266-0166
Attention: Director, Asset-Backed Finance
Tel: (704) 590-6161
Fax: (704) 383-8121
71
<PAGE>
ARTICLE VII
CERTAIN MATTERS REGARDING THE NOTE INSURER
Section 7.01 Trust Estate and Accounts Held for Benefit of the Note
Insurer.
The Indenture Trustee shall hold the Trust Estate for the benefit of
the related Owners and the Note Insurer and all references in this Agreement,
the Indentures and in the Notes to the benefit of Owners of the Notes shall be
deemed to include the Note Insurer. The Indenture Trustee shall cooperate in all
reasonable respects with any reasonable request by the Note Insurer for action
to preserve or enforce the Note Insurer's rights or interests under this
Agreement, the Indentures and the Notes.
The Servicer hereby acknowledges and agrees that it shall service and
administer the Mortgage Loans and any REO Properties, and shall maintain the
Principal and Interest Account, for the benefit of the Owners of each Series of
the Notes and for the benefit of the Note Insurer, and all references in this
Agreement or the Indentures to the benefit of or actions on behalf of the Owners
shall be deemed to include the Note Insurer. Unless a Note Insurer Default
exists, the Servicer shall not terminate any Sub-Servicing Agreements without
cause without the prior consent of the Note Insurer.
Section 7.02 Claims Upon the Note Insurance Policies; Policy Payments
Account.
(a) If, with respect to any Payment Date, the funds then on deposit in
the Adjustable Rate Note Account or the Fixed Rate Note Account (after the
application of the crosscollateralization provisions hereof), are insufficient
to pay an Insured Payment on such Payment Date, the Indenture Trustee shall give
notice to the Note Insurer by telephone or telecopy of the amount of such
deficiency, confirmed in writing in the form set forth as Exhibit A to the
Endorsement of the Note Insurance Policies, to the Note Insurer and the Fiscal
Agent (as defined in the Note Insurance Policies), if any, at or before 12:00
noon New York City time, on the Business Day prior to such Payment Date.
(b) The Indenture Trustee shall establish a separate special purpose
trust account, for the benefit of the Owners of each Series of the Notes and the
Note Insurer, referred to herein as the "Policy Payments Account" over which the
Indenture Trustee shall have exclusive control and sole right of withdrawal. The
Indenture Trustee shall deposit any amount paid under the Note Insurance
Policies in the Policy Payments Account and distribute such amount only for
purposes of payment to the Owners of the Notes of the Insured Payments for which
a claim was made, and such amount may not be applied to satisfy any costs,
expenses or liabilities of the Servicer, the Seller, the Depositor, the
Custodian, the Indenture Trustee or the Trust. Amounts paid under the Note
Insurance Policies shall be transferred to the Adjustable Rate Note Account or
the Fixed Rate Note Account, as applicable, in accordance with the next
succeeding paragraph and disbursed by the Indenture Trustee to Owners of the
related Series of Notes in accordance with Section 3.5. It shall not be
necessary for such payments to be made by checks or wire transfers separate from
the checks or wire transfers used to pay the Insured Payments with other funds
available to make such payment. However, the amount of any payment of principal
of or interest on the Notes to be paid from funds transferred from the Policy
Payments Account shall be noted as provided in paragraph (c) below in the
Register and in the statement to be furnished to Owners of the related Series of
Notes pursuant to Section 3.08. Funds held in the Policy Payments Account shall
not be invested by the Indenture Trustee.
On any Payment Date with respect to which a claim has been made under
the Adjustable Rate Note Insurance Policy or the Fixed Rate Note Insurance
Policy, the amount of funds received by the Indenture Trustee as a result of any
claim under such Note Insurance Policies, to the extent required to make the
Insured Payment on such Payment Date shall be withdrawn from the Policy Payments
Account and deposited in the Adjustable Rate Note Account or the Fixed Rate Note
Account, as applicable, and applied by the Indenture Trustee, together with the
other funds to be withdrawn from the Adjustable Rate Note Account or the Fixed
Rate Note Account, as applicable, directly to the payment in full of the Insured
Payment due on the related Series of Notes. Funds received by the Indenture
Trustee as a result of any claim
72
<PAGE>
under the Note Insurance Policies shall be deposited by the Indenture Trustee in
the Policy Payments Account and used solely for payment to the Owners of the
Notes, and such funds may not be applied to satisfy any costs, expenses or
liabilities of the Servicer, the Seller, the Depositor, the Custodian, the
Indenture Trustee or the Trust. Any funds remaining in the Policy Payments
Account on the first Business Day following a Payment Date shall be remitted to
the Note Insurer, pursuant to the instructions of the Note Insurer, by the end
of such Business Day.
(c) The Indenture Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of any Note from moneys
received under the Note Insurance Policies. The Note Insurer shall have the
right to inspect such records at reasonable times during normal business hours
upon one Business Day's prior notice to the Indenture Trustee.
(d) The Indenture Trustee shall promptly notify the Note Insurer and
the Fiscal Agent (as defined in the Note Insurance Policies) of any proceeding
or the institution of any action, of which an Authorized Officer of the
Indenture Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership or similar law (a
"Preference Claim") of any distribution made with respect to the Notes. Each
Owner of a Note by its purchase of such Note, the Servicer and the Indenture
Trustee hereby agree that, the Note Insurer (so long as no Note Insurer Default
exists) may at any time during the continuation of any proceeding relating to a
Preference Claim direct all matters relating to such Preference Claim, including
without limitation, (i) the direction of any appeal of any order relating to
such Preference Claim and (ii) the posting of any surety, supersedeas or
performance bond pending any such appeal. In addition and without limitation of
the foregoing, the Note Insurer shall be subrogated to the rights of the
Servicer, the Indenture Trustee and each Owner of a Note 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.
(e) The Indenture Trustee shall, upon retirement of any Series of
Notes, furnish to the Note Insurer a notice of such retirement, and, upon the
retirement of such Series of Notes and the expiration of the term of the related
Note Insurance Policy, surrender such Note Insurance Policy to the Note Insurer
for cancellation.
Section 7.03 Effect of Payments by the Note Insurer; Subrogation.
Anything herein or in the Indentures to the contrary notwithstanding,
any payment with respect to principal of or interest on any of the Notes which
is made with moneys received pursuant to the terms of the Note Insurance
Policies shall not be considered payment of such Notes 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 Notes within the meaning of Section 3.5. The Depositor,
the Servicer and the Indenture Trustee acknowledge, and each Owner by its
acceptance of a Note agrees, that without the need for any further action on the
part of the Note Insurer, the Depositor, the Servicer, the Indenture Trustee or
the Registrar (a) to the extent the Note Insurer makes payments, directly or
indirectly, on account of principal of or interest on any Notes to the Owners of
such Notes, the Note Insurer will be fully subrogated to the rights of such
Owners to receive such principal and interest from the Trust and (b) the Note
Insurer shall be paid such principal and interest but only from the sources and
in the manner provided herein for the payment of such principal and interest.
The Indenture Trustee, the Seller, the Depositor and the Servicer shall
cooperate in all respects with any reasonable request by the Note Insurer for
action to preserve or enforce the Note Insurer's rights or interests under this
Agreement without limiting the rights or affecting the interests of the Owners
as otherwise set forth therein.
Section 7.04 Notices to the Note Insurer.
All notices, statements, reports, certificates or opinions required by
this Agreement or the Indentures to be sent to any other party hereto or to any
of the Owners shall also be sent to the Note Insurer.
73
<PAGE>
Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners.
By accepting its Note, each Owner agrees that unless a Note Insurer
Default exists, the Note Insurer shall have the right to exercise all rights of
the Owners as specified under this Agreement or the Indentures without any
further consent of the Owners.
74
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Indenture 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.
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2,
By: WILMINGTON TRUST COMPANY
as Owner Trustee
By: /s/ Debra Eberly
------------------------------
Name: Debra Eberly
Title: Administrative Account Manager
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller
By: /s/ Brian Chisick
-------------------------------
Name: Brian Chisick
Title: President/Chief Executive Officer
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
By: /s/ Brian Chisick
-------------------------------
Name: Brian Chisick
Title: President/Chief Executive Officer
THE CHASE MANHATTAN BANK,
as Indenture Trustee
By: /s/ Diane E. Wallace
-------------------------------
Name: Diane E. Wallace
Title: Trust Officer
75
<PAGE>
STATE OF Delaware )
: ss.:
COUNTY OF New Castle )
On the 23rd day of June, 1998, before me personally came Debra Eberly,
to me known, who, being by me duly sworn did depose and say that he/she resides
at Bear, Delaware that he/she is a(n) Administrative Account Manager of
Wilmington Trust Company, a Delaware banking corporation described in and that
executed the above instrument as Owner Trustee; and that he/she signed his/her
name thereto by order of the Board of Directors of said Delaware banking
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]
/s/ Kathleen A. Pedelini
------------------------
Notary Public
76
<PAGE>
STATE OF New York )
: ss.:
COUNTY OF New York )
On the 29th day of June, 1998, before me, personally came Diane E.
Wallace, to me known, who being by me duly sworn did depose and say that his/her
office is located at 450 West 33rd Street, New York, New York 10001; that he is
a Trust Officer of The Chase Manhattan Bank, the New York banking corporation
described herein and that he executed the above instrument as Indenture Trustee;
and that he signed his name thereto under the authority granted by the Board of
Directors of said New York banking 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]
/s/ Margaret M. Price
---------------------
Notary Public
77
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ORANGE )
On the 24TH day of June, 1998, before me, a Notary Public, personally
appeared BRIAN CHISICK, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARIAL SEAL]
/s/ S. Morrison
---------------
Notary Public
78
<PAGE>
EXHIBIT B
CERTIFICATE RE: PREPAID LOANS
I, ______________, ______________ of First Alliance Mortgage
Company, a California corporation, (the "Seller"), hereby certify that between
the "Cut-Off Date" (as defined in the Sale and Servicing Agreement dated as of
June 1, 1998 among the Seller, the Seller in its capacity as servicer (the
"Servicer") and The Chase Manhattan Bank, a New York banking corporation, in its
capacity as indenture trustee (the "Indenture Trustee")) and the "Closing Date"
the following schedule of "Mortgage Loans" have been prepaid in full.
Dated:
By: _________________________
Name: _________________________
Title:_________________________
B-1
<PAGE>
EXHIBIT C
INITIAL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of The Bank of New
York, a New York banking corporation, acting in its capacity as custodian (the
"Custodian") on behalf of The Chase Manhattan Bank, a New York banking
corporation acting in its capacity as indenture trustee (the "Indenture
Trustee") of a certain pool of mortgage loans (the "Pool") heretofore conveyed
in trust to the Custodian, on behalf of the Indenture Trustee, pursuant to that
certain Sale and Servicing Agreement dated as of June 1, 1998 (the "Sale and
Servicing Agreement") by and among First Alliance Mortgage Loan Trust 1998-2, a
Delaware business trust (the "Issuer"), First Alliance Mortgage Company, a
California corporation (the "Seller"), the Seller, in its capacity as servicer
(the "Servicer") and the Indenture Trustee;
WHEREAS, the Custodian, on behalf of the Indenture Trustee, is
required, pursuant to Section 2.6 of the Sale and Servicing Agreement, to review
the Files relating to the Pool on or before the Closing Date; and
WHEREAS, Section 2.6 of the Sale and Servicing Agreement requires the
Custodian, on behalf of the Indenture Trustee, to deliver this Initial
Certification upon the satisfaction of certain conditions set forth therein.
NOW, THEREFORE, the Custodian, on behalf of the Indenture Trustee,
hereby certifies with respect to each Mortgage Loan listed in the Schedule of
Mortgage Loans (other than any Mortgage Loan paid in full), which is attached
hereto, that all documents required to be delivered to it pursuant to the Sale
and Servicing Agreement are in its possession, such documents have been reviewed
by it and appear regular on their face and relate to such Mortgage Loan and
based on its examination and only as to the foregoing documents, the information
set forth on the Schedule of Mortgage Loans as to loan number and address
accurately reflects information set forth in the File, except as attached
thereto.
THE BANK OF NEW YORK,
as Custodian
Name: ________________________
Title:________________________
Dated: _________________
[Attached Exception List]
C-1
<PAGE>
EXHIBIT D
FINAL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of The Bank of New
York, a New York banking corporation, acting in its capacity as custodian (the
"Custodian) on behalf of the indenture trustee (the "Indenture Trustee") of a
certain pool of mortgage loans (the "Pool") heretofore conveyed in trust to the
Custodian, on behalf of the Indenture Trustee, pursuant to that certain Sale and
Servicing Agreement dated as of June 1, 1998 (the "Sale and Servicing
Agreement") by and among First Alliance Mortgage Loan Trust 1998-2, a Delaware
business trust (the "Issuer"), First Alliance Mortgage Company, a California
corporation (the "Seller"), the Seller, in its capacity as servicer (the
"Servicer") and the Indenture Trustee;
WHEREAS, the Custodian, on behalf of the Indenture Trustee, is
required, pursuant to Section 2.6 of the Sale and Servicing Agreement, to review
the Files relating to the Pool within a specified period following the Closing
Date 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 2.6 of the Sale and Servicing Agreement; and
WHEREAS, Section 2.6 of the Sale and Servicing Agreement requires the
Custodian, on behalf of the Indenture Trustee, to deliver this Final
Certification upon the satisfaction of certain conditions set forth therein.
NOW, THEREFORE, the Custodian, on behalf of the Indenture Trustee,
hereby certifies that it has determined that all required documents (or
certified copies of documents listed in Section 2.5 of the Sale and Servicing
Agreement) have been executed or received, and that such documents relate to the
Mortgage Loans identified in the Schedule of Mortgage Loans pursuant to Section
2.5(a) of the Sale 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,
any remedial action by the Seller pursuant to Section 2.6 of the Sale and
Servicing Agreement has been completed. The Custodian makes no certification
hereby, however, with respect to any intervening assignments or assumption and
modification agreements.
THE BANK OF NEW YORK,
as Custodian
Name: __________________________________
Title:__________________________________
Dated: ____________________
D-1
<PAGE>
EXHIBIT E
FORM OF
MONTHLY REPORT
FIRST ALLIANCE MORTGAGE COMPANY
MORTGAGE LOAN ASSET BACKED NOTES
SERIES 1998-2
E-1
<PAGE>
EXHIBIT F
FORM OF REQUEST FOR RELEASE
To: __________________________
__________________________
__________________________
Attn: First Alliance Mortgage Loan Trust 1998-2
Date: _________________________
In connection with the administration of the mortgage loans held by you
as Custodian under a certain Sale and Servicing Agreement dated as of June 1,
1998 and by and among First Alliance Mortgage Loan Trust 1998-2, as Issuer,
First Alliance Mortgage Company, the Seller in its capacity as servicer (the
"Servicer"), and The Chase Manhattan Bank, in its capacity as Indenture Trustee
(the "Agreement"), the Servicer hereby requests a release of the File held by
you as Custodian, on behalf of the Indenture Trustee, with respect to the
following described Mortgage Loan for the reason indicated below:
Mortgagor's Name:
Loan No.: _______
Reason for requesting file:
_______ 1. Mortgage Loan paid in full.
(The Servicer hereby certifies that all amounts received
in connection with the loan have been or will be credited
to the Note Account (whichever is applicable) pursuant to
the Agreement.)
_______ 2. Mortgage Loan repurchased pursuant to Section 2.4, 2.6(b) or
4.10 of the Agreement.
(The Servicer hereby certifies that the Loan Purchase
Price has been or will be paid to the Note Account
pursuant to the Agreement.)
_______ 3. Mortgage Loan substituted.
(The Servicer hereby certifies that a Qualified
Replacement Mortgage has been or will be assigned and
delivered to you along with the related File pursuant to
the Agreement.)
_______ 4. The Mortgage Loan is being foreclosed.
_______ 5. Other. (Describe).
F-1
<PAGE>
The undersigned acknowledges that the above File will be held by the
undersigned in accordance with the provisions of the Agreement and will be
returned to you, except if the Mortgage Loan has been paid in full, or
repurchased or substituted for by a Qualified Replacement Mortgage (in which
case the File will be retained by us permanently) and except if the Mortgage
Loan is being foreclosed (in which case the File will be returned when no longer
required by us for such purpose).
Capitalized terms used herein shall have the meanings ascribed to them
in the Agreement.
FIRST ALLIANCE MORTGAGE COMPANY
By: __________________________
Name:__________________________
Title:_________________________
F-2
<PAGE>
EXHIBIT G
SUBSEQUENT TRANSFER AGREEMENT
First Alliance Mortgage Company in its capacities as seller (the
"Seller") and as servicer (the "Servicer") and First Alliance Mortgage Loan
Trust 1998-2, as the "Purchaser", pursuant to the Sale and Servicing Agreement
dated as of June 1, 1998, (the "Sale and Servicing Agreement") among the Seller,
the Servicer, the Purchaser and The Chase Manhattan Bank, a New York banking
corporation, in its capacity as Indenture Trustee (the "Indenture Trustee"),
hereby confirm their understanding with respect to the sale by the Seller and
the purchase by the Purchaser of those Mortgage Loans (the "Subsequent Mortgage
Loans") listed on the attached Schedule of Mortgage Loans.
Conveyance of Subsequent Mortgage Loans. As of ___________ __, 1998
(the "Subsequent Transfer Date"), the Seller does hereby irrevocably transfer,
assign, set over and otherwise convey to the Purchaser, without recourse (except
as otherwise explicitly provided for herein) all of its right, title and
interest in and to any and all benefits accruing from the Subsequent Mortgage
Loans which are delivered to The Bank of New York, as custodian, on behalf of
the Indenture Trustee herewith (and all substitutions therefor as provided by
Sections 2.3, 2.4 and 2.6 of the Sale and Servicing Agreement), together with
the related Subsequent Mortgage Loan documents and the interest in any Property
which secured a Subsequent 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; and
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 Subsequent 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). The Seller shall deliver the original
Mortgage or mortgage assignment with evidence of recording thereon (except as
otherwise provided by the Sale and Servicing Agreement) and other required
documentation in accordance with the terms set forth in Sections 2.5 and 2.8 of
the Sale and Servicing Agreement.
The costs relating to the delivery of the documents specified in this
Subsequent Transfer Agreement and the Sale and Servicing Agreement shall be
borne by the Seller.
The Seller hereby affirms the representations and warranties set forth in
the Sale and Servicing Agreement that relate to the Seller and the Subsequent
Mortgage Loans as of the date hereof. The Seller hereby delivers notice and
confirms that each of the conditions set forth in Section 2.8(b), 2.8(c) and
2.8(d) to the Sale and Servicing Agreement are satisfied as of the date hereof.
Pursuant to Section 2.8(a) of the Sale and Servicing Agreement, the
Seller instructs the Indenture Trustee to release one-hundred percent of the
aggregate principal balances of the Subsequent Mortgage Loans so transferred
from the Pre-Funding Account ($______________) pursuant to this Subsequent
Transfer Agreement.
All terms and conditions of the Sale and Servicing Agreement are hereby
ratified, confirmed and incorporated herein, provided that in the event of any
conflict the provisions of this Subsequent Transfer Agreement shall control over
the conflicting provisions of the Sale and Servicing Agreement.
C-1
<PAGE>
Terms capitalized herein and not defined herein shall have their
respective meanings as set forth in the Sale and Servicing Agreement.
FIRST ALLIANCE MORTGAGE THE CHASE MANHATTAN BANK,
COMPANY. as Seller as Indenture Trustee for
First Alliance
Mortgage Loan Trust 1998-2
By: __________________________________ By: _______________________
Name: ____________________________ Name: _________________
Title: ___________________________ Title:_________________
FIRST ALLIANCE MORTGAGE
COMPANY, as Servicer
By: __________________________________
Name: ____________________________
Title: ___________________________
Dated:
C-2
Exhibit 10.2
SUBSEQUENT TRANSFER AGREEMENT
First Alliance Mortgage Company in its capacities as seller (the
"Seller") and as servicer (the "Servicer") and First Alliance Mortgage Loan
Trust 1998-2, as the "Purchaser", pursuant to the Sale and Servicing Agreement
dated as of June 1, 1998, (the "Sale and Servicing Agreement") among the Seller,
the Servicer, the Purchaser and The Chase Manhattan Bank, a New York banking
corporation, in its capacity as Indenture Trustee (the "Indenture Trustee"),
hereby confirm their understanding with respect to the sale by the Seller and
the purchase by the Purchaser of those Mortgage Loans (the "Subsequent Mortgage
Loans") listed on the attached Schedules of Mortgage Loans.
Conveyance of Subsequent Mortgage Loans. As of June 30, 1998 (the
"Subsequent Transfer Date"), the Seller does hereby irrevocably transfer,
assign, set over and otherwise convey to the Purchaser, without recourse (except
as otherwise explicitly provided for herein) all of its right, title and
interest in and to any and all benefits accruing from the Subsequent Mortgage
Loans which are delivered to The Bank of New York, as custodian, on behalf of
the Indenture Trustee herewith (and all substitutions therefor as provided by
Sections 2.3, 2.4 and 2.6 of the Sale and Servicing Agreement), together with
the related Subsequent Mortgage Loan documents and the interest in any Property
which secured a Subsequent 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; and
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 Subsequent 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). The Seller shall deliver the original
Mortgage or mortgage assignment with evidence of recording thereon (except as
otherwise provided by the Sale and Servicing Agreement) and other required
documentation in accordance with the terms set forth in Sections 2.5 and 2.8 of
the Sale and Servicing Agreement.
The costs relating to the delivery of the documents specified in this
Subsequent Transfer Agreement and the Sale and Servicing Agreement shall be
borne by the Seller.
The Seller hereby affirms the representations and warranties set forth
in the Sale and Servicing Agreement that relate to the Seller and the Subsequent
Mortgage Loans as of the date hereof. The Seller hereby delivers notice and
confirms that each of the conditions set forth in Section 2.8(b), 2.8(c) and
2.8(d) to the Sale and Servicing Agreement are satisfied as of the date hereof.
Pursuant to Section 2.8(a) of the Sale and Servicing Agreement, the
Seller instructs the Indenture Trustee to release one-hundred percent of the
aggregate principal balances of the Subsequent Mortgage Loans so transferred
from the Pre-Funding Account, $17,380,072.68 pursuant to this Subsequent
Transfer Agreement and to include $3,418,150.07 of the Subsequent Mortgage Loans
listed in Exhibit A hereto in the Adjustable Rate Pool and $13,961,922.61 of the
Subsequent
<PAGE>
Mortgage Loans listed in Exhibit B hereto in the Fixed Rate Pool.
All terms and conditions of the Sale and Servicing Agreement are hereby
ratified, confirmed and incorporated herein, provided that in the event of any
conflict the provisions of this Subsequent Transfer Agreement shall control over
the conflicting provisions of the Sale and Servicing Agreement.
Terms capitalized herein and not defined herein shall have their
respective meanings as set forth in the Sale and Servicing Agreement.
<TABLE>
<S> <C>
FIRST ALLIANCE MORTGAGE THE CHASE MANHATTAN BANK,
COMPANY, as Seller as Indenture Trustee for First Alliance
Mortgage Loan Trust 1998-2
By: /s/ Brian Chisick By: /s/ Diane E. Wallace
--------------------------------- ---------------------
Name: Brian Chisick Name: Diane E. Wallace
Title: President/Chief Executive Officer Title: Trust Officer
FIRST ALLIANCE MORTGAGE Dated: June 30, 1998
COMPANY, as Servicer
By: /s/ Brian Chisick
---------------------------------
Name: Brian Chisick
Title: President/Chief Executive Officer
</TABLE>
<PAGE>
Exhibit A
Loan Schedule - 1998-2A (ADJUSTABLE)
<TABLE>
<CAPTION>
Loan Lien Cut-Off Current Current
Number Property Address City ST Zip Pos Balance Rate Pmt
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
106256 2431 34TH AVE SAN FRANCISCO CA 94116 1 188,811.00 10.000 1,656.95
106257 8803 HUMMINGBIRD AV FOUNTAIN VALLEY CA 92708 1 213,824.00 8.990 1,718.94
405792 1420 CAMPBELL STREET OAKLAND CA 94607 1 27,078.00 10.500 247.69
605004 72 RUSSELL DRIVE ANTIOCH CA 94509 1 39,995.00 9.690 341.86
1602885 1115 OAKHILL PLACE NW ISSAQUAH WA 98027 1 153,426.00 9.500 1,290.09
1803730 210 S. PROSPECT AVENUE CLARENDON HILLS IL 60514 1 165,847.00 9.490 1,393.32
1803738 8728 S. MARQUETTE CHICAGO IL 60617 1 55,190.00 8.990 559.45
2201911 494 E. STATE ST. SOUTH ELGIN IL 60177 1 80,490.00 9.850 697.45
2700583 5354 S. 2000 W. ROY UT 84067 1 106,979.00 9.240 879.31
2700584 198 E. 6715 S. MIDVALE UT 84047 1 71,747.00 7.740 513.51
3201110 13 PARK AVE PORT WASHINGTON NY 11050 1 184,541.00 11.240 1,790.97
3400591 88 PERGOLA AVE JAMESBURG (MONROE TWP) NJ 08831 1 111,200.00 10.650 1,029.68
3400605 64 DORSET DRIVE CLARK NJ 07066 1 118,570.00 9.490 996.14
3500356 177 WHITE BIRCH ST. LEICESTER MA 01524 1 126,690.00 8.850 1,005.73
3500394 6 BENTLEY LANE CHELMSFORD MA 01824 1 88,940.00 9.240 731.04
3500398 9 ABBOTT STREET NEWTON MA 02164 1 65,291.00 8.240 490.05
3500401 23 PICKMAN STREET SALEM MA 01970 1 76,990.00 9.850 667.12
8303014 7227 NW EVERS ROAD FOREST GROVE OR 97116 1 136,586.24 7.500 1,270.01
8303125 3845 SE 42ND AVE. PORTLAND OR 97206 1 63,954.83 7.750 458.50
8303179 5726 SE MALDEN STREET PORTLAND OR 97206 1 84,000.00 7.990 615.78
8303198 566 N. 2ND STREET SAN JOSE CA 95112 1 51,000.00 7.990 487.09
8303199 38304 NORTH SHORE AVE. WAUKEGAN IL 60087 1 82,000.00 7.750 771.85
8303244 166 W. AVENIDA DE LAS FLORES THOUSAND OAKS CA 91360 1 225,000.00 8.500 1,730.06
8410461 1084 NORTH SAN MARCOS ROAD SANTA BARBARA CA 93111 1 187,200.00 7.030 1,249.22
8410469 493 OLD FARM CIRCLE CENTERVILLE UT 84014 1 130,000.00 7.530 911.65
8410471 658 WEST 650 NORTH CLEARFIELD UT 84015 1 53,000.00 7.250 361.55
8410474 1941 NORTH 1400 WEST LAYTON UT 84041 1 80,000.00 8.530 616.83
8410479 5333 GARWOOD DRIVE SAN JOSE CA 95118 1 217,000.00 7.530 1,521.76
8410481 1231 BROOKSIDE ROAD PISCATAWAY NJ 08854 1 83,000.00 7.750 781.26
8410486 1507 WEST FERN AVENUE REDLANDS CA 92373 1 70,800.00 7.030 472.46
8410489 611 OBISPO AVENUE LONG BEACH CA 90814 1 79,000.00 7.780 567.60
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE LOANS: 31 3,418,150.07
<CAPTION>
Loan Mat Pmt Prop Occup Appraised Orig
Number Date Type Type Type Value Type
- - -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
106256 8/1/28 A S I 319,000 F
106257 8/1/28 A S P 289,000 F
405792 8/1/28 A S P 68,000 F
605004 8/1/28 A S P 73,000 F
1602885 8/1/28 A S P 221,000 F
1803730 8/1/28 A S P 237,000 F
1803738 8/1/13 A F P 92,000 F
2201911 8/1/28 A S P 110,000 F
2700583 8/1/28 A F I 170,000 F
2700584 8/1/28 A S P 140,000 F
3201110 8/1/28 A S P 312,000 F
3400591 8/1/28 A S P 189,000 F
3400605 8/1/28 A S P 262,000 F
3500356 7/1/28 A S P 181,000 F
3500394 8/1/28 A S P 175,000 F
3500398 8/1/28 A S P 195,000 F
3500401 8/1/28 A S P 110,000 F
8303014 5/1/13 A S P 235,000 C
8303125 5/1/28 A S P 107,000 C
8303179 6/1/28 A S P 105,000 C
8303198 6/1/13 A S P 255,000 C
8303199 6/1/13 A S P 135,000 C
8303244 6/1/28 A S P 300,000 C
8410461 7/1/28 A S P 361,000 C
8410469 7/1/28 A S P 195,000 C
8410471 7/1/28 A S P 90,000 C
8410474 7/1/28 A S P 100,000 C
8410479 7/1/28 A S P 315,000 C
8410481 7/1/13 A S P 125,000 C
8410486 7/1/28 A S P 122,000 C
8410489 7/1/28 A S P 138,000 C
- - ----------------------------------------------------------------------
</TABLE>
Page 1 98-2A
<PAGE>
Exhibit B
Loan Schedule - 1998-2F (FIXED)
<TABLE>
<CAPTION>
Loan Lien Cut-Off Current
Number Property Address City ST Zip Pos Balance Rate
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
106253 13901 HOLT AVE SANTA ANA CA 92705 1 72,034.00 8.990
106255 22021 MALIBU LN HUNTINGTON BEACH CA 92646 1 49,700.00 8.990
203343 1185 MARLINE AVENUE EL CAJON CA 92021 1 75,411.10 10.950
204486 1720 WALTON STREET OCEANSIDE CA 92054 1 68,240.00 8.990
303954 19418 LEAL CIRCLE CERRITOS CA 90703 1 98,355.95 11.500
304045 2851 DELAWARE AVE SANTA MONICA CA 90404 1 191,225.69 9.625
304098 2720 EAST BROADWAY LONG BEACH CA 90803 1 79,064.70 9.625
304527 6013 GREENTOP STREET LAKEWOOD CA 90713 1 48,191.00 13.400
304533 1443 WEST 85TH STREET LOS ANGELES CA 90047 1 41,261.00 9.900
304539 1606 WEST 137TH STREET COMPTON CA 90222 1 37,091.00 9.890
304542 2006 WEST 79TH STREET LOS ANGELES CA 90047 1 60,931.00 8.990
304547 7040 6TH AVENUE LOS ANGELES CA 90043 1 36,559.00 9.490
404928 417-419 CLAYTON STREET SAN FRANCISCO CA 94117 1 158,809.41 9.950
405336 688 CENTRAL AVE PITTSBURG CA 94565 1 81,190.23 9.625
405439 1994 DEPOT ROAD HAYWARD CA 94545 1 66,417.16 9.950
405801 7521 HALLIDAY AVENUE OAKLAND CA 94605 1 44,186.00 9.400
405805 9966 LAWLOR STREET OAKLAND CA 94605 1 117,558.00 9.990
504517 1427 VENICE ST SIMI VALLEY CA 93065 1 63,476.94 9.625
505484 3708 MILITARY AVE LOS ANGELES CA 90034 1 68,937.49 8.750
505672 19519 BASSETT ST Reseda area CA 91335 1 63,200.00 9.400
505677 335 MARIPOSA DRIVE VENTURA CA 93001 3 34,924.00 14.950
505694 8618 STANSBURY AVENUE (PANORAMA CITY AREA) CA 91402 1 30,645.00 9.950
505699 1117 CAVALIER AVENUE SIMI VALLEY CA 93065 1 90,737.00 10.490
706953 679 FRASER AVENUE Los Angeles area CA 90022 1 79,899.28 9.990
707362 217 W BYGROVE ST; COVINA CA 91722 1 70,077.00 10.650
707373 4023 KENNETH STREET RIVERSIDE CA 92509 1 52,457.00 8.400
806667 3347 PLACERCREEK CT SAN JOSE CA 95121 1 100,787.00 9.400
806698 1885 KINROSS WAY SAN JOSE CA 95122 1 82,370.00 9.490
806699 495 ROSWELL DRIVE MILPITAS CA 95035 1 118,820.00 8.990
1301193 2418 LAVISTA ROAD NE ATLANTA GA 30329 1 50,676.97 9.200
1301642 2837 DAVIDSON DR LITHONIA GA 30058 1 86,800.00 10.900
1301658 2931 CHESHIRE DR. MARIETTA GA 30062 1 99,877.00 10.500
1301659 375 OAKLAND AVE. S.E. ATLANTA GA 30312 1 30,334.00 10.650
1301661 3984 ARDEN WAY N.E. ATLANTA GA 30342 1 171,769.00 8.990
1602095 5942 S. 125TH ST SEATTLE WA 98178 1 94,919.79 10.750
1602881 713 S MULLEN ST TACOMA WA 98405 1 51,481.00 8.990
1702670 8783 EVERETT COURT ARVADA CO 80005 1 84,795.84 9.500
1703083 916 ADAMS STREET DENVER CO 80206 1 77,039.00 8.990
1703084 3029 WEST LAYTON AVENUE ENGLEWOOD CO 80110 1 23,993.00 9.400
1802881 18901 S. 113TH AVENUE MOKENA IL 60448 1 75,618.86 9.750
1803063 9124 S. BELL AVENUE CHICAGO IL 60620 1 84,192.07 9.250
1803109 7418 S. JEFFERY BOULEVARD CHICAGO IL 60649 1 63,495.77 10.250
1803331 1642 W. 93RD STREET CHICAGO IL 60620 1 60,546.29 8.950
1803692 1541 S. TRUMBULL AVENUE CHICAGO IL 60623 1 29,633.00 9.900
1803711 1413 S. KOSTNER AVENUE CHICAGO IL 60623 1 75,081.99 8.990
1803717 10 TIMERLAKE TRAIL WEST OSWEGO IL 60543 1 87,221.99 8.990
1803735 338 MICHIGAN AVENUE AURORA IL 60506 1 52,651.00 10.490
1901801 7810 NW 175 STREET HIALEAH FL 33015 1 79,890.20 9.490
1901822 9420 JAMAICA DR MIAMI FL 33189 1 29,529.01 10.000
1901963 6266 SW 42ND ST MIAMI FL 33155 1 81,630.93 9.990
1901977 3621 SW 126 AVENUE MIAMI FL 33175 1 78,303.12 9.625
1902142 18035 NW 84TH AVENUE HIALEAH FL 33015 1 79,990.00 9.400
2101504 18346 SE TIBBETTS CT GRESHAM OR 97030 1 80,112.70 9.950
2101613 2001 LIBRA ST NEWBERG OR 97132 1 69,326.88 9.490
2101633 5342 SW 65TH AVE PORTLAND OR 97221 1 117,348.86 9.625
2101657 17650 SE HAIG DR PORTLAND OR 97236 1 101,582.40 9.650
2101807 11303 SE POWELL CT PORTLAND OR 97266 1 90,302.47 8.990
2102036 6440 NE 8TH AVE PORTLAND OR 97211 1 76,038.00 10.150
2102038 4353 NE JARRETT ST PORTLAND OR 97218 1 27,081.00 9.900
2102043 6435 NE BROADWAY ST PORTLAND OR 97213 1 52,323.00 9.400
2102045 4541 NE 26TH AVE PORTLAND OR 97211 1 40,841.00 11.900
2102047 10258 SE MITCHELL ST PORTLAND OR 97266 1 52,926.00 10.490
2201663 422 N SEMINARY AVE WOODSTOCK IL 60098 1 54,817.78 8.490
2201909 2940 N. SEELEY AVE. CHICAGO IL 60618 1 75,316.00 9.400
2401384 11371 NW 23RD STREET PEMBROKE PINES FL 33026 1 87,655.09 9.250
2401535 6701 OAKMONT DR NORTH LAUDERDALE FL 33068 1 75,738.86 9.450
2500156 1910 STINE ROAD PENINSULA OH 44264 1 97,501.79 9.500
2500177 4437 SILSBY ROAD UNIVERSITY HEIGHTS OH 44118 1 76,974.15 9.500
2500385 423 SOUTH ROSE BLVD. AKRON OH 44320 1 184,824.00 8.990
2600091 2939 N. 47TH. ST. PHOENIX AZ 85018 1 74,004.71 10.250
2600155 13022 N. 48TH. PL. SCOTTSDALE AZ 85254 1 75,724.65 9.625
2600266 2044 N. 71ST. ST. SCOTTSDALE AZ 85257 1 79,929.30 9.000
2700227 991 S 700 E SALT LAKE CITY UT 84105 1 52,642.84 10.250
2700281 557 S. 1100 W. WOODS CROSS UT 84087 1 57,091.40 9.250
2700589 5110 SOUTH 4420 WEST SALT LAKE CITY UT 84118 1 67,367.00 9.990
2900592 1434 CENTER ST LEVITTOWN PA 19057 1 40,622.28 9.500
2900855 329 MANOR RD. HATBORO PA 19040 1 80,537.00 8.990
2900861 155 CRABTREE DRIVE LEVITTOWN PA 19055 1 68,590.00 8.900
3100894 102 LAKE SHORE DR HEWITT NJ 07421 1 81,890.00 9.400
3100897 256 EPPS RD ENGLEWOOD NJ 07631 1 28,868.00 11.900
3100898 90 LANGDON AVE WHARTON NJ 07885 1 87,826.00 10.400
<CAPTION>
Loan Current Mat Pmt Prop Occup Appraised Orig
Number Pmt Date Type Type Type Value Type
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
106253 579.08 8/1/28 A S P 315,000 F
106255 399.54 8/1/28 A S P 258,000 F
203343 732.79 2/1/24 A S I 112,000 F
204486 548.58 8/1/28 A S P 105,000 F
303954 981.27 9/1/26 A S P 210,000 F
304045 1,640.55 12/1/26 A S P 250,000 F
304098 677.56 2/1/27 A S P 155,000 F
304527 548.20 7/1/28 A S P 150,000 F
304533 359.05 8/1/28 A S P 77,000 F
304539 396.09 8/1/13 A S P 127,000 F
304542 489.83 8/1/28 A S P 124,000 F
304547 307.14 8/1/28 A S P 115,000 F
404928 1,405.18 5/1/26 A F P 320,000 F
405336 694.65 5/1/27 A S P 109,000 F
405439 583.11 9/1/27 A S I 161,000 F
405801 368.32 8/1/28 A S I 82,000 F
405805 1,030.79 8/1/28 A S P 163,000 F
504517 557.51 12/1/23 A S P 165,000 F
505484 545.92 7/1/27 A F P 261,000 F
505672 526.81 7/1/28 A S P 120,000 F
505677 440.20 7/1/28 A S I 360,000 F
505694 267.80 8/1/28 A S P 130,000 F
505699 829.33 8/1/28 A S P 162,000 F
706953 706.64 12/1/26 A S P 130,000 F
707362 648.89 8/1/28 A S P 150,000 F
707373 399.64 8/1/28 A S P 90,000 F
806667 840.13 7/1/28 A C P 126,000 F
806698 692.01 8/1/28 A S P 191,000 F
806699 955.20 8/1/28 A S P 235,000 F
1301193 418.05 5/1/27 A S P 134,000 F
1301642 820.06 6/1/28 A S P 103,000 F
1301658 913.61 8/1/28 A S P 153,000 F
1301659 338.14 8/1/13 A S P 74,000 F
1301661 1,380.86 8/1/28 A S P 230,000 F
1602095 892.59 12/1/26 A S P 131,000 F
1602881 413.86 8/1/28 A S P 97,000 F
1702670 720.24 11/1/26 A S P 123,000 F
1703083 619.32 8/1/28 A S P 118,000 F
1703084 200.00 7/1/28 A S P 125,000 F
1802881 655.71 12/1/26 A S P 136,000 F
1803063 697.95 4/1/27 A S P 145,000 F
1803109 572.27 5/1/27 A F P 150,000 F
1803331 487.83 11/1/27 A S P 84,000 F
1803692 389.96 7/1/08 A S P 68,500 F
1803711 603.59 7/1/28 A F P 122,000 F
1803717 884.14 8/1/13 A S P 200,000 F
1803735 481.23 8/1/28 A S P 93,000 F
1901801 677.61 12/1/26 A S P 139,000 F
1901822 291.95 1/1/17 A S P 101,000 F
1901963 719.08 8/1/27 A S P 129,000 F
1901977 668.54 9/1/27 A S P 131,000 F
1902142 666.77 8/1/28 A S P 128,000 F
2101504 706.93 10/1/26 A S P 119,000 F
2101613 587.35 2/1/27 A S P 116,000 F
2101633 1,005.10 3/1/27 A S P 174,000 F
2101657 871.91 4/1/27 A S P 133,000 F
2101807 729.22 10/1/27 A S P 121,000 F
2102036 675.73 8/1/28 A S P 117,000 F
2102038 235.66 8/1/28 A S P 75,000 F
2102043 436.15 8/1/28 A S P 130,000 F
2102045 487.54 8/1/13 A S P 84,000 F
2102047 483.74 8/1/28 A S P 104,000 F
2201663 557.52 11/1/12 A S P 92,000 F
2201909 627.81 7/1/28 A S P 174,000 F
2401384 952.27 12/1/11 A S P 134,000 F
2401535 636.03 12/1/27 A S P 95,000 F
2500156 826.60 4/1/27 A S P 180,000 F
2500177 652.18 6/1/27 A S P 113,000 F
2500385 1,485.81 8/1/28 A S P 280,000 F
2600091 671.83 3/1/26 A S P 102,000 F
2600155 651.88 6/1/26 A S P 120,000 F
2600266 649.94 12/1/26 A S P 108,000 F
2700227 474.68 4/1/27 A S P 107,000 F
2700281 473.02 6/1/27 A S P 97,000 F
2700589 590.70 8/1/28 A S P 96,000 F
2900592 343.14 9/1/27 A S P 121,000 F
2900855 816.38 8/1/13 A S P 130,000 F
2900861 546.96 8/1/28 A S P 98,000 F
3100894 682.61 8/1/28 A S P 120,000 F
3100897 344.61 8/1/13 A S P 115,000 F
3100898 796.82 8/1/28 A S P 127,000 F
</TABLE>
Page 1 98-2F
<PAGE>
Exhibit B
Loan Schedule - 1998-2F (FIXED)
<TABLE>
<CAPTION>
Loan Lien Cut-Off Current
Number Property Address City ST Zip Pos Balance Rate
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3100899 46 COLLEGE RD NETCONG NJ 07857 1 77,572.00 10.150
3100900 6046 PARK AVE WEST NEW YORK NJ 07093 1 26,066.00 9.400
3100908 16 BOYD AVE JERSEY CITY NJ 07304 1 20,468.00 11.900
3100909 43 W. CENTRAL AVE MAYWOOD NJ 07607 1 105,690.00 9.900
3200055 1602 BRENTWOOD ROAD BAYSHORE NY 11706 1 42,157.33 12.250
3200151 4 CHRISTOPHER CT DEER PARK NY 11729 1 64,755.25 9.250
3200280 360 W 18 ST DEER PARK NY 11729 1 70,021.69 10.750
3200376 24 LINDEN COURT HICKSVILLE NY 11801 1 104,726.37 9.750
3200567 53 ALLERS BLVD ROOSEVELT NY 11575 1 77,079.84 9.500
3200706 401 BEECHMONT AVENUE LINDENHURST NY 11757 1 95,999.27 9.500
3200708 28 BONAIRE DRIVE DIX HILLS NY 11746 1 125,794.26 8.490
3201065 1078 WOODFIELD RD ROCKVILLE CENTRE NY 11570 1 83,890.00 9.400
3201079 240 FIELDMERE STREET ELMONT NY 11003 1 125,983.00 10.400
3201094 516 BARBARA LN W. HEMPSTEAD NY 11552 1 61,691.00 9.900
3201106 50 SECOND PLACE CENTRAL ISLIP NY 11722 1 66,898.00 9.400
3201113 38 CRESCENT STREET HICKSVILLE NY 11801 1 42,542.00 9.400
3201117 558 RUTLAND ST WESTBURY NY 11590 1 79,643.00 9.400
3201124 3669 MARTHA BLVD BETHPAGE NY 11714 1 128,677.00 8.990
3300053 1835 69TH STREET BROOKLYN NY 11204 1 24,499.65 9.490
3300102 2035 NEW YORK AVENUE BROOKLYN NY 11210 1 58,120.00 9.990
3300471 4538 BEACH 45 STREET BROOKLYN NY 11224 1 34,784.88 8.490
3300695 60 HINCKLEY PLACE BROOKLYN NY 11218 1 73,324.00 12.400
3300699 50-31 46TH STREET WOODSIDE NY 11377 1 72,101.00 9.400
3300701 72-03 160TH STREET FLUSHING NY 11365 1 83,510.00 10.900
3300706 199-10 116 AVE. ST ALBANS NY 11412 1 24,959.00 9.900
3300707 101-19 159TH AVENUE HOWARD BEACH NY 11414 1 165,088.00 9.490
3400329 1215-17 CLINTON PLACE PLAINFIELD NJ 07063 1 33,471.11 9.250
3400577 218 JOHNSTON AVE PLAINFIELD NJ 07062 1 34,494.00 9.400
3400582 223 ADAMS STREET RAHWAY NJ 07065 1 70,276.00 9.400
3400584 19 CALUMET ROAD RANDOLPH NJ 07869 1 99,470.00 8.990
3400595 64 CLARK STREET ISELIN (WOODBRIDGE TWP) NJ 08830 1 103,378.00 9.900
3400597 650-52 E 7TH ST PLAINFIELD NJ 07060 1 47,111.00 9.400
3400599 42 NORTH 9TH AVE MANVILLE NJ 08835 1 43,639.00 9.900
3400600 354 OLD YORK RD FLEMINGTON(RARITAN TWP) NJ 08822 1 95,966.00 10.650
3400602 21 FIELD HEDGE DRIVE SOMERVILLE(HILLSBOROUGH TWP) NJ 08876 1 129,591.00 9.990
3500042 11 BRONISLAW ST. WOBURN MA 01801 1 70,771.68 8.950
3500052 122 SALEM ST. REVERE MA 02151 1 70,137.10 9.500
3500211 131 HIGH STREET BILLERICA MA 01862 1 45,126.11 8.000
3500363 5-7 MAIN STREET MALDEN MA 02148 1 71,752.00 9.400
3500370 104 SANBORN LANE READING MA 01867 1 190,032.00 9.900
3500399 14 WISCONSIN ROAD TEWKSBURY MA 01876 1 101,840.00 9.400
3500404 157 COLERIDGE ST. EAST BOSTON MA 02128 1 99,990.00 9.990
3500406 147 MARY STREET ARLINGTON MA 02174 1 202,971.00 9.400
3500407 10 SACHEM ST. BILLERICA MA 01821 1 69,538.00 8.990
3500412 180 MYSTIC VALLEY PKWY WINCHESTER MA 01890 1 182,162.00 9.990
3600285 5804 BLACK HAWK DRIVE OXON HILL MD 20745 1 64,787.00 9.650
3700075 424 WELLINGTON CT. MASON OH 45040 1 30,500.00 9.500
3700093 801 HARGROVE WAY CINCINNATI OH 45240 1 44,990.00 9.400
3800130 610 COTTAGE ST SW VIENNA VA 22180 1 100,721.36 9.250
3800277 7320 CARVER RD GAINESVILLE VA 20155 1 70,702.00 9.400
3800279 720 KENYON ST NW WASHINGTON DC 20010 1 35,972.00 9.400
3800280 1459 ST ST NW WASHINGTON DC 20009 1 20,000.00 9.900
3900263 941 STONE RD WESTMINSTER MD 21158 1 68,725.00 9.900
3900266 226 N GORSUCH RD WESTMINSTER MD 21157 1 48,807.00 9.490
4600028 23 OCEAN RD OCEAN CITY NJ 08226 1 21,574.00 10.650
4600042 270 BROOKSIDE AVE TRENTON (EWING TWP) NJ 08638 1 43,801.00 9.400
4800002 128 WHITTIER AVE NORTH BABYLON NY 11703 1 124,300.00 8.990
4800014 81 VERMONT AVENUE NO. BABYLON NY 11704 1 59,967.00 9.490
11001330 801 SAN TIMOTEO CANYON REDLANDS CA 92373 1 147,133.60 8.990
15000631 8100 HAGUE WAY ELVERTA CA 95626 1 63,781.61 8.950
8300104 7926 CYD DRIVE DENVER CO 80221 1 77,120.41 9.950
8300192 524 DATE STREET DRAIN OR 97435 1 44,248.99 9.250
8300795 6917 VANSCOY AVENUE NORTH HOLLYWOOD (AREA) CA 91605 1 95,016.33 9.400
8301335 4173 W. 217TH STREET FAIRVIEW PARK OH 44126 1 72,825.14 9.490
8301567 5514 18TH AVENUE SOUTH SEATTLE WA 98108 1 65,067.33 10.250
8301779 1283 EAST HIDDEN VALLEY DRIVE SANDY UT 84094 1 103,862.56 8.990
8302350 35874 BURNING TREE DRIVE NEWARK CA 94560 1 174,314.42 9.000
8302435 2262 W. 111TH UNIT B CHICAGO IL 60642 1 61,379.24 9.500
8303246 2989 S E WILLOW DRIVE HILLSBORO OR 97123 1 83,080.00 9.500
8303296 525 20TH AVENUE EAST SEATTLE WA 98112 1 145,500.00 8.750
8410239 2931 WEST 55TH AVENUE DENVER CO 80221 1 58,141.13 9.625
8410246 6185 S. CLARA DRIVE TAYLORSVILLE UT 84118 1 98,830.11 9.750
8900405 18 EUCLID AVENUE DIX HILLS NY 11746 1 79,598.17 9.500
8900561 1631 23RD AVENUE MELROSE PARK IL 60160 1 58,756.47 9.500
8901283 101 GARDEN STREET GARDEN CITY NY 11530 2 60,000.00 8.750
8901284 12 UTICA STREET LEXINGTON MA 02173 1 90,905.24 9.250
8901285 86 ABERDEEN ST. BROOKLYN NY 11207 1 85,284.07 9.500
8901286 15 HIGHVIEW LANE RIDGE NY 11961 2 29,927.55 9.990
8901287 37 WALTER STREET HOLBROOK NY 11741 1 59,830.42 8.250
8901288 2 HARBOR VIEW DRIVE HUNTINGTON BAY NY 11743 1 24,936.86 9.500
8901289 76 ELM STREET FRAMINGHAM MA 01701 1 82,000.00 9.990
<PAGE>
<CAPTION>
Loan Current Mat Pmt Prop Occup Appraised Orig
Number Pmt Date Type Type Type Value Type
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3100899 689.36 8/1/28 A S P 129,000 F
3100900 217.28 8/1/28 A F P 136,000 F
3100908 244.34 8/1/13 A S P 137,500 F
3100909 919.70 8/1/28 A S P 151,000 F
3200055 444.13 12/1/26 A S P 141,000 F
3200151 537.45 2/1/27 A S P 161,000 F
3200280 657.31 4/1/27 A S P 140,000 F
3200376 905.53 5/1/27 A S P 210,000 F
3200567 651.10 9/1/27 A S P 107,000 F
3200706 811.72 11/1/27 A S P 131,000 F
3200708 970.57 11/1/27 A S P 262,000 F
3201065 699.28 7/1/28 A S P 142,000 F
3201079 1,143.01 7/1/28 A S P 168,000 F
3201094 536.83 7/1/28 A S P 137,000 F
3201106 557.64 8/1/28 A S P 97,000 F
3201113 354.62 8/1/28 A S P 177,000 F
3201117 663.88 8/1/28 A S P 163,000 F
3201124 1,034.44 8/1/28 A S P 184,000 F
3300053 344.52 4/1/07 A F P 234,000 F
3300102 512.98 4/1/27 A S P 149,000 F
3300471 346.26 3/1/13 A S P 145,000 F
3300695 776.87 8/1/28 A S P 230,000 F
3300699 748.55 8/1/13 A S P 180,000 F
3300701 788.98 8/1/28 A S P 170,000 F
3300706 217.19 8/1/28 A S P 155,000 F
3300707 1,386.95 8/1/28 A F P 270,000 F
3400329 276.09 2/1/28 A S P 83,000 F
3400577 287.53 7/1/28 A F P 82,000 F
3400582 585.80 8/1/28 A F P 120,000 F
3400584 799.64 8/1/28 A S P 229,000 F
3400595 899.59 8/1/28 A S P 170,000 F
3400597 489.11 8/1/13 A F P 138,000 F
3400599 466.28 8/1/13 A S P 114,000 F
3400600 888.62 8/1/28 A S P 150,000 F
3400602 1,136.30 8/1/28 A S P 200,000 F
3500042 570.16 8/1/27 A S P 132,000 F
3500052 592.77 8/1/27 A F P 138,000 F
3500211 332.63 12/1/27 A S P 145,000 F
3500363 598.10 7/1/28 A F P 165,000 F
3500370 1,653.64 7/1/28 A S P 310,000 F
3500399 848.91 8/1/28 A S P 150,000 F
3500404 876.75 7/1/28 A F P 125,000 F
3500406 1,691.90 8/1/28 A S P 280,000 F
3500407 704.89 8/1/13 A S P 185,000 F
3500412 1,597.26 8/1/28 A S P 330,000 F
3600285 551.87 8/1/28 A S P 120,000 F
3700075 256.46 7/1/28 A C I 67,000 F
3700093 375.02 8/1/28 A S P 75,000 F
3800130 831.25 12/1/27 A S P 182,000 F
3800277 589.35 8/1/28 A S P 120,000 F
3800279 299.85 8/1/28 A S P 78,000 F
3800280 213.70 8/1/13 A S P 166,000 F
3900263 598.04 8/1/28 A S P 127,000 F
3900266 410.04 8/1/28 A S P 136,000 F
4600028 240.49 7/1/13 A S I 260,000 F
4600042 365.11 8/1/28 A S P 81,000 F
4800002 999.25 8/1/28 A S P 168,000 F
4800014 503.80 8/1/28 A S P 129,000 F
11001330 1,224.25 3/1/24 A S P 304,000 F
15000631 528.51 4/1/24 A S P 102,000 F
8300104 684.31 12/1/25 A S P 120,000 C
8300192 370.24 1/1/26 A S P 83,000 C
8300795 800.23 11/1/26 A S P 155,000 C
8301335 616.64 3/1/27 A S P 105,000 C
8301567 586.44 5/1/27 A S P 109,000 C
8301779 848.62 6/1/27 A S P 163,000 C
8302350 1,408.08 11/1/27 A S P 250,000 C
8302435 517.67 12/1/27 A C P 88,000 C
8303246 698.58 6/1/28 A S P 134,000 C
8303296 1,144.65 6/1/28 A S P 210,000 C
8410239 497.44 5/1/27 A S P 92,000 C
8410246 854.55 5/1/27 A S P 133,000 C
8900405 672.38 9/1/27 A S P 222,500 C
8900561 496.59 8/1/27 A S P 115,000 C
8901283 472.02 5/8/13 A S P 400,000 C
8901284 748.63 4/17/28 A F P 345,000 C
8901285 892.81 5/6/13 A F I 160,000 C
8901286 322.20 5/8/13 A S P 120,000 C
8901287 582.08 5/7/13 A S P 132,000 C
8901288 261.06 5/1/13 A S P 460,000 C
8901289 719.00 5/4/28 A S P 225,000 C
</TABLE>
Page 2 98-2F
<PAGE>
Exhibit B
Loan Schedule - 1998-2F (FIXED)
<TABLE>
<CAPTION>
Loan Lien Cut-Off Current
Number Property Address City ST Zip Pos Balance Rate
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8901290 1 PRIMROSE LANE NORTH BABYLON NY 11703 1 35,000.00 10.500
8901291 93-29 HOLLIS BOULEVARD QUEENS VILLAGE NY 11428 1 109,840.21 9.250
8901292 465 ELTON STREET BROOKLYN NY 11208 1 79,966.81 10.300
8901293 9211 212TH STREET QUEENS VILLAGE NY 11428 2 60,000.00 10.250
8901294 44 OLIVER ST BROOKLYN NY 11209 1 29,939.89 11.990
8901295 229 HAMPTON GREEN STATEN ISLAND NY 10312 1 49,969.71 8.500
8901296 10 S. 141 WILEDEN LANE NAPERVILLE IL 60564 2 35,425.43 11.490
8901297 167 CENTRAL AVENUE BROOKLYN NY 11221 1 98,984.99 14.790
8901298 81 HORTON ROAD VALLEY STREAM NY 11581 1 75,000.00 9.990
8901299 967 HYLAN BOULEVARD STATEN ISLAND NY 10305 1 44,949.04 11.150
8901300 84 JOHN STREET INWOOD NY 11096 1 50,000.00 8.250
8901301 126-34 148TH STREET JAMAICA NY 11436 1 59,688.19 8.900
8901302 539 KENT PLACE WEST HEMPSTEAD NY 11552 1 75,808.06 9.500
8901303 3500 NW 1ST COURT FT. LAUDERDALE FL 33311 1 12,967.17 9.500
8901304 960 NW 34TH WAY FT. LAUDERDALE FL 33311 1 37,882.27 9.750
92001243 823 VIA FELIPE CORONA CA 91720 1 71,574.43 9.000
92001539 19125 SYLVAN STREET RESEDA AREA CA 91335 1 56,850.19 9.625
92002556 1212 NUUANU AVENUE #2207 HONOLULU HI 96817 1 235,229.02 9.600
92002941 441 EAST 169TH STREET CARSON CA 90746 1 105,281.41 9.750
92002946 770 SUNSET AVENUE VENICE CA 90291 1 213,365.69 9.625
92003001 9107, 9107 1/2 & 9109 CATTARAUGUS AV LOSUANGELES CA 90034 1 142,228.61 9.625
- - --------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED RATE LOANS: 183 13,961,922.61
<CAPTION>
Loan Current Mat Pmt Prop Occup Appraised Orig
Number Pmt Date Type Type Type Value Type
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8901290 320.16 5/8/28 A S P 140,000 C
8901291 1,007.45 5/6/18 A S P 220,000 C
8901292 719.86 5/4/28 A F P 155,000 C
8901293 588.99 5/12/18 A S P 155,000 C
8901294 359.86 5/1/13 A S P 330,000 C
8901295 384.46 5/1/28 A S P 146,000 C
8901296 414.48 5/5/13 A S P 162,500 C
8901297 1,235.19 5/20/28 A F P 136,000 C
8901298 805.50 5/7/13 A S P 165,000 C
8901299 469.09 5/12/18 A S P 200,000 C
8901300 375.63 5/12/28 A S P 150,000 C
8901301 756.81 5/15/08 A F P 168,000 C
8901302 793.61 5/11/13 A S P 205,000 C
8901303 135.75 4/13/13 A S P 63,000 C
8901304 326.48 4/20/28 A S P 80,000 C
92001243 598.04 11/1/23 A S P 115,000 C
92001539 498.56 2/1/24 A S P 130,000 C
92002556 2,054.18 5/1/24 A C P 375,000 C
92002941 929.87 6/1/24 A S P 150,000 C
92002946 1,865.25 6/1/24 A F P 313,000 C
92003001 1,243.64 6/1/24 A F I 275,000 C
- - --------------------------------------------------------------------------------------
</TABLE>
Page 3 98-2F
